On the eve of the 1921 revolution, Mongolia had an underdeveloped, stagnant economy based on nomadic animal husbandry. Farming and industry were almost nonexistent; transportation and communications were primitive; banking, services, and trade were almost exclusively in the hands of foreigners. Most of the people were either illiterate nomadic herders or monks. Property in the form of livestock was owned primarily by aristocrats and monasteries; ownership of the remaining sectors of the economy was dominated by foreigners. Mongolia's new rulers thus were faced with a daunting task in building a modern, socialist economy. [Source: Library of Congress, June 1989 *]

After the Communists came to power private business was banned, Chinese and other foreign traders were expelled and all forms of transportation were nationalized. The state owned all means of production. Five year plans defined economic policy.

The Mongolians resisted collectivization and early efforts to introduce the scheme failed. During the forced collectivization under Stalin between 1929 and 1932, nomads slaughtered millions of head of livestock rather than hand them over to the government. In the late 1950s, collectivization was reintroduced and many Mongolians were persuaded to go along with the system. The system remained the predominant mode of production into the 1990s even after the fall of the Soviet Union.

During the Soviet era, the Mongolian evolved from an pastoral economy to one with a large industrial sector, based primarily on exporting the nation's abundant mineral and agricultural resources. Mongolia integrated its economy with the Soviet Union and its East European allies and relied on the Soviet Union for most of its industrial goods. Only 15 percent of the labor force was employed in industry. Soviet aid, accounted for as much as a third of the economy and wool and mutton were traded for oil and machinery . "All this Soviet authority, meddling, advice and financial aid had a profound effect," wrote travel writer Paul Theroux. "It turned the Mongolians into children."

Economic Development in Mongolia Under the Soviets

Mongolia's economic development under communist control can be divided into three periods: 1921-1939; 1940-1960; and 1961 to the present. During the first period, which the Mongolian government called the stage of "general democratic transformation," the economy remained primarily agrarian and underdeveloped. After an abortive attempt to collectivize herders, or arads, livestock raising remained in private hands. The state began to develop industry based on processing of animal husbandry products and crop raising on state farms. Transportation, communications, domestic and foreign trade, and banking and finance were nationalized with Soviet assistance; they were placed under the control of Mongolian state and cooperative organizations or Mongolian-Soviet joint-stock companies. Ulaanbaatar became the nation's industrial center. [Source: Library of Congress, June 1989 *]

During the second period, called the "construction of the foundations of socialism," agriculture was collectivized, and industry was diversified into mining, timber processing, and consumer goods production. Central planning of the economy began in 1931 with an abortive five-year pland and with annual plans in 1941; five-year plans began a new with the First Five-Year Plan (1948-52). Soviet aid increased, financing the construction of the trans-Mongolia railroad — the Ulaanbaatar Railroad — and various industrial projects. China also provided assistance, primarily in the form of labor for infrastructure projects. Although industrial development still was concentrated in Ulaanbaatar, economic decentralization began with the completion of the Ulaanbaatar Railroad and the establishment of food processing plants in aymag centers.*

The third stage, which the government called the "completion of the construction of the material and technical basis of socialism," saw further industrialization and agricultural growth, aided largely by Mongolia's joining the Council for Mutual Economic Assistance (Comecon) in 1962. Soviet and East European financial and technical assistance in the forms of credits, advisers, and joint ventures enabled Mongolia to modernize and to diversify industry, particularly in mining. New industrial centers were built in Baga Nuur, Choybalsan, Darhan, and Erdenet, and industrial output rose significantly. Although animal husbandry was stagnant, crop production increased dramatically with the development of virgin lands by state farms. Foreign trade with Comecon nations grew substantially. Transportation and communications systems were improved, linking population and industrial centers and extending to more remote rural areas. In the late 1980s, Mongolia had developed into an agricultural-industrial economy, but the inefficiencies of a centrally planned and managed economy and the example of perestroika in the Soviet Union led Mongolian leaders to undertake a reform program to develop the economy further. *

Communists Take Control of the Mongolian Economy in the 1920s

In the 1920s, Under Moscow's guidance, the leftist leaders of Mongolia began to strengthen their still-weak position. The Mongolian communists, with Comintern help, gradually undermined the rightist elements in the Mongolian People's Revolutionary Party and attacked the power of the two great institutions that had dominated Mongolia for centuries: first the nobles; then, the abbots (whose monastic followers comprised at least one-third of the adult males). In this period of cautious consolidation, the party abolished the aristocracy's feudal privileges, a reform which had the initial effect of influencing wealthy nobles to embark on capitalist ventures, such as investing in the new cooperatives. Gradually, however, the revolutionaries built a state-guided economy supported by Mongolian cooperatives and by Soviet trade. [Source: Robert L. Worden, Library of Congress, June 1989 *]

Moscow's economic hold on Mongolia tightened as exports to the Soviet Union rose rapidly from about 14 percent of Mongolia's total production (chiefly livestock and animal products), in 1923 to 1924, to 85 percent, in 1928 to 1929. By 1929 Mongolia's imports lagged far behind its exports. Aside from the provision of technical and political advisers, Soviet trade policy did not yet provide for economic development aid to newer socialist countries as had been envisioned by Lenin in 1920. *

