Russia's Challenge to America

I

A COINCIDENCE of world-wide depression and the emergence of the Union of Soviet Socialist Republics on the world market has focused widespread interest on Russia. The Soviet Union has enjoyed a tremendous press, not by any means entirely unfriendly. The thought of American business men has shifted from the question, When will it fail? to the question, Can it succeed, or is it succeeding? Many of them are now interested to know what Russian success means to the rest of the world. The point on which American business interest centres is the Five-Year Plan.

It is not a new idea, even in the United States with our highly prized individualism, that the mass of the population lives as a collectivist society. The qualities of capacity, industry, and thrift that were the entire basis for the rise of our pioneer stock are inadequate to-day. With rough approximation they may still differentiate the fates of John Jones and Tom Smith; but men and women in the mass live and make moderate material progress, not because of what they are, but because of an appropriate organization of social resources.

This has become increasingly true over the last hundred and fifty years. Therefore, in a sense far more fundamental than ever before, we may speak of society’s obligation to furnish a living to these collectivized individuals. This living is limited by resources, technological development, and the capacities of the population. There is no apparent reason why it should be accorded to those unwilling or, for individual reasons, unable to render service, except on a basis similar to existing charitable relief. Society is faced with the necessity of creating an environment within which individual capacity can exploit existing resources and technology efficiently in order to achieve a maximum of material wellbeing. Furthermore, merely a high average of well-being is inadequate. It must be coupled with a sense of security.

Immense progress has been made in technological development in the last century. Henry Adams wrote that the boy of 1850 was closer to the year 1 than to the year 1900. However, relatively little progress has been made in the adaptation of economic society to its changed material and technological environment. Some highly significant developments have occurred; but despite such changes as the growth of the corporate structure and of tradeunions, the development of such diverse legislation as workmen’s compensation, railroad regulation, and judicial interpretations of combinations in restraint of trade, I cannot help feeling that the business man of 1800 would be infinitely more at home in his workaday environment to-day than would the engineer of that time. I know of no better evidence of this fact than that Ricardo and the other classical economists are still regarded as useful manuals, whereas a book written in 1820 on almost any mechanical subject, even with regard to scientific fundamentals, would have only historical interest.

It will be miraculous if this changed material environment does not revolutionize the entire social structure in order to restore the security that formerly lay within the grasp of individuals. There is abundant evidence of the gigantic strains under which the existing structure continues, which become most evident in periods of business depression. In cotton textiles, in agriculture, in coal mining, and in other industries, there is a chronic condition of depression, which indicates an inability to use to the greatest advantage our technological gains.

I think there are at least two obvious explanations of the difference in the rates of social and mechanical development. In the first place, the scientific basis of the latter was easier to establish from the factual base available in the nineteenth century. Perhaps even more important, the urge to make advances that was present in the physical sciences was lacking to improve the social organization. The individual business man could adopt new material discoveries on his own initiative. As an individual, he was often powerless to modify the social environment.

Above all, there was no unified leadership. Technical changes are made by dictatorial methods. Social innovation in countries that advanced rapidly in the nineteenth century depended upon a democratic process. Fundamental social change in the last century was never absolutely essential. The majority of leaders and followers alike recognized partial failures of the economic machine, but assumed that these were the high price necessary to maintain an average of well-being much above that possible in a society of non-interdependent producers.

To-day, for the first time in the history of business enterprise, thoughtful observers looking ahead to the forecastable future visualize the possible disappearance of individual security. The Union of Soviet Socialist Republics has not yet developed an economy that challenges that of any Western European country on the basis of realized accomplishment, but the outlook is for a progressive improvement in communist productive practice. This being the case, there does exist a continuing alternative to our form of economic organization. The question at issue was formerly in the realm of academic speculation: Can some alternative form of organization function? The question to-day is in the realm of practice: Does this alternative form of organization function, or promise to function in the forecastable future, as well as ours? The contrast in the import of the two questions is almost as great as that between a debate in 1870 on the possibilities of flying and one to-day on the relative merits of air force and floating navy. The communist practice of the Union of Soviet Socialist Republics must be considered as a perfectly possible and real alternative to the system in vogue in the Western world, though it by no means follows that it is desirable from the point of view of any substantial part of the population. Its desirability, not its possibility, is the probable point at issue before the world in the next generation. The balance of evidence seems to me to point to the probable increase in the success of the Russian economic life.

