Industrial Policy and its Failure in the Soviet Bloc

Abstract

Russia, and later the entire Soviet Bloc, belonged to the relative backward peripheries of Europe. Both in the mid nineteenth century and before the First World War, their per capita GDP was only less than half that of Western Europe. Backward countries looked for the ‘secret’ of success in order to ‘catch up’ with the West. The key factor of Western achievements — contrary to the myth that laissez-faire was the cradle of modern transformation — was the central role of a strong entrepreneurial state. The forerunner of the industrial revolution and Western industrialization in the pioneering countries was the centralized, mercantilist absolute state that supported industrial development, defended the domestic market and made incentives for establishing industrial enterprises and exporting. The state also played a central role in infrastructure building, creating dense canal, road and then rail networks. As British economic historians agree, the strong navy and army also had a lion’s share in the success by defending national interests, trade routes to other continents and trade expansions, all partly by building colonial empires. The road to economic success was often paved by military success and the defeat of rivals, as in the case of the Netherlands, Britain, France and Germany. As Findley and O’Rourke phrased it, state power created plenty.¹