Other areas of the economy showed more progress. The Mongolian National Bank, established in 1924 as a joint Mongolian-Soviet company, issued the tugrik, the new national currency, as part of monetary reform. The cooperative movement, directed by the Mongolian Building Cooperative, began to show impressive results. A standardized tax system was instituted, and other administrative reforms slowly took hold. The army, equipped and trained by the Soviets, was steadily growing and improving. The government refrained from a direct attack on the venerated religious establishment, but some higher-level monks were imprisoned and executed. * ▪ Although the Mongolian communists had not yet overthrown the conservatives in the government and the economic sectors during this period, they had gained progressively in strength as evidenced by the changes they had made in society (see Society). Slowly, the young Soviet-taught Mongols were taking over the political, the military, and the economic apparatus. Many nobles retained their wealth, however, and the number of monastics actually increased between 1925 and 1928. Nearly 90 percent of all trade was controlled by Chinese firms in Mongolia. The Fourth Party Congress (September 1925), the Fifth Party Congress (September 1926), and the Sixth Party Congress (September 1927) had witnessed policy struggles between leftist and rightist elements that presaged the victory of the left. *

Brutal Collectivization in Mongolia

After leftist leaders came to power in Mongolia in the late 1920s they called for the immediate confiscation of feudal property, the development of a five-year plan, the collectivization of stockbreeders, the ouster of Chinese traders, and the implementation of the Soviet trade monopoly. These extreme measures followed standard Soviet economic policy. In less-sophisticated Mongolia, however, the economic situation seemed to defy such planning. The basically nomadic society was largely illiterate, and there was no industrial proletariat; the aristocracy and the religious establishment held a large share of the country's wealth; popular obedience to traditional authorities continued to be widespread; the party lacked grass-roots support; and the government had little organization or experience. Nevertheless, the party was receptive to Moscow's directives; and the Mongolian revolutionaries made mistakes similar to those of the Soviets through an excess of zeal, intolerance, and inexperience. [Source: Robert L. Worden, Library of Congress, June 1989 *]

The first harsh repression of opposition came in 1929. Under the direction of Choybalsan, more than 600 feudal estates (herds and fixed property) were confiscated and were given to members of the laity and to monks who left their monasteries. In 1931 and 1932, the property of more than 800 religious and secular leaders was seized, and more than 700 heads of households were killed or imprisoned. The antireligious campaign was three-pronged: ordinary monks were forced to leave the monasteries and enter the army or the economy; monks of middle status were put in prison camps; and those of highest rank were killed. Collectivization followed expropriation, and by 1931 more than one-third of the stock-raising households had been forcibly communized. *

The brutal collectivization of herdsmen was rapid, and it caused bloody uprisings. Although the Eighth Party Congress from February to April 1930 had recognized that the country was unprepared for total socialization, the party reaction to opposition was to reenforce its measures nevertheless. The massive shift from private property to collectivization and communization was accelerated. The party then attacked the entire monastic class, the nobility, the nomads, and the nationalists, while purging its own ranks. The government imposed high and indiscriminate taxes, confiscated private property, banned private industry, forced craft workers to join mutual aid cooperatives, and nationalized foreign and domestic trade and transportation. *

Rescinding Mongolia’s Disastrous Collectivization

Extremism produced near-disaster. The power of the monks and the feudal nobles finally was broken, Chinese traders and other foreign capitalists were ousted, and still greater dependence on Soviet aid was required (see Suppression of Buddhism). The mechanical imposition of communes on an unprepared nomadic sheep-herding and cattle-herding society, however, resulted in the slaughter of 7 million animals in three years by angry and frightened herders. Mongolia's economy, which rested entirely on animal husbandry, was severely affected. The failure of communes, the hasty destruction of private trade, and inadequate Soviet supplies contributed to spreading famine. By 1931 to 1932, thousands were suffering severe food shortages, which, together with the people's reaction to terror, had brought the nation to the verge of civil war. Finally the government was forced to call in troops and tanks; with Soviet assistance, it suppressed the spreading anticommunist rebellion in western Mongolia. [Source: Robert L. Worden, Library of Congress, June 1989 *]

In May 1932, a month after anticommunist uprisings in western Mongolia, the Comintern and the Communist Party of the Soviet Union directed the Mongolian party to end its extremism. The next month, the party Central Committee rejected its prior policy as "leftist deviation" and expelled several top leaders as "leftwing adventurers." Choybalsan announced that "the overall development of our country has not yet entered the stage of socialism, and also it is wrong to copy Soviet experience in every single thing." The entire socioeconomic pattern was swiftly changed. The collective farm experiment was dropped, worker cooperatives were abandoned, the cattle tax was reduced, and herders and peasants again were allowed to hold private property. Foreign trade, still channeled exclusively to the Soviet Union, continued to be controlled by the state, however. Under continuing Soviet protection and domination, Mongolia now settled down to a period of gradual social change. *