Drastic changes have occurred either by revolutionary processes or by more or less rapid evolutionary development. The only thing for which there is no historical precedent is the continuation of a status quo under existing conditions of social tension. The most successful transformations have been effected when the dominant groups in a society have made their own the most immediately practicable parts of the opposition programme. Where they have done this, they have stayed in power. Where they have insisted on maintenance of the status quo, their temporary successes have only increased the violence of the ultimate change.

II

Under these conditions it seems to me that we shall be wise to study the workings of the economic system of Russia with neither particular sympathy nor hostility, — for it is entirely irrelevant whether or not we like what they are doing, — but with the utmost objective comprehension. The purpose of such study should be to find out: first, how the system works; secondly, what institutions and practices give it relative strength and what are sources of weakness; and thirdly, which of these sources of strength can be adapted to the evolutionary development of our society.

The first lesson that we must learn is the necessity of painstaking study — critical study in the highest sense of the word — of Russian economic society. It will be curious indeed if the experimental progress of a nation of 150,000,000 people develops no useful practice for the rest of the world. In the course of my study of particular practices — especially that of economic planning — I was impressed at the close integration of economic planning and of political communism. It by no means follows that a given practice, such as planning, cannot be adapted to the needs of a society preserving private property and a high degree of private initiative. All that I know with certainty from my preliminary study of the Russian economic system is that to unravel the interrelationships of institutions, to discover whether it is the taproot that is bedded in communism or merely fibrous laterals, requires a more intense study than has yet been made by an American economist.

The second point, so obvious to an American as hardly to warrant mention, is the wastefulness of revolutionary change. Materially, the destruction of property, and more especially the dissipation of technical and executive leadership, were a disaster of major proportions, affecting the mass of the population as well as the formerly favored classes. The spiritual losses involved in the suppression of substantial percentages of the population are a heavy charge against the birth of a new soul in the rising mass.

It is inadequate, however, to conclude that revolution is never worth while for the generation in power at its inception. Revolutions may become inevitable, as most authorities agree was the case in Russia at the beginning of the twentieth century, in France at the end of the eighteenth, and perhaps in the American Colonies in 1776. The lesson which England learned in our Revolutionary War has preserved a valuable though very different something, known as the British Commonwealth of Nations. The upheaval in France precipitated a series of more or less peaceful social and political reorganizations in other European countries. It is not too much to say that the most important task of our generation in the Western world may be to assure society against the accumulation of stresses and strains that may make other revolutions of Russian pattern inevitable.

There are three things in Russia which it seems to me would be highly desirable in American society, and not incompatible with a modification, rather than an overthrow, of our existing society. Economic planning is one of the most marked advantages which the Union of Soviet Socialist Republics enjoys. In addition, provision is made, partly through planning, for the security of the wage earner. Finally, the younger industrial wage earners attain a sense of social importance that is invaluable.

Some elements of strength in Russia may be more incompatible with private enterprise. I mention a few of them only to show that the Soviet Union possesses economic advantages other than planning alone, advantages which are well worth studying. Soviet economy creates the largest unified economic enterprise in the world. Aside from the great advantages mere size and resources may give it in the field of foreign trade, a virtual monopoly of imports and exports makes possible a far more thoroughly considered policy than has ever been developed by means of the tariff. The latter must become something much more than political juggling with cross-purposes if it is ever to be as effective as the direct control of trade. The losses incident to social forces rather than managerial inefficiency — for example, changes in world market prices — are borne in Russia by the system rather than by the enterprise. In this respect the Soviet Union sets its enterprises up on a basis analogous to that which we establish for the departments of an individual plant.

The security which the Soviet Union gives to the wage earner calls for no special discussion except as it is due to stability which may grow out of planning. In other respects it is not essentially Russian, since in some ways better and more comprehensive work is being done in Western European countries. The importance of provisions — not on a charitable basis — for health, maternity, care of infants and young children, old age and disablement, and against unemployment, is only partially recognized in this country. Communists capitalize what is being done for the wage earner in Russia and neglect to add that, on the whole, municipal housing is better in Vienna than in Moscow; that sickness insurance is extremely well developed in Germany; that clinics in many American cities, operated without the taint of charity, do better work than is possible to-day in Russia; that public schools in the United States are giving to the children of the workers an education which is still only a dream in Russia. These social provisions for the well-being of the individual are capable of tremendous expansion under a system of private enterprise. Some are desirable; others may not be. The important thing for us to remember is that they receive great stress in the Soviet Union, that the same result is not necessarily economically attainable through individual effort, and that a sense of security, an assured minimum of well-being, is a thing desired by workers quite as much as higher individual incomes.

