THE DEVELOPMENT OF THE SOVIET ECONOMY
25 March 1953
Member of the Faculty, ICAF
School of Foreign Service, Georgetown University.
Publication No. L53-120
INDUSTRIAL COLLEGE OF THE ARMED FORCES
Washington, D. C.
The Marxist ideology you are probably familiar with. I merely want
to run through certain items in it. These were in the minds of the
Bolsheviks when they came to power. First, the Marxist ideology
assumes what they call dialectic materialism.
That is, they assume that what happens is the result of conflict,
dialectic conflict, and you get an outcome from that conflict.
The materialism side of that indicates that the basic struggle is
on the material level, and what happens on that material level
determines what the structure of society will be like on other
levels, such as the religious, political, the ideological, literature,
science, and so forth. So they have, then, dialectic materialism.
The second factor that they had in their minds was class struggle.
“All history is the history of class struggle,” said Marx. Third,
they believed that the state is a class organization of power, for
all history is the history of class struggle. They said that the
history of the state has always been the history of an upper class
dominating and exploiting a lower class. So the state, then, is a
Fourth, they believed that there would be an inevitable revolution,
that, as a result of the class struggle, the rich, as Marx said, would
get richer and richer, and fewer and fewer in numbers, while the
exploited proletariat would become more and more numerous, and poorer
and poorer; and that if this continued, inevitably they would reach a
point where there would be very few rich and a very large number of the
exploited, and it would be very simple for the exploited to take over
from the few rich; so there inevitably would be a revolution.
The fifth assumption of the Marxist ideology is that this would be
followed by a dictatorship of the proletariat; namely, the proletariat
as the result of the inevitable revolution having taken over the
control of the economic system and of the instruments of production
of the state, they would have to have a period of dictatorship in
which they would change the other levels of society to correspond
with the new Communist economic structure. So they would have to get,
then, a Communist political system, a Communist school system, a
Communist religious system, a communist ideological system, and so
forth; and that, would require a dictatorship.
Lastly, when they finally had the whole thing set up so that in all
levels of society they had a Communist society, there would no longer
be any need of a state. This is the sixth aspect of this Marxist
ideology, that the ultimate outcome would be the Communist society,
a Communist society in which there were no groups exploiting anyone
else and, accordingly, there would be no need of a state—a kind of
glorified Garden of Eden anarchy.
This Marxist ideology was in the minds of the Bolsheviks when they took over.
The second factor which influenced what happened was the past
history of Russia itself. Here I am going to sum that up in three
words, which means it is very much falsified. First, the
economy of Russia was “backward”; second, it was "exploitative”;
and third, it was “state-dominated”, in 1917 and for a long
period before 1917. When I say that the economy of Russia was
“backward” when the Bolsheviks arrived on the scene, I mean that
it was very largely agricultural, and that it was a poor agriculture,
not a productive or advanced agriculture.
The Bolsheviks had commerce, but it was not so dominant as it is in
an advanced society, and they had relatively very little industry.
Their agriculture was extensive rather than intensive. For example,
they still used a three—field system in which one—third of the land
that was being cultivated was left fallow each year. The peasants
in some places still had scattered strips. They had to spend a good
deal of time walking from one strip to another. There was a great
lack of livestock, which meant there was a lack of manure. There was
a lack of nitrogen. This indicated a lack of leguminous plants which
would restore the nitrogen content to the soil. There was only a
small portion of the land cultivated; only 25 percent of the land
of Russia was cultivated at the beginning of the century, compared
with 40 percent in the rest of Europe.
The unit yields per acre were much smaller in Russia than in other
places, places in the West. For example, they were about one—quarter
of the unit yields of England and of Denmark, and about one—third of
the unit yields of Eastern Germany; and one—half of the unit yields
of France and other places.
There was a lack of equipment and the equipment they had was quite
primitive. For instance, half of Russia’s peasants at the beginning
of the century still used wooden plows; they still engaged in hand
sowing; they still harvested with a sickle, and threshed with a flail
by beating out the grain—very primitive methods. Many of the peasants
had inadequate areas. One-sixth of the peasants had less than 10
acres, and that meant that one-sixth of the peasants had only about
4 percent of the land; and these peasants who had inadequate land
had to find work else-where.