An underlying reason for Moscow's reversal of the course of Mongolian socialism had been the growing Japanese threat. The September 18, 1931, Mukden incident had opened the way for Japan to establish Manchukuo (Japanese-controlled Manchuria). Mongolians were not alone in the fear that Japan might try to establish a Japanese-controlled Mongolian monarchy, Mengkukuo. *

New Turn Policy and Economic Gradualism in the 1930s

The new policy of socioeconomic gradualism — the New Turn Policy — continued until the mid-1940s, when Mongolian socialism entered its modern stage of collectivization and economic growth. The Ninth Party Congress in September and October 1934 pronounced the New Turn a success, but it became obvious that this gradualism actually had been determined by the basic Soviet need to maintain Mongolia as a stable buffer state against either Japanese or Chinese expansion. At the beginning of this period, the Soviets did not want to enlarge Mongolia's small-scale industries because this might provide a further incentive for Japanese invasion. Instead, Mongolia's raw materials were used to strengthen the Soviet Union, while Soviet Red Army units and a large cavalry-oriented Mongolian People's Revolutionary Army were deployed to defend Mongolia against attack. [Source: Robert L. Worden, Library of Congress, June 1989 *]

On November 27, 1934, a Mongolian-Soviet "gentlemen's agreement" was reached that provided for mutual assistance in the face of Japanese advances in Manchuria and Inner Mongolia. In January 1935, Soviet troops reentered Mongolia as Japanese forces began to probe the Mongolian-Manchurian border. On March 12, 1936, the 1934 agreement was upgraded when the ten-year Mongolian-Soviet Treaty of Friendship — which included a mutual defense protocol — was signed. The pact did not mention Chinese sovereignty over Mongolia, and Moscow ignored Chinese protests. *

In addition to concluding defense treaties with the Soviet Union, Mongolia concentrated on building its army with Soviet guidance and military aid. In 1936 military expenditures were doubled, and by 1938 more than half of Mongolia's budget was for defense. The government built paved roads, extended railroads, and established military air bases and communication lines, all with Soviet aid. Military equipment and training also were supplied by the Soviet Union. It is estimated that during World War II the Mongolian Army numbered between 80,000 and 100,000 troops, a huge percentage of the total population of 900,000. *

Security concerns and a more conservative economic approach prevented major advances in stock raising and other internal development during this period. A few small Mongolian-Soviet enterprises were initiated to support the war economy. The abandonment of agricultural communes and the return to private enterprise signaled a trend toward gradualism. Voluntary producers' cooperatives were encouraged, but they remained small until the 1950s. Only a few state farms were started. Apart from some veterinary and credit assistance, the government made few efforts to support the nomads, and by 1941 herds had reached the highest recorded growth in Mongolian history. Consumer cooperatives continued to expand, and the state controlled the rest of internal trade. *

The policy of gradualism was particularly ineffective in education. In 1941 an estimated 90 percent of the people were illiterate. In 1942 the country's first university — Choybalsan University, later renamed Mongolian State University — was established in Ulaanbaatar, but the spread of general education had to await the late 1940s and the 1950s. The first large-scale literacy program did not begin until 1947 (see Education). *

Post-World-War-II Development of Mongolia

Peacetime brought additional Soviet and East European economic aid (and eventually membership in the Council for Mutual Economic Assistance (Comecon) and a new relationship with the People's Republic of China after its establishment in 1949. Mongolian-Chinese relations resulted in still more economic assistance to and trade with Ulaanbaatar. Mongolia's external policies, however, were founded on those of the Soviet Union, and relations with China, always influenced by suspicions over real or imaginary claims by China to "lost territories," faltered in the wake of the Sino-Soviet rift that developed in the late 1950s. By the late 1960s, Mongolia had become an armed camp, as Soviet and Chinese troops were poised against one another along the Sino-Mongolian border. Tensions between Ulaanbaatar and Beijing lessened only when Sino-Soviet rapprochement began to evolve in the mid-1980s. The issue of Soviet troop withdrawal from Mongolia still constrained Sino- Mongolian relations in the late 1980s.[Source: Robert L. Worden, Library of Congress, June 1989 *]

On February 27, 1946, Mongolia and the Soviet Union signed the ten-year renewable Treaty of Friendship and Mutual Assistance and the first Agreement on Economic and Cultural Cooperation. With the war over and Chinese and Japanese threat eliminated from Mongolia, the way for renewed assertion of Soviet influence in Mongolia was clear. Mongolia was a strong defense buffer, a trading partner, and a dependable ally in international conferences for the Soviet Union. A further indication of close ties was Mongolia's adoption in February 1946 of the Cyrillic alphabet for use in schools and military units. *

In its shift to postwar development, the party and the government reduced defense expenditures and shifted personnel from military to civilian enterprises. Rationing was curtailed, and prices for some manufactured items and foodstuffs were reduced. Attention was given to redeveloping the livestock and the agrarian sectors at the same time that modern mining, industrial, transportation, and communications sectors were being established. Initiatives also were taken in raising education and health levels and in improving the general well-being of the people. The First Five-Year Plan (1948-52), presented at the Eleventh Party Congress in December 1947, was important in carrying out postwar construction. The first session of the national hural held since 1940, was convened in February 1949 as the Ninth National Great Hural.

