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'Giantism' As an Unbalanced Growth Strategy:
An Econometric Investigation of the Soviet Experience, 1928-40

by Barbara G. Katz

Paper (PDF Format)

Off-campus link for NYU students/faculty/staff

Abstract

The practice of indiscriminately opting for large-scale production units during the period of rapid industrialization in the Soviet Union is legend. What is generally unknown, however, is the extent to which this "giantism," as distinct from only its excesses, appears to be associated with lowered levels of industrial production. By altering the size distribution of enterprises to favor extremely large-scale units, "giantism" made visible some nascent problems traditionally associated with large plant size and generally thought to lead to decreasing returns to scale; for example, problems of managerial quality, span of control and input procurement. Moreover, at an economy-wide level, the altered size distribution of enterprises caused massive coordination problems including overstraining of the transportation network and underestimation of the gestation periods for new plants; together these produced important diseconomies of scale. Yet many observers of the Soviet scene have long suspected that just the opposite would be the case; namely, that an economy utilizing central planning, particularly at a time when it is heavily engaged in borrowing new technology, would be able to "internalize external diseconomies" and, even stronger than that, would be able to take advantage of increasing returns to scale. Indeed, it is sometimes assumed that the rapid growth rate of more than 8 percent per annum in Soviet industry in the period 1928-40 is the result of the exploitation of economies of scale.