From the centrally planned economy to capitalist globalisation: how economists underestimated the growth of the world market

The expansion of the world market in the 1990s was significantly accelerated by the transition of formerly centrally planned economies of the USSR, Central and Eastern Europe (CEE), China and Vietnam into capitalist ones. Prior to the introduction of the market in the Commonwealth of Independent States (CIS) and CEE during the late 1980s and in China and Vietnam from 1978, there was no genuine market production in them, by definition. This transition transformed these economies from top to bottom and subordinated them to market prices. In the CIS and CEE the transition to capitalism was profoundly destructive with huge output falls exceeding even the destruction wrought following the Nazi invasion of the Soviet Union in 1941. The collapse of centrally planned production was measured as a very large fall in national income by all of the official statistical agencies. In China and Vietnam the transition saw a general increase in output, as a consequence of the growth of the export oriented Special Economic Zones (SEZs) and expansion of agricultural production and the service sector. In neither case did official statisticians measure the distinctive growth of market production separate from the decline of centrally planned production. Rather official estimates of national income treated the central planned economy as if it were a market one. It was asserted that a non-capitalist economy could produce market value, including rents, profits and interest even without the exchange of commodities or landlords, capitalists and bankers. National income was assumed even in a centrally planned economy in which it did not actually exist. This thesis traces the early efforts of Soviet statisticians to develop measures of the economy through the application of Marx’s Capital. It shows how these efforts were transferred to the USA principally by the work of two Russian emigre economists Simon Kuznets and Wassily Leontief who established the US System of National Accounts (SNA) there. Under the direction of Abram Bergson, their work was then developed by the US Air Force Project Research and Development (Project RAND), who measured the centrally planned economy of the USSR as if it were a capitalist economy and then extended to include the CEE, China and Vietnam after the transition of their economies to planning. The transition of these centrally planned economies to market ones means that, if national income is a measure of economic production within the market boundary, the growth of production within the market boundary must be an expansion of national income. The use of these imputed measurements for non-existent national income in the centrally planned economies, explains why in the CEE and CIS when real market production and real national income were created during the transition to capitalism, an increase in national income was measured as a reduction of it. The expansion of market production became a contraction. The decline in centrally planned production and the imputed national income that measured it was misrepresented as a collapse of real national income rather than the creation of a real national income out of the central plan. It explains how these statisticians underestimated the already strong growth of capitalist production in China and Vietnam. Through a disaggregation of various key physical indicators; steel, electricity, aluminium, hydraulic cement, and automobiles and official national income estimates, alternative measures of the growth of real national income during the transition period are developed, through the separation of centrally planned output from market output. This disaggregation demonstrates that the expansion of the market into the former centrally planned economies was indeed a growth of market production and was capable of being measured by national income. Finally this thesis considers the implications of these new higher estimates of national income during the transition on the three areas of debate; firstly, the dispute within the neo-classical theorists around the applicability or otherwise of national income measures to a non-market economy, secondly, on the Marxist theory of State Capitalism and thirdly and finally on the various contemporary theories of globalisation predicated on a notion of the stagnation of capitalism. It presents an alternative conception based on Ernest Mandel’s idea of long waves.