Modernizing Mongolia

Traditional values and practices have made modernization of Mongolian society a difficult task. Once they had eliminated the "feudal" aspects of society, Mongolia's communist leaders still had to take radical steps to modernize their country. Scientific methods were applied to animal husbandry and agriculture and new industries, such as copper and coal mining, were developed. Herding and agricultural collectives, mines and factories, and educational institutions became the focal point of a social organization controlled by state administrators, most of whom were members of the ruling Mongolian People's Revolutionary Party. Modernization inevitably brought greater differentiation and mobility in Mongolian society as party functionaries, white collar administrators, factory workers, and increasing numbers of urban residents (who typically have larger family units than those in the countryside) surpassed in numbers and opportunities the once self-sufficient pastoralists, who remain at the bottom of the social system. [Source: Robert L. Worden, Library of Congress, June 1989 *]

The development of the economy has been closely associated with social modernization in Mongolia. Beginning with the 1921 revolution, the government took increasing control over the economy. Mongolia has a planned economy based on state and cooperative ownership. Annual planning began in 1941, and five- year plans began in 1948. The plans have been closely integrated with the five-year plans of the Soviet Union since 1961 and with Comecon multilateral plans since 1976. In the years since 1921, Mongolia has been transformed from an almost strictly agrarian economy to a diversified agricultural-industrial economy.

Soviet Domination of Mongolia

Mongolia was like a republic in the Soviet Union even though technically it wasn’t. It was dominated by the Soviet Union until 1990 through the Mongolian People's Revolutionary Party (MPRP), the 20th century's longest reigning political party (1924 to 1990). The MPRP governed through a National Assembly and a Council of Ministers. The party had about 70,000 members.

During the Communist era, Mongolia was essentially a Soviet colony and a buffer zone between China and the Soviet Union. The Soviet Union kept as many as four infantry divisions in Mongolia, with many of the soldiers stationed along the Chinese border. The Mongols, who once ruled the world, had no real army of their own. Mongolia's links to the outside world — international phone calls, mail an cables — went through the Soviet Union first. Most of Mongolia's wool ended up in Soviet factories.

Mongolia and the Soviet Union had a number of long-term economic and “friendship” agreements. Beginning in 1962, when Mongolia became the only Asian member of the Communist bloc's Council of Mutual Economic Assistance, Mongolia pursued a program of industrialization and large-scale agricultural development. Eastern Europeans helped build factories in return for receiving a large share of the finished goods they produced.

Economic Development Under Tsedenbal in the 1950s

Choybalsan died of cancer on January 26, 1952, and Stalin died in 1953, and a major era in modern Mongolian history came to an end. Choybalsan was succeeded as government leader by Yumjagiyn Tsedenbal who continued to be party general secretary as well. Under Tsedenbal, repression was eased and the Mongolian gains a little more autonomy from Moscow, Tsedenbal was forcibly retired in 1984.

Economic developments and extensive purges of party and government personnel marked the transition to Tsedenbal. In March 1953, a party Central Committee plenum was convened to review the results of the First Plan, and in November 1954, the Twelfth Party Congress belatedly approved guidelines for the Second Five-Year Plan (1953-57). A continuing major economic target included in the plan was the development of the livestock sector, and a 72 percent increase in grain production over 1952 levels was envisioned. Special attention also was paid to expanding electrification and international economic cooperation. Also at the Twelfth Congress, Dashiyn Damba was elected general secretary, replacing Tsedenbal as party leader. [Source: Library of Congress, June 1989 *]

In 1956 the party Central Committee condemned the "personality cult" of Choybalsan, specifically pointing out the excesses of the 1937 to 1939 period. Claiming success for the Second Plan, the Thirteenth Party Congress, March 17 to 22, 1958, adopted a special Three-Year Plan (1958-60), aimed at raising Mongolia from a livestock economy to an agricultural-industrial economy, all with Soviet aid. New emphasis was placed on stepping up industrial capacities — particularly in the coal mining, electric power, and construction sectors — and on increasing output of petroleum industry products, minerals, and nonferrous ores. Damba was reelected at the Thirteenth Congress, only to be dismissed for ideological reasons and replaced by Tsedenbal several months later. On July 6, 1960, the government adopted the national Constitution that continued to be in force in 1989. In January 1962, Choybalsan's "personality cult" again was attacked by the party Central Committee. *

Socialist Framework of the Mongolian Economy

In the late 1980s, Mongolia had a planned economy based on socialist ownership of the means of production. According to the Mongolian Constitution, socialist ownership has two forms: state ownership (of land and natural resources, economic facilities and infrastructure; and the property of all state organizations, enterprises, and institutions) and cooperative ownership (property of agricultural associations and other types of cooperatives). Private ownership was negligible in all sectors of the economy, except animal husbandry, but economic reforms adopted since 1986 gave greater leeway for individual and cooperative enterprises (see Economic Reforms; Animal Husbandry). [Source: Robert L. Worden, Library of Congress, June 1989 *]