In Russia the younger industrial workers are experiencing a thrill of being that is tremendously stimulating. I do not wish to give the impression that I disregard existing suppression and oppression in Russia. But the misery of the disfranchised finds at least a partial offset in the zest of many millions of workers. They know what is going on and why. They are well informed, or think they are, on matters of public and industrial policy. They know, furthermore, exactly what is expected of them as individuals. They are conscious of goals. Iam not certain that this particular value can be captured, though I am inclined to believe that in some of the more democratically organized plants and industries of the country it is approximated.

I mention these two features of Russian life primarily to set planning in proper perspective. The treatment of neither has been adequate, but it should suggest that we may have to learn to do other things which Russia attempts besides merely controlling economic life. Since my return from the Union of Soviet Socialist Republics I have frequently heard discussions of planning American production which gave the impression that Russia had nothing more to offer the world. We shall have missed the entire point of the revolution if our thinking ends there. The purpose of the revolution was to make life more worth while for the masses. Planning helps to accomplish it there, and may well help under a system of private enterprise. It is only one means to the end. From our own doctrines of liberty and individual initiative we may make important contributions to this goal. In almost every country of the world there now is a more or less articulate demand from those whose destinies are determined by the social structure that it be moulded primarily to serve them.

III

I have said that in Russia economic planning is merely one device for increasing the well-being of the masses. In that statement is contained the first requirement of an economic plan — a definition of goal, a philosophy. Without a clear definition of objects one goal may be inadequate or militate against reaching another. This decision of objectives is a political one. It may be the result of democratic discussion or the decision of a dictatorial group.

However the decision is reached, this definition of objectives is prerequisite to the work of planning. The guiding principles of Russian planning appear to be three. First of all, there is to be maximum utilization of existing plant and population resources. Secondly, industrial self-sufficiency is to be achieved in the shortest possible period of time. Thirdly, but only after the second objective has been realized, the standard of living of the masses is to be brought to the highest level in the world. Disregarding the superlative nature of the last objective, the reader will see at once that two radically different plans would be devised, depending upon whether self-sufficiency or a maximum of immediate consumable income is the goal. In the first case, the planning body focuses its attention upon imports of capital equipment, upon new construction, upon the development of iron and steel and other industries whose products are machines. In the latter case, expansion takes place first in industries producing goods ready for consumption, in a diversification of agricultural products, and in imports of things to eat and wear. In the latter case, foreign trade is an advantageous, though a relatively unimportant, appendage of national economic life. In the former case, though the percentage of foreign trade as compared with domestic trade is small, the imports are essential to the success of the plan and the economic life of the country is determined by the necessity of producing an export surplus.

The place of the philosophy of the plan is significant in an American discussion of Russian planning because it is so frequently overlooked. I have heard many business leaders in this country discuss planning without any reference at all to objectives, as though there were some one plan that would naturally emerge from a given set of resources. Where they have introduced a concept of purpose, it has seemed to me diametrically opposed to that of Russia. In Russia the underlying motif, irrespective of particular goal, is a full use of man power and equipment within the limits imposed by resources, technical knowledge, trained leadership, and the capacity of the underlying population. In America the basis of a desire for planned development seems to be the limitation of the stream of products to a volume that can be absorbed by existing markets with profit to the producer. It does not follow that an economy of private property with private profits cannot serve the ideal of large income for the masses better than a communistic one. It is this question which is to be decided within the next two generations by the United States on the one hand and Russia on the other. So long as a private economy is to continue, profits will presumably play an important role. But limitation of output is no answer to the challenge that Russia may give. If we plan only for stability and neglect to plan for raising real per capita income, communists and their sympathizers the world over will be vindicated in their present contention that planning can only be introduced in a communist society, for planning only limitation of output would be interpreted as the last stage of an intellectually bankrupt capitalism.

I am quite certain that economic planning in the modern world must visualize the creation of wider and deeper domestic markets. Undeveloped foreign markets are becoming very scarce. The spread of modern technical methods and their quick development necessitate a rapidly rising standard of living. Higher wages and greater leisure are the only effective instruments that I can see to remove and destroy the flood of materials and services that our resources make possible. Limitation of output under these conditions should involve an even distribution of the leisure made possible by a technique that has temporarily outrun the consumptive capacity of the population. Such leisure would in itself broaden the general market. Complete unemployment of a small percentage of the population only narrows the market still further. As a matter of fact, until we have actually attained what we like to regard as an ‘American standard of living,’ — something not now enjoyed by most American workers, — we can hardly regard the market as satiated or the plant capacity as in excess of social needs. The most difficult problem of an American planning body will be to visualize practicable ways and means of placing larger spendable money incomes in the hands of wage earners. Unless that is done, I repeat, the Western world will not be meeting the challenge of Soviet Russia.