As a result of this there was a great deal of rural underemployment—I
wouldn’t say rural unemployment—they were busy part of the time—but
there was a good part of the time when most of the Russian peasants
were not doing very much.
There was a great population pressure on the land. For example, the
number of persons per square mile was about twice what it was in the
United States at the beginning of this century. The are of the land
cultivated per person on the land was about 3 acres for each person—3
acres, compared to 13 in the United States, and 8 in Denmark.
That agricultural system obviously was primitive. It has been
estimated that the number of underemployed and unemployed people in
rural areas in Russia must be counted in millions at the beginning
of the century. Estimates ran them over a long range sometimes from
5 million up.
Commercial relationships at the beginning of the century were poor.
They had very poor roads and a poor road system. The roads we dusty,
first tracks for much of the year, and completely impassable for
certain periods of the year. For instance, in the spring they were
just mud holes—you couldn’t get through at all. The river system was
very helpful, but most of it was frozen up for a good part of the
year; and the rest of it led to places to which no one really wanted
to go. For instance, all the Asiatic rivers led to the Artic Ocean.
The railroads had been built only after 1890—there had been a few
before. These railroads were designed to take crops from the
agricultural areas and export them; so they ran to the seaports,
and to a certain extent they ran to the northwestern part of Russia,
where the big cities were; but they were designed to drain food
from the countryside.
Industry was inadequate at the beginning of this century, as you know.
It was very largely based upon the railroads. Thus, it was to be
found in metals, coal, and petroleum; but because it had come into
Russia so late, the Russian industry was very large scale. Five percent
of all the factories had more than 50 percent of all the workers in
industry. But, while the factories were large, they were not what we
can call modern, because the amount of power available to a worker in
such a factory was very inadequate. The horsepower in Russian industry
was 1.6 horsepower per hundred workers, compared with 24 in England at
the beginning of the century, or 13 in Germany.
So the Russian past history, economically, was backward. It was also
exploitative. That is to say, the food, as I have indicated, was drained
from the rural areas and exported, or was used to support a rather
small upper class. There is no objection to a small exploitative
economy—don’t think I am appealing for social justice; I am not. An
exploitative economy is necessary, and is justified only if the surplus
gathered together is being used for some productive purpose, notably,
for capital investment. But this was being done in prerevolutionary
Russia to a rather low degree. There was a low standard of living,
generally: excess export of consumers’ goods; top-heavy consumption,
in the sense that a very small group at the top consumed a rather large
portion of the total consumption; a top-heavy state bureaucracy, and a
large number of Russians living abroad in leisure.
The drain resulted, of course, from unequitable ownership; from legal
claims; from differential taxes which were designed to reduce the
consumption of the lower classes; from differential freight rates and
price differentials. For example, the grain which traveled large
distances to the seaports traveled at a lower freight rate than
short-run rates which would take food, for instance, to the next
town. As a result, much of the materials which we would expect to
have been used in Russia were exported.
Russia had 19.5 pounds of sugar per capita per year as its consumption
in 1900, compared with 92 pounds per person per year in England—you
have 19.5 to 92 between Russia and England. One-fourth of Russia’s
sugar crop was exported and it was sold in London. The Russian sugar
was sold in London at 40 percent less than the price for which it was
sold in Russia. Similarly with cotton consumption—about five pounds
of cotton per capita in Russia; 39 pounds in England; but note, a very
considerable part of the Russian cotton crop was exported, mostly to
China and India.
Russia produced almost half of the world’s petroleum in 1900 and
exported much of it. The consumption in Russia of kerosene, which
the Russians needed, was very low; 60 percent of their kerosene was
exported. The consumption of petroleum in Russia was 12 pounds per
person in 1900, compared with 42 pounds per person in Germany.
Of the exports in Russia, 50 to 75 percent were rural products; 40
percent were cereal grains; which shows quite clearly that it was a
drain from the countryside and was being exported. As a result of this,
the official investigation in 1895 in 46 provinces of European Russia
showed that more than half the peasants lacked a minimum of bread and
only 20 percent of them had what was regarded by the government at that
time as an adequate supply of bread.
That is the second point in the past history of Russia. The first was
that it was backward; the second was that it was exploitative. The
third I will merely give a sentence on—it was dominated. To give you
an example: Railroads were built largely at state expense; 74 percent
of its capital was owned by the state. All the land in Siberia, with
minor exceptions, was owned by the state. People who worked on it or
lived on it were living on it with use only, not with ownership.
