Collective Losses

Are people just selfish?

Soviet propaganda poster from the 1930s. Source: Eurasianet

That’s the question I asked when looking back at the some of the big collectivization movements in the 20th century. After the Communist Revolution in Russia, the central government set food prices too low. Peasants in the countryside chose to consume their produce rather than sell it, and there were food shortages in the cities.

The government’s response was to collectivize the farms – giving farmers a small share of a larger, communal collective. The central planners needed to create surpluses in order to feed a growing industrial work force, as people moved from the countryside to the cities. The larger collectives, it was thought, could become more productive by using modern equipment. The means of production would be removed from individual control.

The result was disastrous. Peasants viewed collectivization as the reinstitution of serfdom, but with party bosses instead of aristocratic landowners. They resisted, both peacefully and violently. As much as 50% of their crops were left unharvested in the fields, and draft animals were killed. After all, many collective farm animals died from overuse and neglect – the tragedy of the commons. If they slaughtered their own oxen, at least the peasants could consume the meat and hide themselves. The number of cows in the Soviet Union fell by 16%. There was massive famine.

The same thing happened in China in the late ‘50s. During the Great Leap Forward from 1955 to 1957, 530 million Chinese peasants were organized into collectives. The result was the worst famine in history – killing over 20 million people.

Source: Chen & Lan

People respond to incentives. When the government undertakes radical changes in a major sector, the players in that sector may act in unforeseen ways. As we consider re-reforming health care and reforming taxes, let’s move gradually. No one ever repealed the law of unintended consequences.

Douglas R. Tengdin, CFA

By |2017-09-29T07:16:35-04:00September 29th, 2017|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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