The economy was directed by a single state national economic plan, which, when confirmed by the legislature, the People's Great Hural, had the force of law. In accordance with the plan, the state annually drew up a state budget, which was confirmed and published in the form of a law. The Council of Ministers constitutionally was charged with planning the national economy; implementing the national economic plan and the state and local budgets; directing financial and credit policy; exercising a foreign trade monopoly; establishing and directing the activities of ministries and other state institutions concerned with economic construction; defending socialist production; and strengthening socialist ownership.*

In December 1987 and January 1988, the top-level state economic organizations under the Council of Ministers were reorganized. The State Planning and Economic Committee was formed out of the former State Planning Commission, the State Labor and Social Welfare Committee, the State Prices and Standards Committee, and the Central Statistical Board. New economic entities were the Ministry of Agriculture and Food Industry; the Ministry of Environmental Protection; the Ministry of Foreign Economic Relations and Supply; the Ministry of Light Industry; and the Ministry of Power, Mining Industry, and Geology. Unaffected by the reorganization were the Ministry of Social Economy and Services, the Ministry of Communications, the Ministry of Finance, the Ministry of Transport, the State Construction Committee, and the State Bank of the Mongolian People's Republic. Local government organizations — the executive committees of hurals — implemented economic plans and budgets, directed economic construction, and supervised the work of economic and cooperative organizations at their level.

Socialist Planning of the Mongolian Economy

Planning in communist-run Mongolia had an inauspicious start with the Five-Year Plan for 1931-35, which set unrealistically high targets for production and called for the collectivization of agricultural production. This plan was abandoned in 1932 in the face of widespread resistance to collectivization and the failure to meet production goals. Annual planning was introduced in 1941 in an effort to deal with wartime shortages. Five-year plans were reintroduced in 1948 with the First Plan. The Second Five-Year Plan (1953-57) was followed by the Three-Year Plan (1958-60). Regular five-year plans were resumed with the Third Five-Year Plan (1961-65), and they have continued to be used since then. [Source: Robert L. Worden, Library of Congress, June 1989 *]

In the late 1980s, economic planning in Mongolia included long-term, five-year, and annual plans that operated on multiple levels. Planning originated with the Mongolian People's Revolutionary Party, which produced the guidelines for economic and social development for the five-year period corresponding to the party's congress. Based on these guidelines, the Standing Commission on Economic-Budget Affairs of the People's Great Hural drafted the five-year national and annual economic plans, which were approved by the People's Great Hural and became law. The Council of Ministers directed and implemented national planning through the State Planning and Economic Committee and through the Ministry of Finance. Planning for different sectors of the economy was conducted by relevant ministries and state committees; local plans were drawn up by local governmental organizations.*

Mongolia's five-year plans have been coordinated with those of the Soviet Union since 1961 and with Comecon multilateral five-year plans since 1976. Annual plan coordination with the Soviet Union, which is made official in signed protocols, began in 1971. Mongolian planners were trained by Soviet planners and cooperated with them in drafting long-term plans, such as the General Scheme for the Development and Location of the Mongolian People's Republic Productive Forces up to 1990, produced in the late 1970s; and the Longterm Program for the Development of Economic, Scientific, and Technical Cooperation Between the Mongolian People' Republic and the USSR for the Period up to 2000, signed in 1985.*

National economic plans included general development goals as well as specific targets and quotas for agriculture, capital construction and investment, domestic and foreign trade, industry, labor resources and wages, retail sales and services, telecommunications, and transportation. The plans also focused on such social development goals and targets as improved living standards, population increase, cultural development, and scientific and technical development.

Mongolian Budget Under the Soviets

The Ministry of Finance prepared annual national budgets and provided guidance to the formulation of local budgets. The national budget included the budget of the central government, the budgets of aymag and city governments, and the budget of the national social insurance fund. The national budget grew with the expansion of the economy: In 1940 revenues were 123.9 million tugriks and expenditures, 122.1 million tugriks; in 1985 revenues were 5,743 million tugriks and expenditures, 5,692.5 million tugriks. [Source: Robert L. Worden, Library of Congress, June 1989 *]

The structure of the national budget changed between 1940 and 1985. In 1940 some 34.6 percent of revenues came from the turnover tax (a value added tax on each transaction), 7.8 percent from deductions from profits, 16.7 percent from taxes on the population, and 40.9 percent from other kinds of income. In 1985 nearly 63 percent of revenues came from the turnover tax, 29.9 percent from deductions from profits, 3.5 percent from deductions from the social insurance fund, 0.7 percent from taxes on the population, and 3.2 percent from other types of income. In 1940 some 21.9 percent of expenditures went to develop the national economy; 19.7 percent to social and cultural programs; and 58.4 percent to defense, state administration, reserves, and other expenses. In 1985 about 42.6 percent of expenditures went to developing the national economy; 38.7 percent to social and cultural programs; and 18.7 percent to defense, state administration, reserves, and other expenses. The proposed 1989 budget had revenues and expenditures of 6.97 billion tugriks. Proposed expenditures for 1989 included 1.8 billion tugriks for developing agriculture, 2.1 billion for industry, and 1.6 billion for capital investment. Of the 2.76 billion tugriks proposed for social and cultural development, 1.16 billion was to go for education; 597.5 million for health, physical culture, and sports; 259.7 million for science, culture, and art; and 747.4 million for the social insurance fund. Subsidies to maintain stable retail prices totaled 213 million tugriks. Local budgets, through which 70 percent of social and cultural expenditures were funneled, totaled 3.46 billion tugriks.

