The visible hand in economics

Rational repression

Posted on: January 11, 2008

Perhaps it is apropos to start the new year’s blogging with a look back at history. A working paper reported at Vox examines Stalin’s gulags from an economic, rather than political, viewpoint. In Western capitalist economies it is the threat of losing one’s job that motivates effort in employment. If you shirk and are caught then you get fired. However, in a centrally planned economy there is no possibility of getting fired: everyone has a role to play and nobody is left out. How then is a dictator who’s done the hard yards planning out the lives of an entire country for five years to motivate his workforce? Miller and Smith suggest that Stalin used the gulags as a device to enforce discipline among workers. By adjusting the risk to a worker of being sent to a gulag and calibrating the harshness of the forced labour he could provide his labour force with a strong incentive to maintain acceptable effort levels. He was also able to use the monopsony power inherent in a centrally planned economy to pay a wage below the marginal product of labour, while still maintaining a hard working population.

However, the authors speculate that the productivity of the low-skilled workforce was not as high as that of the better trained Western labour. Moreover, investment in capital accumulation was so inefficient that the Soviet economy’s productivity continued to lag behind that of Western nations despite Stalin’s uncompromising regime. It also seems from the data that, as Stalin became more paranoid, he increased the number of workers sent to the gulags far beyond what was ‘necessary’ to motivate his labour force. So, while the existence of the gulags could be described as rational, Stalin’s oppressive regime was still not enough to provide the impetus for economic world domination, as history has amply demonstrated.

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