The third factor which influenced what happened afterwards was economic
realities. I will not say much about that. You know you must have
resources, materials, knowledge, labor, power, and you must have
organization of these if you are going to produce anything. Naturally,
the Bolsheviks discovered that after they came in.
The fourth factor which influenced their behavior was what I call
external pressures, real or imaginary, that gave rise to a need for
defense. Inevitably such a need for defense drew resources from capital
investments and from consumption. This threefold appeal for the
resources of Russia such as manpower, materials, energy, knowledge,
and so forth—whether those resources should be used for consumption,
capital investment, or defense, that has been the basic problem of the
Bolshevik economy from the beginning and remains so today.
Now, those four factors gave certain results over the period after
1917, and those results I am going to divide into four periods. The
first period, relatively brief, covers from November 1917 to June
1918. I will call that “consolidating power.” The second period is
called “the period of war communism”—from June 1918 to March 1921.
The third period is called “the period of the new economic policy”
(the NEP), and that ran approximately from March 1921 to October
1928. The fourth period is “the plan era.” That is the period of
the five Five-Year Plans, and that ran from October 1928 to the
present. We are now in the third year of the fifth Five-Year plan.
I am going to discuss those four periods in order, beginning with
the first—consolidating power. The Czarist government fell from
power early in 1917 because of external pressures and not because
of internal pressures. It was destroyed by the German attach and
the success of the German attack. As you know, when it fell from
power, it was succeeded by what was supposed to be a parliamentary
government, a coalition government of diverse parties of the more
or less moderately left the Kerensky government as it was called.
That Kerensky government attempted to continue certain policies of
the Czarist government. For example, they attempted to continue with
the war against Germany, and second, they attempted to continue with
the existing agrarian structure; that is, land owned and the products
of the land distributed approximately as they had been before.
Making use of these two tactical errors of the Kerensky government,
the small minority of Bolsheviks were able to come to power in November
1917. They did it by offering peach and land—peach with Germany, ending
the war, which most people wanted, and land to the peasants. Since
many of the soldiers were peasants, this offer of peace and land
created a tremendous appeal for the Bolshevists, an appeal that
was not based on the Marxist ideology, was not based on the hope
of a future Communist state at all, but merely upon this immediate
aim—peace and land.
Accordingly, the Bolsheviks came to power and they came to power in
a situation for which their ideology did not equip them. The Marxist
ideology had said that there would be an inevitable revolution when
the rich got fewer and fewer in numbers and the poor got more and
more numerous and that it would occur at a very late stage in a
fully industrialized society. Here was Russia with a Bolshevik
government presumably in control, which did not have a fully
industrialized society, and as a result it did not have a proletariat
on which to base its support, and it did not have a highly
industrialized capital equipment that would make it a powerful
state and a productive state. Accordingly, as the Bolsheviks came
to power, they were faced with what seemed to them an almost insoluble
problem: Howe were they going to get the fully industrialized state
which alone could permit a Communist society to function?
The solution to that, according to Lenin, would be a long period of
state capitalism. What he envisioned apparently was a proletariat
dictatorship of Bolsheviks, that, since the proletariat were not yet
there, the Bolsheviks would take over and would more or less hold
control of the state during an extended period in which capitalism
would be allowed to develop and would build up the industrialized
society which they expected and, of course, which they needed.
During that period the small group at the top, which was merely
holding the wheel, so to speak, until they were ready to start
steering, would do what it could to promote state capitalism and
to develop and industrialize society, and would prevent any actions
which ultimately would prevent establishing a really Communist state.
Now, before any of this could be done, it seemed clear to Lenin that
he had to get support. Since he didn’t have proletariat support,
where would he get it? The answer was, from the peasants, and
accordingly he brought forth the idea that there must be a close
alliance between the peasants and the workers. The soldiers
presumably were made up of workers and peasants. Political control
was the real issue of the first eight or nine months of the regime,
from November 1917 to June 1918—consolidation of power, without any
attention, really, to ultimate communism or ultimate Communist
conditions, and with little attention indeed to ultimate economic
In order to obtain the alliance which they needed, they continued
to repeat the peach and land slogans which had brought them to
power. By a land decree of November 1917, the government and local
governmental units took over the ownership of all land—presumably
to be used by the peasants. The gran trade was nationalized. Peace
was made in March 1918 with Germany, on very severe terms, but at
least it gave peace. Progressive labor legislation was installed
to win the workers, with an eight-hour day, no work for anyone
under 16 years of age, no night work for females, paid vacations,
sickness and unemployment insurance. It looked marvelous. The only
trouble was they didn’t have an economic system to support any such
legislation and practically none of it went into effect.
