The Economic Impact of Lend Lease on the Soviet War Effort in 1942

[MKSheppard]

This was originally posted by Mekozak on 5/28/2004, and there were about 16 replies to it. Unfortunately, they were all lost in the great Yukupoo EZBoard foulup.

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The Economic Impact of Lend Lease on the Soviet War Effort in 1942

This post is to address the effect of Lend Lease upon the Soviet Union's war effort in the year 1942. To understand how Lend Lease would have an effect, it is necessary for the reader to get grounded in the following concepts:

1. As fought, World War 2 was primarily a war of competing economies. Each major combatant had to marshal military strength by maximizing its war making capability utilizing primarily internal sources but also potentially support from external sources (either friendly in the case of Lend Lease from America to the UK and USSR or coercively as in the case of France economically supporting Germany). Each economy, to the best of its ability, translated investment and human capital into military forces designed to force the most favorable attrition rate upon its enemy.

2. The Soviet Union was organized as a command economy where the primary national resources were shepherded by GOSPLAN or the State Planning Commission. Key among Gosplan's responsibilities was to develop the five-year plan for economic growth and monitor its results. The primary planning task was to develop a strategy that managed the tradeoff between increased investment levels (and thus higher growth) in the economy with achieving balance (the result without balance being an overheated economic situation where overall production would falter). N. A. Voznesensky took the reins of Gosplan in 1938 at a time when massive investment (and the general purges) left an extremely unbalanced economy and where growth quotas were not being achieved as expected. Voznesensky thus was very sensitive to the needs of the economy to maintain balance in order to maximize the benefits of the previously spent investment. This search for balance is a critical feature to understand in light of the war and the Soviet Union's attempt to best utilize Lend Lease.

3. Economic mobilization for war generally follows four phases:

a. Stage 1 - A substantial reserve of labor is accompanied by increased investment levels and growing prosperity.

b. Stage 2 - As labor is absorbed into the war economy and full employment is achieved, civilian resources are drawn down to support military requirements.

c. Stage 3 - Full mobilization is achieved. The civilian economy is minimized for survival. No more growth can be expected from internal sources. Allocation of manpower between industrial and military requirements is optimized.

d. Stage 4 - This last stage exists only when the need to provide soldiers immediately overwhelms the need for long-term industrial production. This is not a sustainable stage and unless the economy reverts back to stage three, the war would be lost. It is in this stage that much of the Soviet economy in 1941 found itself. 1942 was spent trying to claw back to stage three.

4. The economic effects of the German invasion of the Soviet Union were staggering. The economy of the nation was reduced by one third in less than one year. National control of economic resources was no longer directly possible as manufacturing concerns were relocated east in the effort to avoid the German onslaught. Businesses that did successfully relocate often didn't know where their supply base or their customers would be located. Additionally, even if the business hardware was relocated successfully, the labor required to operate the business was often no longer available as men would be drafted to serve in the defense forces, get stuck behind enemy lines, or get lost in the effort to stay ahead of the fluid front lines. These economic effects and the subsequent attempts at rebalance manifested themselves most severely in 1941 (and again in the German drive to the Caucasus in 1942), but the effort for national coordination of resources was not fully realized until well into 1943.

5. During 1942, the Soviet planning infrastructure spent the majority of their time in "firefighting" mode. As resource and supply emergencies arose, resources would be diverted from other usage to the emergency. While this would solve one emergency, it inevitably created other emergencies that had to be likewise corrected. The American Lend lease officials charged with supplying the Soviet Union were puzzled by the quickly changing priorities in 1942. It is the firefighting and the emergencies of the day that drove the ever changing Gosplan requirements and the requests to the Americans.

In light of some of this background, I propose to show first the state of the Soviet economy in light of the German assault. Then I will show the value, timing, and distribution of American Lend Lease in 1942 to the Soviet Union. Finally, I will equate the Lend Lease amounts to the effective population required to support this additional supply and the direct effect on the military population. The initial charts of Soviet information compare 1940 (the last year with non-war economic data) with 1942 (the year in question).

