Overproduction in Communist Economies: a Misunderstanding of Growth

As major economies impose punitive tariffs on Chinese goods due to overproduction, a critical economic pattern emerges—one that has plagued not just modern China but also defunct communist states. These governments, determined to sustain economic growth through large-scale industrialisation and excessive production, often achieved short-term gains but failed to deliver lasting improvements in living standards or sustainable growth. Instead, they spiralled into stagnation, with some collapsing entirely. Understanding this phenomenon is vital for decoding the mechanisms of economic growth and serves as a cautionary tale for leftists in the West who romanticise the USSR, Maoist China, and North Korea, mistakenly celebrating their industrial milestones as signs of utopian progress.

Since the 1930s, communist regimes—starting with the USSR and later adopted by China and North Korea—have championed the idea of “steel supremacy.” Stalin, Mao, and Kim Il-sung all equated their nations’ economic strength with steel production, a metric they expanded to other heavy industries such as aerospace, automotive manufacturing, and agricultural machinery. This obsession with industrial output fuelled impressive production figures but came at a heavy cost.

In the USSR, technological progress and living standards stagnated by the late 1970s, as the economy failed to diversify or innovate beyond heavy industries. Similarly, China, despite its meteoric rise, faces a troubling plateau: since 2020, its annual GDP per capita has hovered around $12,000. Much of its productivity remains dependent on pivotal technologies developed by Japanese and American companies, highlighting the country’s inability to achieve independent innovation.

GDP per capita of China from 2015 to 2023. It should be noted that China’s economic figures are frequently exaggerated by the government as a domestic propaganda. Some studies hinted that China’s economic size was 10% to 20% exaggerated by their official statistics.

GDP per capita of the Soviet Union from 1979 to 1991, adjusted to the purchasing power of US Dollar in 2023. Due to its lack of industry diversity, the performance of the USSR’s economy was way inferior to China in recent years.

The belief that communist systems excel at industrialisation and productivity often stems from their early successes. For example, in just two decades, Stalin’s USSR achieved heavy industrialisation, transitioning from an agrarian economy based on serfdom to an industrial powerhouse—or so it appeared. However, this initial success masked long-term stagnation. When measured by GDP per capita (PPP), both the USSR and China plateaued around the $12,000 level, failing to advance into developed economies. Even as their industrial outputs remained high, the momentum for genuine economic growth declined.

This disconnect reveals a critical truth: industrial output alone does not guarantee sustainable growth, particularly when it comes to innovation and improving living standards. A fundamental principle of economics and business is that products only generate income after they are sold. Imagine a company producing one million cars but selling only one hundred; no one would call it a successful automobile manufacturer. Communist economies often mirrored this imaginary company. While their industrial output soared, domestic demand dwindled after the initial industrialisation phase, and international sales remained limited due to geopolitical tensions.

As a result, excess production failed to translate into improved living standards or economic profit. Instead, inventories piled up, consuming resources and dragging economies into deeper inefficiency.

Countries facing such economic stagnation are not doomed. They can break through to developed status by pursuing two key solutions:

1. Fostering innovation to create new industries with higher added value.

2. Expanding the tertiary sector to diversify the economy.

Unfortunately, these pathways were largely inaccessible or unacceptable to most communist regimes. First, communist systems demand absolute loyalty to party leaders and strict adherence to political orthodoxy. From a young age, students are indoctrinated to believe in the infallibility of the party and its leaders, while viewing Western ideas as corrupt and dangerous (despite many party elites quietly sending their families to live in the West).

While communist states often produce large numbers of STEM graduates, their ability to innovate is stifled by an educational and political system that suppresses critical thinking and creativity. Instead, their economies rely on imitating Western innovations, typically at a lower level.

China, for instance, is arguably the most dynamic communist economy. Yet, U.S. sanctions have exposed the extent to which its technological advances depend on American and Japanese innovations. Much of what is labelled as “Chinese innovation” is, in reality, a derivative of Western products and systems.

Second, the political and legal climate in communist states also hampers the growth of high-level tertiary industries. For example:

• Financial Services: Communist governments demand absolute control over all economic activity, even when private businesses are nominally allowed, as in China and Vietnam. Legal frameworks give these governments unchecked power to interfere with or confiscate private businesses. This unpredictability discourages investment and limits the development of robust financial sectors. This is why Shanghai and Shenzhen, despite their size, cannot rival Hong Kong or Singapore as global financial hubs.

• Entertainment: Strict censorship suppresses creative expression, bold criticism, and satire, stifling the growth of vibrant cultural industries.

When Western leftists romanticise the USSR or Maoist China, they are often captivated by the aesthetics of heavy industry—the towering steel mills and the grandeur of missiles. Yet, they rarely question what becomes of these outputs. The notion that storing excess steel in warehouses could raise salaries or improve living standards is, of course, absurd. This misplaced admiration stems from a deep-seated aversion to commerce. Leftists typically view earning money through selling goods as a form of “exploitation” of workers, while glorifying “labour” and production as ends in themselves. This ideological bias has led left-wing economies into a vicious cycle: overproduction of inferior goods due to brain drain and censorship, inadequate sales, and persistent poverty.

Predictably, communist regimes deflect responsibility for these failures, blaming “hostile attitudes” from Western nations and market-based economies.

The collapse of communist economies underscores a timeless truth: sustainable growth comes from fostering innovation, supporting free markets, and improving living standards—not from churning out steel or missiles in ever-greater quantities. For those in the West who continue to idealise these failed systems, it’s time to abandon fantasies of industrial grandeur and confront the realities of economic stagnation and authoritarian control. Economic progress requires more than production—it demands freedom, creativity, and a commitment to improving the human condition.