The Bear’s Struggle: Economic Competition in the Cold War

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by Andre Novellino Gouvêa

Is the Crimean crisis a resurgence of the Cold War? With the growing divide between NATO and Russia, the situation in Europe is closer to the Cold War scenario than it has been since the 1990s. One important element to comprehending this issue is the economic contrast between the United States and Western Europe, on the one hand, and the post-Soviet states, on the other.

This aspect is relevant for four reasons in particular. First, the economic hardships suffered by the populations of the post-Soviet states play a significant role in the probability of social unrest erupting in them. Second, the economic backwardness of countries in the post-Soviet area makes the prospects of joining the European Union more attractive for them, as it can be seen as a way to receive much-needed financing for modernizing projects in areas such as infrastructure. It also allows people to move away from these countries into economically developed Western Europe, where they can increase their income substantially. Third, the degree of economic development of the Russian Federation is a factor both in its international power and in how attractive it is for Russian-speaking populations in other post-Soviet states to press for alignment with Russia, or even for annexation to it. Finally, low economic growth in the post-Soviet area can enhance sympathies for the region’s communist past, which is understood by some to have been a more prosperous time. In seeking to improve our understanding of this economic divide, this article looks to the region’s economic history, to how the economy of the USSR fared during the Cold War.

At the height of the Cold War, Soviet premier Nikita Khrushchev declared that by 1970 the Soviet economy would surpass the American one. As we know, though, not only did the Soviet Union not overtake the United States, but by the end of the Cold War the gap between them was even wider.

However, during his time in office the gap was indeed shrinking: when Khrushchev rose to power in 1953, the American economy was almost three times the size of the Soviet one, and when he was forced to abandon control of the USSR in 1964 the relative standing of the Soviet economy had been improved. This improvement was rather slight compared to his grand declaration, as the economy of the United States was still almost two-and-a-half times as great. By 1970, although the gap had shrunk, with the American economy being two-and-a-quarter times as large as the Soviet one, the USSR was nowhere near surpassing the United States. Henceforth, the gap began to widen further and further, so that by the end of the Cold War in 1991, the economy of the United States was more than three times larger than the Soviet one.

It is probable that Khrushchev’s declaration was largely influenced by Soviet official statistics, since they show significantly stronger economic growth than the more reliable assessments from modern scholars. According to the official statistics, Soviet GDP grew by 7.7 percent in the 1950-1978 period – an astounding rate. But in reality the growth seems to have been 4.4 percent in that period, which is still a respectable rate of economic growth. Nevertheless it was much less than what the official statistics showed. Even if the Soviet Union had maintained such a growth rate through later periods, all other things remaining equal, its GDP would not have been able to catch up with that of the US in the 20th century. In fact, its performance was even worse after 1978: the Soviet Union grew only 1.2 percent in the 1978- 1990 period, and the distance between the GDP of the two superpowers became even wider.

Why was the Soviet GDP so much smaller than the American one, even though the communist country had the larger population at all times? Why was its GDP per capita low compared to that of the United States?

The ravages of the Russian Revolution and the Great War were certainly a significant factor, as only in 1931 did Soviet GDP per capita recover to the Russian Empire’s 1913 level (total GDP recovered its 1913 level in 1929). The Second World War also reduced the country’s GDP, but in this case its economic recovery was much faster: by 1948 pre-war levels of GDP had already been surpassed – a remarkable feat considering the loss of 20 million people during the war, and GDP per capita surpassed pre-war levels in that same year as well.

The centrally planned economic system was, of course, also an important factor, stunting economic growth due to its inefficiencies and wastefulness. For instance, in 1980 for every $1,000 of the Soviet Union’s GNP that was produced, 1.490kg of coal had to be consumed. Meanwhile, West Germany utilized only 565kg coal to produce each $1.000 of its GNP. Furthermore, while the United States, Western Europe and Japan enjoyed a great spurt of high-level technological development, the Soviet Union found it hard to keep the pace of innovation.

A final factor is that the Russian Empire was already less economically developed than the United States before the 1917 communist revolution happened, and the long-term growth rates of the USSR were not high enough to overcome this situation. In 1913, the Russian Empire had a GDP per capita of $1,488 (in 1990 dollars), around 28 percent of that of the US in the same year ($5,301) and 41 percent of that of Germany ($3,648), being closer to that of Mexico ($1,732). Furthermore, the cultural, social and institutional aspects which contributed to the relative economic backwardness of the Russian Empire could have continued to slow growth during communist times.

For the entirety of the Cold War, Soviet GDP per capita remained considerably lower than that of the United States, making it unlikely that it could overtake the US in total GDP, since although the USSR had a somewhat larger population, it was not considerably larger. And even by 1991, the Soviet GDP per capita did not reach the American GDP per capita level of 1945. As such, despite the remarkable achievements of Russian civilization in the sciences and the arts, economically the Soviet Union found itself fighting a losing battle against the United States.

With this historical perspective in mind, it is easier for us to understand the causes of the economic situation of the modern post-Soviet republics. Their relatively lower levels of economic development, when compared to the United States and Western Europe, are in part due to the barriers to economic growth caused by the inefficiency of the planned economic system. We should also keep in mind that the Russian Empire was already a relatively economically backwards country, and from that time, from the Soviet period until today, Russia has enjoyed a more or less similar relative global economic position. What the Soviet Union failed to deliver was catching up to the advanced capitalist economies. This had serious consequences for its regime, because communism as a path to modernization was one of the major pillars supporting it. The post-Soviet republics haven’t fared much better in that sense, and even the Russian Federation, whose territory had comprised the core of the Soviet Union, is a long way from reaching the United States’ and Western Europe’s level of economic development. Only time will tell: will the bear awaken to its full potential?


For further reading:

Kennedy, Paul. The Rise and Fall of the Great Powers, 1988.

Maddison, Angus. “Measuring the Performance of a Communist Command Economy: An Assessment

of the CIA Estimates for the USSR”, Review of Income and Wealth, 1998.

Sodaro, Michael J. Comparative Politics, 2004.

Statistical dataset: Angus Maddison

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