Soviet Employment (millions)………1940………..1942
Agriculture……………………………………..49.3…………24.3
Defense Industry……………………………..1.8………….2.7
Civilian Industry………………………………12.0………….5.9
Construction…………………………………….2.4…………..1.5
Transport………………………………………….4.0……………2.4
Trade………………………………………………..3.3…………..1.7
Civilian Services……………………………….9.1…………..4.8
Military Services……………………………..5.0…………..11.3
Total Employment…………………………..86.9…………54.6
Memo: Total Population…………………194.0…………130 (est.)

This chart shows, among other things, the drastic reduction in employment for all categories except the Military and Defense Industry. It is instructive to note that agriculture employment was cut in half with only a third reduction in population (and when exacerbated by the fallen productivity shown below led to starvation conditions). Also note that much of the defense industry is dependent upon civilian industry (like coal mining) for continued operation.

Net Value Added Per Worker (rubles and 1937 factor cost)
…………………………………………………..1940………………1942
Agriculture………………………………….1417……………..1,129
Defense Industry……………………….6019……………14,108
Civilian Industry…………………………5376……………..4,412
Construction……………………………….4503………………2,085
Transport…………………………………….4891……………..4,361
Trade…………………………………………..3336……………..2,248

Note both the improved productivity of the defense sector and the reduced productivity of the agricultural (and all other) sector(s). Coupled with the reduction in available workers in agriculture, this sector was constantly in crisis but wasn't made a strategic priority until after 1942.

Soviet GNP (billion rubles at 1937 factor cost)
……………………………………………..1940……………..1942
Agriculture……………………………..69.9……………..27.4
Defense Industry………………………..10.5……………..38.7
Civilian Industry………………………….64.5………………26.1
Construction………………………………..10.6……………….3.2
Transport……………………………………..19.3…………….10.2
Trade…………………………………………….11.1………………3.8
Civilian Services……………………………46.4…………….28.2
Military Services…………………………….7.9…………….17.4
Other/Depreciation………………………13.6……………..11.7
GNP (including net imports)………253.9……………166.8
Net Imports……………………………………0.0………………..7.9
GNP (excluding net imports)……..253.9……………158.9

Net imports is the economic nomenclature for what became Lend Lease, the majority of which was from America. Note that Lend Lease represented a full 5% of the economy for the year 1942.

Now recognize that Lend Lease was used by Gosplan as a way to facilitate the balancing of the economy. Lend Lease when it arrived at the Soviet Borders was categorized and sent to the requisite industries as yet another source and not in any way differentiated from internal sources. Additionally, all Lend Lease was recorded at official Soviet prices to be reported back to Gosplan. This would allow Gosplan to reallocate required internal resources (both capital and manpower) to help with the constant "firefighting".

The total value of American Lend Lease to the Soviet Union was in American terms $1.35 billion. Here is the calendarization by month:

………………….. ($mil)
January……………15
February………….55
March……………….97
April……………….164
May………………….70
June……………….110
July………………..103
August……………150
September…….102
October………….128
November………191
December………167

The breakdown of the $1.35 billion in goods shipped in 1942 is as follows:


………………………………………………..1.35…………5.0%…………….GNP (billion rubles)
Military Goods
.Ordnance & Ammunition……..15.8……….0.79%…………….1.26
.Aircraft…………………………………..22.4……….1.12%…………….1.78
.Tanks………………………………………13.1……….0.66%…………….1.05
.Motor Vehicles……………………….11.0………..0.55%……………0.87
.Watercraft………………………………..0.8………..0.04%…………..0.06
Industrial Goods………………………23.1………..1.16%……………1.84
Agricultural Goods…………………..13.7………..0.69%…………..1.10

The first column in the above chart represents the % of the total goods shipped by America to the Soviet Union. Note that in 1942, 27% of shipping was intercepted and did not reach Soviet Ports. However, as noted before, the goods that did reach the Soviet Union accounted for a 5% addition to the Soviet GNP in that year as accounted for by Voznesensky. If we assume that the ships sunk carried goods in rough proportion to what was initially shipped by the US, the second column would thus represent the addition to the Soviet economy broken out by goods shipped. The third column represent the value of the shipped goods in terms of the of the ruble value to the Soviet economy. The total of this column equals the net imports shown in an earlier chart of 7.9 billion rubles.

