Economic System

The Soviet Union inherited an underdeveloped economy from czarist Russia. Over the course of nearly 70 years, the USSR developed into one of the world's largest industrial powers.

The Soviet government controlled virtually all aspects of the national economy; it set the levels of wages and prices, controlled the allocation of resources, and decided what would be produced and how and where goods would be distributed. The state owned nearly all of the country's productive resources. The Soviet economy was directed by a government ministry known as Gosplan. This ministry designed plans to achieve broad objectives for economic growth set by the state. These plans, known as Five-year Plans, came to be a model for many other Communist nations.

The Soviet economy underwent significant change under Mikhail Gorbachev's leadership (1985–91). His program of perestroika (restructuring) loosened the state's grip on the economy and allowed greater freedom in decision making for managers of individual enterprises. Also, during 1990–91, the Soviet government approved a variety of measures aimed at gradually eliminating the government's control over much of the national economy.


One of the goals of the revolutionaries who overthrew the czar was to eliminate private property and to nationalize agriculture. Nationalization of agriculture occurred during 1928–37 under Joseph Stalin. Stalin's forced collectivization of agriculture—a program in which the state confiscated all farmland, agricultural machinery, livestock, and supplies of grain—was accomplished at great human cost, creating a legacy of hostility by the rural population toward the Soviet government.

The Soviet Union had three types of farm production units—collective farms, state farms, and personal plots.

A collective, or kolkhoz, was farmed as a cooperative. The land was leased from the state. The farm was self-directed, with relatively little supervision by the government Each worker received a share of the income produced by the collective.

A state farm, or sovkhoz , was owned and operated by the government. Workers were paid wages, just as in factories. These farms were much larger and more numerous than collectives.

Small personal plots were allowed. The land was owned by the state, but each farmer had the right to keep profits. Although these plots made up only about 3 per cent of all farmland, they produced more than 25 per cent of all the Soviet Union's agricultural output.

Soviet farms were generally less productive than farms in the West. Also, because of poor distribution, inadequate storage, and inefficient processing of agricultural goods, about a quarter of all agricultural output was wasted each year.

Under the Soviet regime, the amount of farmland was extended through vast irrigation projects in Central Asia and large drainage projects in the northwestern part of the country.


The Soviet Union's large labor supply and abundance of natural resources, especially of fossil fuels and iron ore, laid the foundation for its industrial development. The USSR was the world's leading producer of oil, natural gas, and iron ore, and a major producer of coal, lumber, and gold.

Soviet planners were successful in developing heavy industries such as machine building, metalworking, metallurgy, power generation, and the manufacturing of chemicals. The production of consumer goods such as clothing, shoes, and processed foods was generally neglected. Much of the Soviet Union's industrial research and development was concentrated on military applications.

Soviet industry was plagued by many problems. The government generally disregarded market forces such as supply and demand when establishing production quotas. This disregard often led to either great shortages or large surpluses of many goods. For factory managers, concern for fulfilling the government-set quotas was paramount. There was little concern for quality, and Soviet products were often inferior to similar products made in the West. Because wages and prices were centrally controlled, there was little incentive for workers and managers to increase productivity. Also, industrialization was largely achieved at the expense of the environment, scarring land and creating pollution that harmed many lakes, rivers, and forests.


The Soviet government controlled all of the country's foreign trade. The USSE generally pursued a policy of self-sufficiency, limiting its amount of foreign trade. Traditionally, the bulk of the Soviet Union's trade was with other Communist countries, especially with those of eastern Europe. Frequently, this trade was in the form of barter. Trade among the union republics reflected the fact that they tended to specialize in the production of specific products and thus were highly interdependent.

The Soviet Union provided large amounts of economic aid to other Communist countries and to many of the world's developingnations. Soviet aid was especially important to the Cuban, Mongolian, and Vietnamese economies.