But the workers took time off and relaxed and, as a result of this,
and as a result of sabotage from the management, and as a result of
a whole lot of different things, there was a tremendous fall in
production. The undisciplined of the workers, sabotage by the owners,
and finally, foreign invasion, brought an acute crisis.
It is quite clear in that early period that the chief aim was merely
to get power and somehow hold it; and that in their attempts to get
that aim and to achieve it they sacrificed a great deal of economic
realities, and as a result destroyed economic production. The crisis
to which I have referred, caused by the undisciplined of the workers,
sabotage by the owners, and above all by the civil war and the invasion
of foreign countries, led to the next state, stage two: the period of
war communism which lasted from June 1918 to March 1921.
In June 1918 a decree of general nationalization was passed. It took
over all enterprises with over a 400,000-dollar capital in industry;
37,000 firms were taken over in this way; all private trade was
forbidden; presumably everything that was produced was to go to
the state and the state would distribute products where it would
In 1920 all factories with more than 5 workers using power, and
all factories with more than 10 workers not using power, were
nationalized. Compulsory requisitioning of agricultural products
was established; that is, the government seized from the producers,
the peasants and the farmers, all except a fixed minimum. This
grain was then bartered for industrial products. The grain was
taken and distributed to the factories; their goods were taken
and distributed to the farmers. Rationing and price fixing were
established. This is the period of war communism.
The results of the period were approximately as follows: In the
first place, there was tremendous dissatisfaction due to the civil
war. A very considerable fraction of productive resources, especially
agricultural resources, were destroyed. The railroads were largely
destroyed. The number of locomotives on hand fell from 14,500 at the
end of 1917 to 4,000 at the beginning of 1920; that is in approximately
two years they fell 10,500. Industrial production fell by 1920 to
one-seventh of the industrial production of 1913. Starvation and
disease were everywhere. People fled from the towns. Most towns
lost between one-quarter and one-third of their population. Moscow
lost one-half of its population. The peasants went on strike. Since
all that they produced above a fixed minimum was being taken by the
government, they were quite prepared to follow their production to
fall to that minimum. Great areas went out of cultivation. In 1920
only half as much land was sown as had been sown in 1913. In certain
areas as in the Volga and the Caucasus, only one-quarter as much was
planted in 1920 as had been planted seven years previous, in 1913.
The total harvest of 1920 was probably less than 40 percent of the
Now, in order to collect the grain which the government was demanding,
soldiers had to be sent out. There were armed classes between soldiers
and peasants. Government agents who went out to supervise this were
murdered in the night. There was a 100-percent inflation in prices in
three years. There was a bureaucratic breakdown. No one knew who was
doing what. Generally, there were seven people delegated not to do each
job. It is estimated that by July 1920 one-quarter of the population of
Petrograd—Leningrad now—were bureaucrats—officials of the government.
That sounds familiar, doesn’t it?
The government clearly was losing the support of the peasants and even
of some of the workers, because the workers also were starving. It became
quite clear that a change must be made. But such a change could be made
only after the civil war was more or less finished and after the foreign
invaders had withdrawn. That was accomplished at the beginning of 1921.
The new policy which was adopted is the famous NEP, the new economic
policy. This new economic policy was established at the Tenth Party
Congress in March 1921. The purpose of the NEP was both political and
economic. Politically, it sought to restore the alliance between the
peasants and the workers. Economically it sought to restore production.
The method by which this was done was to restore very largely a free
economy. Agriculture was freed almost completely. This was done by
reversing the demands upon the farmer. Prior to this they had given
a minimum t the farmer and all above that was to go to the state. Now
they established a fixed amount to go to the state and all above that
would go to the farmer.