Structure of the Mongolian Economy Under the Soviets

Socialist development transformed Mongolia from a predominantly agrarian, nomadic economy in 1921 into a developing, agricultural-industrial economy in the late 1980s. In 1985 a reported 18.3 percent of produced national income was derived from agriculture, 32.4 percent from industry, 4.9 percent from construction, 11.2 percent from transportation and communications, 31.6 percent from domestic trade and services, and 1.6 percent from other sectors. [Source: Robert L. Worden, Library of Congress, June 1989 *]

Sixty percent of disposable national income went to consumption, and 40 percent went to accumulation. Fixed assets totaled about 38.9 billion tugriks, of which 66.5 percent were productive fixed assets, including livestock, and 33.5 percent were nonproductive. Industry and construction accounted for 38.1 percent of the productive fixed assets; agriculture, 16 percent; transportation and communications, 9 percent; and domestic trade and services, 3.4 percent. Investment totaled 4.624 billion tugriks, 97.9 percent of which went to the state sector, and 2.1 percent, to the cooperative sector. During the Seventh Five-Year Plan (1981-85), 68.9 percent of investments went into the productive sectors of the economy, and 31.1 percent, into nonproductive sectors. Industry and construction received 44.7 percent of investment during this period; agriculture, 13.9 percent; transportation and communications, 9.0 percent; and domestic trade and services, 1.3 percent. The Eighth Five-Year Plan (1986-90) called for increasing produced national income by 26 to 29 percent and for raising investment by 24 to 26 percent, of which 70 percent was to go to developing material production.*

In the late 1980s, Mongolia was divided into three economic regions. The western region (Bayan-Olgiy, Hovd, Uvs, Dzavhan, and Govi-Altay aymags), with 21 percent of the nation's population, was predominantly agricultural. The western region had 32 percent of Mongolia's livestock and produced about 30 percent of its wool and meat. Local industry was engaged in processing of animal husbandry products, timber, minerals, and building materials. Transportation was predominantly by motor vehicles.*

The central economic region (Arhangay, Bayanhongor, Bulgan, Darhan, Dornogovi, Dundgovi, Hovsgol, Omnogovi, Ovorhangay, Selenge, Tov, and Ulaanbaatar aymags) was the dominant producer. The region had 70 percent of Mongolia's population (including the cities of Baga Nuur, Darhan, Erdenet, and Ulaanbaatar); 55 percent of its territory; 75 percent of its arable land; 90 percent of surveyed coal deposits; and 100 percent of copper, molybdenum, iron ore, and phosphate deposits. This region accounted for 80 percent of gross industrial production, 90 percent of light industrial production, and 80 percent of food industry production, 75 percent of coal production, and 100 percent of copper-molybdenum, iron ore, and phosphate mining. It also accounted for 60 percent of gross agricultural production, 60 percent of milk production, 50 percent of meat production, and 80 percent of grain, potato, and vegetable production.*

The eastern economic region (Dornod, Hentiy, and Suhbaatar aymags) had 9 percent of Mongolia's population, 20 percent of the arable land, and 15 percent of the livestock. The region contributed 15 percent of gross meat production and 13 percent of wool production. Grain production on large state farms hewed out of virgin lands contributed 90 percent of the region's agricultural output. The major industrial center was Choybalsan, which produced 50 percent of regional gross industrial output. *

Nomadic Life During the Soviet Era

Before the arrival of Communism, most Mongolians were nomadic serfs in a hierarchal feudal society. When the Communists came this hierarchal system was adapted easily into the hierarchal state farm system. What changed was mobility. The nomads were no longer able to roam freely over a large area, they were relegated to provinces drawn up by the Soviets.

Under Communism, nomads were organized into government-controlled cooperatives, animals were nationalized and became property of the state, and gers were sometimes transported on trucks rather than pack animals. Nomads were called breeders and they were regarded as the richest people in Mongolia. They were told by the government how many sheep, goats, yaks, camels and horses to raise, and sometimes told where to graze their animals and how long to stay there. Children attended boarding schools.

The state bought animals at a stable, guaranteed price or they were paid a wage. Sheep were taken to the cities by the state. Incomes were secure. The government made all the decisions.

The individual ownership of animals was forbidden. People were allocated a certain number of animals. If any of the animals died the nomads were punished. If nomads didn't meet their quotas or their animals were underweight they didn't receive full payment.

Traditional communities were broken down and traditional skills were lost. Families were encouraged to specialize. Some produced camel hair. Some produced wool. Other raised horses. Instead of being jacks of all trades and taking care of themselves traditionally nomadic people began to rely on the state for things like helping sick animals or fixing the felt on their gers.