I fear that if the sole guiding principle is limitation of output to amounts allowing a profitable market there will be stagnation. I can contrast two types of stability by reference to current devices for plotting business cycles. What is aimed at in planning, among other things, is to iron out the wide swings of activity in basic industry. As we conventionally represent these swings, they are shown as movements about a horizontal line. Under ideal conditions this norm would be approximated. After such an achievement the graph, instead of representing the norm as a horizontal line to facilitate comparison of different swings, would be depicted as a true growth curve. In Russia, planning is concerned not only with fluctuations but with the development of the trend itself. I am not certain that the concept of limitation, applied in the easiest fashion, will not lead to damping the rate of growth that has characterized the United States: will not give us, in other words, an approximation of the heretofore fictitious horizontal norm.

The second point apparent in connection with Soviet planning is the importance of the coöperation of individual managers and even workers. The Five-Year Plan has become part of both the warp and the woof of the thought of individual Russians. A plan cannot be drawn without coöperation. In the Union of Soviet Socialist Republics it is initiated in the individual plants and in its final form is referred back to them for approval. Its successful execution depends entirely upon enthusiastic support and a popular will to succeed. In Russia the plan is at once an acceptable recommendation and a mandate.

In borrowing the concept of a plan, not the least important point to bear in mind is that it must gain strength from its own merits. This is particularly fortunate for America, for, with our constitutional limitations and our habits of thought, planning work in the first instance will be primarily advisory. When, as, and if it enjoys general acceptability, and the limitations of purely advisory recommendations become apparent, the work may be implemented with legal and extralegal sanctions. But the first stage, that of ‘selling’ a plan to the individuals involved, is a process to which the American stage is particularly well adapted.

One may well ask: Why plan? The answer comes out of American practice. We do plan. Probably in no country in the world, with the possible exception of Germany, and certainly at no other time, has planning been as extensively developed for the control of individual enterprises. It is by no means universal; but there are outstanding examples of both short-run and long-run planning in such diverse fields as telephone communication and paper-goods novelties. Control standards of performance are certainly the basis of the efficient management of individual departments. Our economic system is anything but planless.

The thing that bedevils planning is the existence of unknown, unpredictable, or uncontrollable factors. This is quite as true in Russia as elsewhere. I find it almost impossible to visualize the additional strain to which the Union of Soviet Socialist Republics was subjected by the depression of the world markets in which she had to sell raw materials to pay for imports that were an integral part of her planned development. Coal production in the Donetz Basin last summer fell substantially short of the quota because proper consideration had not been given to the industrial worker’s habit of returning to his village at harvest. From even so brief a visit as I made, I can cite other instances of the limitation of planning by factors external to the plan.

If this is true in Russia, it is even more disastrously true in the United States. Here virtually the entire economic mechanism except the single enterprise lies outside the field of the plan. There is comparatively little planning involved in the intervention of the motor truck in the field of transportation. Whether it is economically sound or not is a debatable point. But if it is sound, it should certainly be a rationally controlled development. In many instances the untoward development breaks without the sort of warning which motor transport is giving and renders useless recently accumulated capital and experience.

The outstanding example that shocks us all is the senseless rush of capital to avail itself of a profit that cannot be more than temporary in view of the amount of capital that is added. In industry after industry we find capital equipment in excess of rational needs. In some cases this is due to the disappearance of a phenomenal demand, as has been the case with the woolen and worsted industry since the war. In other cases there is a speeding up of obsolescence in the development of an industry in a new area, as in the case of cotton textiles. But the automobile industry with plant capacity in excess of any rationally predictable demand, stimulated perhaps by the short-lived disappearance of Ford production, stands as a horrid example of avoidable waste. Even the automobile industry would have been better off had this capital been invested in new forms, or, if none appeared profitable, been distributed in the form of spendable income to the owners or workers, or both.