There was a tax in kind in place of the previous requisitioning. This
tax in kind was to yield about one-half of the previous requisitions,
and it was estimated this would provide a minimum food allotment for
the army and for the workers in the most essential industries. All the
surplus above that tax was left to the peasant and he could trade it
as he wished. This would encourage more sowing and better production,
that is, in agriculture.
Practically all commerce was free. Rationing, of course, had to be
continued. As a result of this there grew up a character who was known
in Russian history as the NEP man. The NEP men were those who every
morning hastily got out with a large bag and went out into the country
with some things they could get from the city—industrial items or
tools, or almost anything they could lay their hands on. They went
out in the country and swapped these items with the peasants for
various kinds of food which they brought back into the city.
Banking was not free. Banking and finance were left in government
hands. However, inflation was curtailed by devaluating the paper
ruble to one million, so that one million of the old rubles equaled
one of the new rubles, and this new ruble was stabilized in 1924.
Agriculture was thus freed, commerce was almost entirely free, banking
and finance were not free at all. Industry was missed. First, heavy
industry was left under state control, on the state budget. Second,
all other industry was organized into about 500 cartels which were
called trusts. These were financially autonomous. It was expected
they would buy in the market and sell in the market, pay their own
way and, by their sales, hope to cover their costs. These cartels
were made legal persons in law.
The managers of the factories that made up the cartels had freedom
in regard to the production in their own factory, but they had no
control over buying and selling. That was done by the cartel to which
The third portion of industry was small units which were left completely
free. So they had state ownership which continued for heavy industry;
an autonomous monopolized structure for most industry; and then freedom
for the smaller, less important industry. The result of this—the NEP men.
This private trade handled about one-half of all retail trade and about
one-fourth of the wholesale trade; but these fractions declined
steadily during the period 1923 to 1928. Another result was the
recovery from the terrible crisis, the two famines of 1921 and 1922.
Because they now had a competitive agricultural system and a cartelized
monopolistic industrial system, they had the problem of price parities,
which we have heard so much about in this country. That is to say,
agricultural prices fluctuated much more widely than did the monopolistic
industrial prices. This had two stages in it—the first state, early in
1922 and early in 1923, is called the sales crisis; the second stage,
in 1923 and after, is called the scissors.
The sales crisis arose when the monopolized new trusts which controlled
industry tried to get working capital by liquidating the products they
had at hand as rapidly as possible, that is, by selling. They sold the
products they had at had to get cash and capital for working purposes.
This meant that they were competing with each other. It meant they were
selling at any price so they could get the money; the prices of
industrial products fell drastically. This was economically completely
unjustified. The shortage of industrial products would not have warranted
falling prices. This meant the peasants were in an advantageous position.
Agricultural prices, because of the shortage of food, were high;
industrial prices were temporarily very low. That is called the sales
As soon as the system got organized in the following year—1923, the
scissors took over and the situation reversed. That meant that as
agricultural production increased, agricultural prices tended to fall,
since they were competitive; but the industries, having a monopolistic
system, as soon as they got the cash they wanted, were able to function
arbitrarily, and they raised their prices in order to recapture some of
the losses they had made in the preceding sales crisis. This gave rise
to a parity problem and, once again, discontent of the peasants.
The new economic policy lasted for many years. During those years they
were facing certain basic problems, the real basic problem being a
political one, which was that: Is it possible over a long-term period
to build up a Communist system in one country. The left Communist, led
by Trotsky, said it wasn’t. They said, “We must have a world revolution.
If we do we won’t have to worry about defense; we will have a lot of
people on our side. We won’t have to worry about industrial capital;
we will have the German industrial system to supply us with machinery
The other group, the group that ultimately triumphed, led by Stalin,
said “Socialism in one country is necessary.” It became clear that they
could not get a Communist regime in Germany, which was the turning point.
If they couldn’t have the world revolution, they would have to have
socialism in a single country. If you have socialism in a single country,
it means you must get labor and capital internally—this meant from
peasants. People had to be drawn in from the country, and the peasants
once again had to be exploited by having a considerable fraction of
what they produced take away and used to build up industrial machinery
or to feed the laborers in the city. This meant that the worker-peasants
alliance once again inevitably had to be broken. If they imported
machinery, the same position would be faced. They would have to draw
food or other goods from the country and export them to pay for the
machinery; so the problem remained the same.