The Moost collective in the Altai Mountains covered 1,500 square miles and was home to 4,000 nomads, Cynthia Beall and Melvyn Goldstein wrote in National Geographic: "The communist collective, or “negdel”, was little more than the classic Mongol pastoralism overlaid with centralize planning. each herdsman still made the everyday decision—where to graze, when to move camp...while he government handled marketing and set product targets." One nomad told National Geographic, "The collective was good to us. We had enough food, free health care for our children, free education." They enjoyed luxuries such as Russian sugar cubes, East German strawberry and dumplings made with wheat flour.

Mongolian Economy in the 1960s and 70s

After the Fifteenth Party Congress had approved new economic plans in June 1966, Mongolia continued to try to transform its nomadic economy into ranch-style livestock herding and to expand its industrial sector. The economy, however, continued to have severe problems. For example, poor weather plagued the country; in 1967, blizzards caused a US$37 million loss in livestock alone. Severe winters were followed by drought and by plummeting harvests and exports. Planned increases in agricultural and industrial production did not materialize, and the lack of raw materials continued to hamper even light industry. Some of the blame was placed on the pullout of Chinese economic and technical assistance and the end of trade with China in consumer goods. It was admitted, however, that the economy envisioned in the Fourth Five-Year Plan (1966-70) had "not developed as rapidly as those of fraternal socialist states," and, indeed, achievements fell notably short of goals. [Source: Library of Congress, June 1989 *]

Large infusions of Soviet and Comecon aid eventually had salutary effects in the early 1970s. High-level state visits were exchanged in the 1969 to 1971 period, with the result that Moscow agreed to underwrite the Fifth Five-Year Plan (1971-75). Soviet economic difficulties in the early 1970s, however, had repercussions for Mongolia. The Soviet Union started insisting that trade quotas be honored, a move that caused economic disruption just as Mongolia was recovering from the economic distress of the late 1960s. Nevertheless, some economic progress was achieved between 1971 and 1974, a period during which gross industrial production rose by nearly 45 percent. Severe winters continued to hurt the anticipated growth of livestock herds. By the mid-1970s, direct business and other cooperative links had been established between corresponding Mongolian and Soviet ministries, departments, research institutes, and industries, and cooperative ties also had been established between neighboring Mongolian aymags and Soviet oblasts. *

Severe weather in the winter of 1976 to 1977 caused some of the worst damage to animal husbandry in a decade. Heavy snowfalls, severe frosts, disease, starvation, and mismanagement combined to create a perilous economic situation. Recovery was slow, and livestock targets were overestimated continually throughout the rest of the 1970s. Developments in other economic sectors, such as mining and irrigated farming, saw some improvement during the period, however.

Economic Reforms in Mongolia in the Late 1980s

In the late 1980s, dissatisfaction with the economic stagnation of the last years of the former regime of Yumjaagiyn Tsedenbal and the influence of the Soviet perestroika led Mongolia to launch its own program of economic reforms. This program had five goals: acceleration of development; application of science and technology to production; reform of management and planning; greater independence of enterprises; and a balance of individual, collective, and societal interests. Acceleration of development in general was to result from the attainment of the other four goals. Scientific research was being redirected to better serve economic development, with electronics, automation, biotechnology, and the creation of materials becoming the priority areas of research and cooperation with Comecon countries. [Source: Library of Congress, June 1989 *]

Reform of management and planning began in 1986 with the first of several rounds of reorganization of governmental bodies dealing with the economy. These changes rationalized and streamlined state economic organizations; reduced the number of administrative positions by 3,000; and saved 20 million tugriks between 1986 and 1988. The role of the central planning bodies was to be reduced by limiting the duties of the State Planning and Economic Committee to overseeing general capital-investment policy. The indicators specified in the five-year and the annual national economic plans also were to be decreased. State committees and ministries, rather than the State Planning and Economic Committee, were to decide upon machinery and equipment purchases. Decentralization of economic management also was to extend to aymag and city administrations and enterprises. These bodies were given greater autonomy in construction and production, and they also were held financially responsible for profits and losses.*

Efforts to devolve economic decision making to the enterprise level began in 1986, when more than 100 enterprises began experimenting with financial autonomy (before then, enterprises operating with a deficit had been subsidized by the state). Enterprises were accountable for their own losses, and they were responsible for fulfilling sales contracts and export orders. The draft law on state enterprises, presented to the People's Great Hural in December 1988, was to extend greater independence in economic matters to all state enterprises and to lead to an economy that combined planning and market mechanisms.*

Under provisions of the draft law, state enterprises were to be authorized to make their own annual and five-year plans and to negotiate with state and local authorities to pay taxes based on long-term quotas. State enterprises also were to sell output exceeding state orders and unused assets; to establish their own, or to cooperate with existing, scientific organizations to solve scientific and technical problems; to be financially responsible for losses, and to pay back bank loans; to set prices independently; to establish wage rates based on enterprise profitability; to purchase materials and goods from individuals, collectives, state distribution organizations, and wholesale trade enterprises; to establish direct ties with foreign economic organizations; to manage their own foreign currency; and to conduct foreign trade.*

