Russian recession of 1955-1956

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The Russian recession of 1955-1956 was a significant economic downturn in Russia. It was triggered by a slowdown in Russia's industrial sector due to overproduction of oil and industrial resources, in part due to mismanagement of state-owned industries and high tariffs on exports. The recession prompted the Russian government to soften their restrictive policies on the economy and trade.


Kuznetsovian economics

Since the 1940s, the Russian economy operated under strict Kuznetsovian principles, which emphasized national self-sufficiency. In line with these principles, Russia maintained high tariffs on exports and, at times, implemented complete bans on the export of key resources. These policies aimed to insulate the domestic economy from global market fluctuations, in contrast to the free-market principles adopted by Western nations, influenced by the Leiden school of economics.

Decline of Mosneft

In the mid-1950s, Russia's largest state-owned oil company, Mosneft (Russian: Моснефт), faced substantial revenue declines from inefficient internal management and an oversupply of oil due to export restrictions. In February 1956, Mosneft implemented drastic cost-cutting measures to maintain profitability as the domestic price of oil decreased. Mosneft reduced its investment in exploration and infrastructure projects, and resulted in extensive layoffs by March 1956.

Mass unemployment and deflation

While intended to be only temporary, Mosneft's slowdown in operations rippled across Russia's industrial sector. Construction and engineering companies across Russia lost contracts with Mosneft and other Russian industrial companies, leading to decreased demand of construction materials like steel and concrete. Construction of drilling rigs and specialized machinery were halted, and the volume of freight in Russia's transportation sector decreased.

As an industrializing nation, Russia's industrial sector was one of its largest employers. The extensive layoffs resulted in a significant drop in average household income, leading families to decrease their spending. This reduction in consumer spending eventually impacted the service, consumer goods, retail, and transportation sectors.

By mid-1956, demand for consumer goods sharply dropped and unemployment rose rapidly. This led to falling prices for goods and services, creating a deflationary environment. Businesses pulled back further on investments, worsening the economic slowdown. The Gross Production Index (GPI) of the Russia dropped by 8.3% during this period, making it the worst recession in Russia since the European Economic Crisis of 1922-1928.

Government response and recovery

Committee on Economic Stabilization and Trade Reform

In an effort to stabilize the economy, the Chairman of Russia, Semyon Kiselev, established the Committee on Economic Stabilization and Trade Reform in November 1956, tasked with addressing the crisis. The committee, led by economist Svjatoslav Voronin, recommended replacing the board members of Mosneft and enacting measures to soften Russia's stance on tariffs and exports.

The Committee became a permanent fixture even after Semyon Kiselev's death in 1961, retained by his successor and son, Ilya Kiselev, to guide his Russian economic policy. The committee would later become the Economic Planning and Development Committee. Most of the committee members identified as Neo-Kuznetsovians, who believed in controlled exports to strengthen the economy, rather than complete export bans. The Committee was careful not to flood the market with oil, ensuring stability in both domestic and international markets.

While high tariffs remained in place to uphold Russia's protectionist principles, tariff policy became more meticulously studied and specialized to balance economic stability with protectionist ideals, rather than applying a blanket approach.

Expansion of industry and infrastructure

During Ilya Kiselev's tenure as Chairman of Russia (1958-1973), the industrial sector was revitalized with numerous construction projects across Russia and abroad, including roads, nuclear power plants, and bridges in other national republics. These efforts boosted the economy by creating jobs and reducing unemployment, while also boosting Russia's popularity among other national republics. Throughout the 1960s and 1970s, Russia expanded its exploration and exploitation of oil fields, eventually leading to the Russo-Persian War (1960-1963) over fishing and oil rights in the Caspian Sea. During this period, Russia also began scouting and exploring the remote Alyeskan north.

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