Reversal of Fortune: The Fertile Ukraine From Breadbasket to Bloodland

1. Reversal of Fortune: The Fertile UkraineFrom Breadbasket to Bloodland Ukraine: central the Stalin and Hitler visions Stalin: Grain for urban industrialization Hitler: Fertile soil and slave labor for 1000 year Reich 1928: First Five-Year Plan...Accumulate surplus value Collectivize agriculture: War for Grain Crops the property of the Soviet State Liquidate the kulak class Decision by a troika Execution Exile to forced labor: canals, mines, factories Kazakhstan, Urals, Siberia Remain to farm...to starve

2. 1930: Rapid collectivization...ahead of quota • “Second serfdom” • Bountiful harvest  Quota up 1931: Yields down • Bad weather/Best farmers deported • Quotas met with seed grain • Peasant hunger 1932: Widespread starvation Hunger  Low Productivity  Vicious Circle • Grain exports key to the “Plan” • Struggle against theft and hiding of grain • Famine: A Plot Against Stalin • Saboteurs hated socialism so much they let their families die • Failed officials executed and deported

3. Late 1932 – Early 1933: FAMINE • Heightened requisitions • Livestock confiscated • “Black listed” communities that fell short of quotas All food confiscated  Zones of Death • Seed grain seized to meet quota • Borders sealed against peasant flight • Cities closed against peasant begging • Cannibalism/Atomized society: alienation of all against all • More deportations • Weak arrivals starved in camps 1933: Harvest brought in by soldiers,urban workers & students The Toll: 2 ½ million “missing” in Ukraine census 7 million “missing” in Soviet census

4. Acemoglu and Robinson’s Soviet Story Growth under extractive institutions The Easy Part: • Move resources from low productivity agriculture to higher productivity manufacturing The Hard Part: • Spur innovation/Creative Destruction • Failure  Eventual collapse • Modern—innovative defense sector Andrei Sakharov: “Father” of Soviet H-bomb – leading dissident • Perverse quotas and prices • Quota in tons  thick sheet steel/concrete footings on machines • Quota in areas  thin sheet steel

5. Prices in Russia’s Virtual Economy (Gaddy & Ickes) A corn or vodka economy: the setup • Resource sector produces 100 corn (net of payment to own labor) • Corn is the coin of the realm • It could be gold, but you can’t eat gold • Or it could be vodka, distilled corn, say 100 bottles. Vodka = liquid cash • All Value Added paid as tax. Tax obligation = 100 vodka in “cash” or in kind • Manufacturing sector: 100 Vodka + 100 Workers  6 Machines • Wage is 1 Vodka/Worker • Resource provider is paid in kind (machines) • Household sector: 100 Workers • Each worker is paid 1 Vodka, or whatever the manufacturing enterprise can pay • Workers receive all “cash” (vodka) collected by government as transfer • Government: • Collects all Value Added as tax, in “cash” or in kind (machines) • Pays all cash it collects to households as transfer payment

6. Virtual Economy: Each Machine is Really Worth 16 2/3 VodkaManufacturing: 100 Vodka + 100 Labor 100 Vodka of MachinesManufacturing Destroys 100 Vodka in Value If Machines valued at what they’re really worth, 16 2/3 Vodka • Value of machine output = 6 x 16 2/3 Vodka = 100 Vodka • Manufacturing pays Resource Sector 6 Machines for 100 Vodka • Manufacturing workers receive 100 Vodka from their employer • Manufacturing operates at loss and owes no taxes • Resource sector pays 100 Vodka in taxes: 6 Machines = 100 Vodka • Government winds up with 6 Machines and makes no transfers • GDP on value added basis = +100 Resource Sector - 100 Mfg = 0 • Personal Income = 100 Wages + Zero Transfer – 100 “Profit” = 0 Loss-making manufacturing ought to shut down • Unemployment • Social discontent

7. Virtual Economy: Each Machine is Really Worth 16 2/3 VodkaManufacturing: 100 Vodka + 100 Labor 100 Vodka of MachinesManufacturing Destroys 100 Vodka in Value If Fictitious Price: 1 Machine = 50 Vodka • Value of machine output = 6 x 50 = 300 Vodka • Manufacturing pays Resource Sector 2 Machines for 100 Vodka • Manufacturing workers receive 100 Vodka from their employer • Manufacturing Value Added = 300 Output – 100 Labor – 100 Resources Input = 100 Vodka • Manufacturing owes 100 Vodka in taxes • Manufacturing pays government 2 Machines = 100 Vodka • “Profitable” manufacturing keeps 2 Machines and GROWS • Resource Sector owes 100 in taxes = 2 Machines (the 2 it was paid) • Government winds up with 4 machines • GDP on value added basis = 100 Resource Sector + 100 Mfg = 200 • Personal income = 100 Wages + 100 “Profit” = 200 Everybody Keeps Working  Everybody’s Happy

8. The Siberian Curse (Hill & Gaddy) • Planner Error • Forced settlement: The Gulag • Subsidized settlement • Frigid temperature  High costs of production • Energy provided at below-market price • Downsize overblown cities! • Russia has “unnatural” distribution of city sizes • Will global warming help???