The decision which was ultimately made was to exploit the peasants and
build up a heavy industrial system. The decision was made to emphasize
heavy industry rather than light industry, because heavy industry would
give them future production rather than immediate consumption, because
heavy machinery would make them stronger in the future, because they
admired the American methods, and above all, because heavy industry
would strengthen them for defense.
Now we will follow a sequence. First, the failure of the German revolution
made socialism in one country inevitable. This made an acute need for
defense. This made an emphasis on heavy industry rather than on light
industry which might have been used to raise conditions and the
standards of living. Emphasis on heavy industry made by any immediate
returns to the peasants for their food and manpower impossible both
the food and the manpower had to be sucked into the towns. This gave
rise to the danger of a peasants’ production strike such as had
occurred previously. This danger of a peasants’ production strike
made it necessary to destroy the freedom of the peasants to strike
or to reduce their production.
This made necessary a ruthless dictatorship, the end of all pretense
of democracy, the establishment of a one-party system which exploited
both peasants and workers alike. Accordingly, the first step toward
this end was the Five-Year Plan--the first Five-Year Plan, 1928. Now,
incidentally, it is not worthwhile, because the time is running so
short, to give you the details of those Five-Year Plans, except to
say there were five of them and the first began in 1928. The first
one, however, was finished in four years and two months; so that
took it to December 1932. Since then they have run in calendar years.
So the second Five-Year Plan was January 1933 to December 1937. The
third Five-Year Plan was interrupted by the war; the fourth Five-Year
Plan began in 1945; and the fifth Five-Year Plan began in 1951.
The first step in the first Five-Year Plan thus was to reduce the
peasants. Accordingly, 20 million farms were ruthlessly forced to
join together to form about 250,000 large-scale units. Of those,
more than 200,000 were collective farms run on a cooperative basis,
and paying large portions of their production of the state. The
other 50,000 or less were run directly by the state.
These efforts to collectivize agriculture led to an acute famine.
The reason was that when the peasants were forced into the collective
units, rather than take their goods and, above all, their livestock
and hand them over to a collective unit, they killed them and ate
them. So the livestock were killed off by the peasants. In retaliation
for this and to be disciplined, the peasants were ruthlessly
starved to death. The goods they had produced and had reserved
were taken away from them and were taken to the towns. The result
was the tremendous famine of 1932 in which perhaps a million starved.
In order to continue this exploitation of the peasants, price
differentials were established for different kinds of goods and
a very substantial sales tax was put on goods. It has been
estimated by one student that from 1927 to 1948 consumer prices
were allowed to go up thirtyfold--the prices of consumers’ goods
went up thirtyfold, so they had to pay to get them. Wages went
up elevenfold. Those together would reduce consumption. Capital
goods, producers’ goods, and armaments went up in all about twofold
or threefold. Thus, the government would take agricultural
products from the farmer at low prices, sell them at high prices,
take the difference and use it to industrialize--use it to pay
for the building up of factories and armaments. Moreover, a sales
tax was put on most goods that were purchased and that sales tax
varied between 50 and 80 percent--it was generally about 60 percent.
This also kept down consumption, because people’s incomes were used
up. Rationing for most goods continued for the early part of the
Five-Year Plans. In fact rationing was continued, except from 1936
to 1941, and since December 1947, when rationing was about at a minimum.
In addition to this, people who didn't believe they had enough
could go and buy extra, but they had to buy in commercial stores,
where prices were many times higher. This again used up purchasing power.
Now, that is the essence of the plan system. You will be more or
less studying what the plan system produced in the rest of this course.
Let me sum up the four factors that determined what happened: The
ideology from Marx, which certainly didn’t fit the situation at
all; the past history of Russia--it was so backward; the realities
of economic existence; and the external pressures--the necessity for defense.
Those four factors, playing against each other in different
proportions at different times, gave rise to four successive
periods: The first period, in which they were doing anything to
get in power that lasted for about eight months; the second period
of war communism, which lasted for about three years and which
ended when the civil war ended, in 1921; the third period of the
new economic policy, or the period, if you wish, of state capitalism,
which lasted for about seven years; and then the last period,
which has lasted since October 1928, the plan era, in which there
has been a ruthless exploitation of the peasants and a very
considerable exploitation of industrial labor in order to build
up both capital equipment in industry and armaments for defense.
I thank you, gentlemen.
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