Reversal of Fortune: The Fertile Ukraine From 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

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

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

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

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 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

Virtual Economy: Each Machine is Really Worth 16 2 / 3 Vodka Manufacturing: 100 Vodka Labor  100 Vodka of Machines Manufacturing 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 Mfg = 0 Personal Income = 100 Wages + Zero Transfer – 100 “Profit” = 0 Loss-making manufacturing ought to shut down  Unemployment  Social discontent

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 Mfg = 200 Personal income = 100 Wages “Profit” = 200 Everybody Keeps Working  Everybody’s Happy Virtual Economy: Each Machine is Really Worth 16 2 / 3 Vodka Manufacturing: 100 Vodka Labor  100 Vodka of Machines Manufacturing Destroys 100 Vodka in Value

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???