high rates. The communist state did not have an effective
tax system, so instead Stalin “collectivized” agriculture. This
process entailed the abolition of private property rights to
land and the herding of all people in the countryside into
giant collective farms run by the Communist Party. This
made it much easier for Stalin to grab agricultural output
and use it to feed all the people who were building and
manning the new factories. The consequences of this for
the rural folk were calamitous. The collective farms
completely lacked incentives for people to work hard, so
production fell sharply. So much of what was produced was
extracted that there was not enough to eat. People began
to starve to death. In the end, probably six million people
died of famine, while hundreds of thousands of others were
murdered or banished to Siberia during the forcible
collectivization.
Neither the newly created industry nor the collectivized
farms were economically efficient in the sense that they
made the best use of what resources the Soviet Union
possessed. It sounds like a recipe for economic disaster
and stagnation, if not outright collapse. But the Soviet Union
grew rapidly. The reason for this is not difficult to
understand. Allowing people to make their own decisions
via markets is the best way for a society to efficiently use its
resources. When the state or a narrow elite controls all
these resources instead, neither the right incentives will be
created nor will there be an efficient allocation of the skills
and talents of people. But in some instances the
productivity of labor and capital may be so much higher in
one sector or activity, such as heavy industry in the Soviet
Union, that even a top-down process under extractive
institutions that allocates resources toward that sector can
generate growth. As we saw in chapter 3, extractive
institutions in Caribbean islands such as Barbados, Cuba,
Haiti, and Jamaica could generate relatively high levels of
i nc o me s because they allocated resources to the
production of sugar, a commodity coveted worldwide. The
production of sugar based on gangs of slaves was certainly
not “efficient,” and there was no technological change or
creative destruction in these societies, but this did not
prevent them from achieving some amount of growth under
extractive institutions. The situation was similar in the