“Living in a world strewn with the wreckage of the Soviet empire it is hard for most people to realise that there was a time when the Soviet economy, far from being a byword for the failure of socialism, was one of the wonders of the world – that when Khrushchev pounded his shoe on the UN podium and declared, ‘We will bury you’, it was an economic rather than a military boast”. Paul Krugman (1994)

When in 1959, Nikita Khrushchev visited the Unites States, the spectacular economic growth recorded by the Soviet Union was commonly regarded as a challenge to the supremacy of the western model of democratic capitalism. Impressive statistics, such as its manufacturing output of tractors, mesmerised western opinion formers. Newsweek warned that the Soviet Union might well be “on the high road to economic domination of the world”.

Krugman’s economic analysis suggested that this “economic miracle” could be explained simply by the “rapid growth in inputs: expansion of employment, increases in education levels, and, above all, massive investment in physical capital,” and that the subsequent collapse of the Soviet economic model stemmed from its failure to increase “units of output per units of input”. With falling productivity, Soviet growth would inevitably slow as returns on investment diminished.