In an economic society so closely interwoven as ours, these starts and stops, excessive output balanced with shut-downs, are disastrous. One can account for a substantial fraction of the present depression — roughly, perhaps one quarter or one third — in terms of the automobile industry’s uncoördinated gyrations. The deficit in dealer stocks, particularly in foreign markets, and the deferred demand that accumulated under Ford’s withdrawal from production led to plant expansion by other producers and a level of activity in the first quarter of 1929 that was so out of line with continuing possibilities that I do not know of a statistical service in the country that missed calling the turn. Our experience with such forecasters this last year would indicate that the course of events for automobiles must have been fairly obvious.

Unfortunately, automobile assembly lines cannot be crowded without gearing iron and steel, machine tools, rubber, glass, copper, and even textiles to an unusual pitch. A recession in the one is followed by a recession in the others. Still more unfortunately, the steel manufacturer is helpless. He may know that the level of activity cannot last. He may save himself and his stockholders from serious loss by planning correctly for a drop in volumes in the next half year. But, with all the foresight of the Ghost of Christmas Yet to Come, he could not regularize his production. He can only strengthen his defenses and wait for the zero hour. Irregularity, occasionally utilized over-capacity in automobiles,— and I use this example only as typical of a number of others, — require in greater or less degree excess capacity in dozens of other industries.

Planning for an entire industry is beset with difficulties. Planning for the national economic life is a herculean task. It is by no means impossible, as Russia is demonstrating. For one thing, the task is simplified by a process of elimination. When we think of our economic life, we think of the thousands upon thousands of commodities in their multiform sizes and qualities. The work of the Bureau of Simplified Practice in the Department of Commerce has shown, however, that much of this multiplicity is superficial. In industry after industry with hundreds or thousands of inventory items, it has been shown that volumes concentrate upon a handful. By no stretch of the imagination would an economic plan for the United States ever concern itself with the question of the sizes of common brick required, though the item of aggregate commonbrick requirements on a regional basis might well be included. The central planning body relegates all such variations to the industry and concerns itself almost exclusively with the species or the genus, and Russian practice has concerned itself only with the more important species. There are a host of minor commodities which concern the economic life of the country very little. The list of fundamentally important foodstuffs, textiles, furnishings, building materials, power and transport requirements, is not so extensive as to be incomprehensible; a moderately accurate picture of society’s needs can be constructed.

IV

The leaders of business in the United States are charged with a tremendous social responsibility. They have been evolved from a race of forbears whose concern could be quite largely with the balance sheet. No man on earth was concerned with the mistakes of Jeremiah Jones, the general-store manager, except his few creditors, his clerk, his family and friends. To-day a single department store in New York is determining the fate of one of the largest textile mills in Rhode Island, and with it the life of a mill community. The largest of the chain-store systems buys and sells approximately as much in dollar volume as the total import and export trade of the United States with the British Empire and Commonwealth of Nations excepting Canada. The blacksmith or the carriage maker of even fifty years ago was one of many hundreds, dependent upon the local countryside, in whom the countryside had a vital personal interest and almost no lasting economic concern. To-day the two largest automobile manufacturers are together using about half as much steel as was produced in the United States thirty years ago. These business enterprises and their conduct are no longer matters of private concern. The business executive is still charged with the responsibility of maintaining a favorable income statement and balance sheet; but there has been added to this an obligation to society.

Consciously or unconsciously, the leaders of American industry are acting as a State Planning Commission; their plans for the year or the month are the economic plan of the United States. Their decisions determine what and how much are to be produced, what the spendable income of a substantial part of the community shall be, in no small measure what the volume of new savings shall be, and in even larger part what use shall be made of savings. These are precisely the points considered by a planning commission. Their decisions are the preliminary stages of Russian planning, the tentative drafts drawn up by plant managers and trust executives. But in the Union of Soviet Socialist Republics there is a reconciliation of discrepancies by the State Bank and the State Planning Commission. These discrepancies are fundamental factors in business fluctuations.

The question that remains for us to decide is whether even the United States is rich enough to afford the wastes of a process of unconscious coördination working itself out brutally in the market place. Science has advanced. Technique has been developed. Skills undreamed of fifty years ago have been learned. An intricate web of economic interrelationships has been developed that transmits with terrific force disturbances in any segment of the web. The executive’s responsibility has developed until one may well argue that a mistaken decision on his part is a far more serious injury to society than the cold-blooded murder of a few of his more obnoxious relatives. Under these conditions it seems probable that human intelligence is going to be called upon to bend itself to the task of consciously coördinating its efforts. We cannot declare a moratorium on mechanical development; we have created a monster endowed with the power of reproduction. The salvation of our society lies in bringing our institutional environment into harmony with its technological setting.