Now given the process by which goods imported to the Soviet Union were integrated into the economy, the continual desire to use import goods to balance out the economy, and the general shortage of manpower, it becomes clear that the Soviets were able to transfer men from productive industries to the military due to the ability to use American goods to balance each of the productive sectors. To calculate the manpower thus freed up by American goods, it is an easy measure to divide the addition to the Soviet GNP by the internal Soviet productivity rate.

Manpower balance out chart
………………………………………………GNP ADDED……………..Effective Population Added (mils)
Military Goods
.Ordnance & Ammunition…………….1.26
.Aircraft…………………………………………1.78
.Tanks…………………………………………..1.05
.Motor Vehicles……………………………..0.87
.Watercraft…………………………………….0.06
.Total Military Goods…………………………………………………………………..0.36
Industrial Goods…………………………….1.84…………………………………..0.42
Agricultural Goods………………………….1.10…………………………………..0.97
Total Effective population added………………………………………………..1.75

The effective population added to the Soviet economy is thus 1.75 million people based on an overall look at 1942. If we observe from the working population figures above the relative ratios of military to non-military employment we can calculate that the loss to the military is 1.4 million man-years. As a final adjustment to this total, the relative contribution of American Lend Lease is 40% higher in the second half of 1942 than during the first half. This adjustment revises the reduction in Soviet Military Manpower (and accompanying supplies) back to about 1.8 million men fewer during the second half of 1942. The means that the indigenous Soviet Economy could only support the requirements of a 9.5 million man armed forces instead of the 11.3 million historically.

Some general economic conclusions:

1. This analysis shows that the 5% addition in GNP to the Soviet Union translated into about a 15+% addition to Soviet Military power in 1942.

2. This analysis takes a conservative approach by not attempting to account for marginal efficiency of the Soviet economy (i.e., the next man added to the soviet agricultural industry is likely to produce at levels far below the average). This marginal propensity to produce would also be impacted considerably by the added difficulty of the Soviet Economy to balance out its internal requirements.

3. The analysis is also conservative in that it only accounts for the higher "value add" for each of the shipped goods. Clearly the productivity in producing airplanes includes both the defense value added for assembling the plane to plus the value added by mining and processing of bauxite (which as a civilian industry was not as efficient as the defense industries) to produce aluminum. I intentionally kept the analysis conservative since the goal is to show the considerable economic effect that Lend Lease had on the Soviet economy from an early stage in the war.

Some potential military implications:

1. Given that Soviet military doctrine was to mass available forces at the point of attack for their "deep operations", it quite likely that the 1.8 million man reduction (or higher if I did a more detailed less conservative analysis) would have eliminated the ability for the Red Army to conduct any offensive operations in 1942. It is therefore quite likely that the encirclement of Stalingrad or the attempted offensive, Operation Mars, would not have been possible.

2. I will refrain from trying to determine the direct effect of some of the specific Lend Lease material shipped as it runs beyond the scope of this economic analysis.

Some selected bibliography for this post:
. The Economics of World War II - Six great powers in international competition
. Accounting for War - Soviet Production, employment and the defense burden 1940-1945
. Soviet Planning in Peace and War 1938-1945
. The Economic Transformation of the Soviet Union, 1913-1945
. Slavic Military Studies Volume 10 Number 2 - "Motor Vehicle Transport Deliveries Through Lend Lease"
. When Titans Clashed