The draft law stipulated that enterprises were to be divided into two categories. National enterprises were to be the responsibility of ministries, state committees, and departments; local enterprises were to be supervised by executive committees of aymag and city administrations or members of local hurals. State and local bodies were not to interfere in the day-to-day decision making of enterprises, but they were responsible for ensuring that enterprises obeyed the law and that they did not suppress the interests of society. Enterprises were allowed to form three kinds of associations: production associations, scientific production associations, and enterprise associations to coordinate economic affairs. Finally, the draft law said that the state was the owner of state enterprises and that the labor collective was the lawful manager of a state enterprise. The labor collective was to elect a labor collective council, which was to ensure that the enterprise director (who acted on behalf of the collective and the state) met the interests of the collective in managing the enterprise. It was unclear how the relationship between the enterprise director and the labor collective would work out in practice.*

Balancing the interests of society, the collective, and the individual entailed providing scope for individual and collective initiative to increase production and efficiency. Enlarging the scope for individual initiative had three aspects: linking wages to enterprise profitability, permitting output exceeding state plans to be sold for profit, and providing employment opportunities outside the state and the cooperative sectors. In 1988 wage scales dependent on enterprise revenues were introduced to the light and food industries and to the domestic trade sector, resulting in a reduction in materials utilized by those sectors. Beginning in late 1986, state farms and negdels (agricultural stations) were eligible for state payments for output exceeding the annual average growth rate for the previous five-year plan. Individual agricultural cooperative members and workers were allowed increasing numbers of privately held livestock. The draft law also stipulated that enterprises could sell production exceeding plan targets for their own profit. In 1987 the government began encouraging the formation of voluntary labor associations, auxiliary farms, and sideline production attached to enterprises, schools, and so forth to increase production of foodstuffs and consumer goods, to engage in primary processing of agricultural goods, and to provide services. The authorities permitted the formation of individual and family-based cooperatives; by 1988 there were 480 such cooperatives. Contracting among state farms and both agricultural cooperatives and families was permitted and was increasing in the late 1980s (see Agriculture; and Industry).

Economic Conditions in Mongolia in the 1980s

In late 1989 the new openness about economic conditions brought forth a deputy minister of foreign economic relations and supply's admission that many official statistics had been falsified during the Tsedenbal years to bolster claims of economic progress. Mongolia watcher Alan Sanders, when reporting on the revelation, said "The deluge of phoney statistics has had some effect — not least on Mongolian economists, who have been using them for planning purposes." The statistics had found their way into United Nations publications and been used for years by foreign analysts projecting the state of the Mongolian economy. Users of the economic data in this book thus are warned to keep in mind the "official" nature of many of the figures used. After the admission, both the leadership and the media criticized the provision of inaccurate economic statistics to United Nations agencies as well as Mongolia's refusal to seek economic assistance from Western countries. [Source: Robert L. Worden, Library of Congress, June 1989 *]

In late 1989, the government revealed the existence in Dornod Aymag of the Mardai uranium mine and the nearby town of Erdes, which were built and run as concessions by the Soviet Union. Established by a 1981 intergovernmental agreement, the mine began shipments of uranium ore to the Soviet Union in 1988. It was also disclosed that unemployment officially was 27,000, but unofficial estimates ran as high as three time that figure. Furthermore, Mongolia was more forthright about the economic drawbacks stemming from the country's political and ideological orientation. *

Mongolian Economy in the 1980s

Major Features: Economy traditionally based on agriculture, livestock breeding, and forestry. In 1980s Soviets assisted in development of extensive mineral resources; mining and processing of coal, copper, molybdenum, tin, tungsten, and gold, accounted for large portion of industrial production. Gross Domestic Product (GDP): In 1985 estimated at US$1.7 billion; per capita income based on GDP was US$880. [Source: Library of Congress, June 1989 *]

Agriculture: Livestock predominates, camels, cattle, goats, horses, and sheep major livestock types. Crops include wheat, barley, oats, hay, potatoes, vegetables. Industry: Processing of forestry, animal, and fishery products, building materials, food and beverage, mining (particularly coal). Resources: Coal, copper, molybdenum, tungsten, phosphates, tin, rare earth, sodium chloride, nickel, zinc, wolfram, fluorite, gold. *

Exports: In 1985 approximately 2 billion tugriks (US$670 million; free on board). Cement, lumber and sawn timber, wool, large and small hides, grain, meat, clothing, minerals. Nearly all trade with communist countries (about 80 percent with Soviet Union); 3.3 percent to noncommunist countries in 1986. *

Imports: Approximately 3.3 billion tugriks (US$1.0 billion, cost, insurance, and freight, 1985). Machine tools, diesel generators, electric motors, transformers, construction equipment, gasoline and diesel fuel, iron and steel, foodstuffs, and consumer durables. Nearly all trade with communist countries (about 80 percent with Soviet Union); 1.7 percent to noncommunist countries in 1986. *

Exchange Rate: 2.985 tugriks= US$1 in March 1989.

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, U.S. government, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.

Last updated April 2016

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