Modern Economic History

Modern Economic History

At the beginning of the twentieth century, the territory of present-day Armenia was a backward agricultural region with some copper mining and cognac production. From 1914 through 1921, Caucasian Armenia suffered from war, revolution, the influx of refugees from Turkish Armenia, disease, hunger, and economic misery. About 200,000 people died in 1919 alone. At that point, only American relief efforts saved Armenia from total collapse.

The first Soviet Armenian government regulated economic activity stringently, nationalizing all economic enterprises, requisitioning grain from peasants, and suppressing most private market activity. This first experiment in state control ended with the advent of Soviet leader Vladimir I. Lenin's New Economic Policy (NEP) of 1921-27. This policy continued state control of the large enterprises and banks, but peasants could market much of their grain and small businesses could function. In Armenia the NEP years brought partial recovery from the economic disaster of the post-World War I period. By 1926 agricultural production in Armenia had reached nearly three-quarters of its prewar level.

By the end of the 1920s, Stalin's regime had revoked the NEP and established a state monopoly on all economic activity. Once this occurred, the main goal of Soviet economic policy in Armenia was to turn a predominantly agrarian and rural republic into an industrial and urban one. Among other restrictions, peasants now were forced to sell nearly all their output to state procurement agencies rather than at the market. From the 1930s through the 1960s, an industrial infrastructure was constructed. Besides hydroelectric plants and canals, roads were built and gas pipelines were laid to bring fuel and food from Azerbaijan and Russia.

The Stalinist command economy, in which market forces were suppressed and all orders for production and distribution came from state authorities, survived in all its essential features until the fall of the Soviet government in 1991. In the early stages of the communist economic revolution, Armenia underwent a fundamental transformation into a "proletarian" society. Between 1929 and 1939, the percentage of Armenia's work force categorized as industrial workers grew from 13 percent to 31 percent. By 1935 industry supplied 62 percent of Armenia's economic production. Highly integrated and sheltered within the artificial barter economy of the Soviet system from the 1930s until the end of the communist era, the Armenian economy showed few signs of self-sufficiency at any time during that period. In 1988 Armenia produced only 0.9 percent of the net material product of the Soviet Union (1.2 percent of industry, 0.7 percent of agriculture). The republic retained 1.4 percent of total state budget revenue, delivered 63.7 percent of its NMP to other republics, and exported only 1.4 percent of what it produced to markets outside the Soviet Union.

Armenian industry was especially dependent on the Soviet military-industrial complex. About 40 percent of all enterprises in the republic were devoted to defense, and some factories lost 60 to 80 percent of their business in the last years of the Soviet Union, when massive cuts were made in national defense expenditures. As the republic's economy faces the prospect of competing in world markets in the mid-1990s, the greatest liabilities of Armenian industry are its outdated equipment and infrastructure and the pollution emitted by many of the country's heavy industrial plants.

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