Soviet-type economic planning
This article is missing information about similarities and differences of Soviet-style planning in Eastern Bloc countries outside the Soviet Union.(March 2019) |
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Soviet-type economic planning (STP) is the specific model of centralized planning employed by Marxist–Leninist socialist states modeled on the economy of the Soviet Union (USSR).
The post-perestroika analysis of the system of the Soviet economic planning describes it as the administrative-command system due to the de facto priority of highly centralized management over planning.[1][2]
Characteristics
Institutions
The major institutions of Soviet-type planning in the USSR included a planning agency (Gosplan), an organization for allocating state supplies among the various organizations and enterprises in the economy (Gossnab) and enterprises which were engaged in the production and delivery of goods and services in the economy. Enterprises comprised production associations and institutes that were linked together by the plans formulated by Gosplan.
In the Eastern bloc countries (Bulgaria, Czechoslovakia, East Germany, Hungary, Poland, Romania, and Albania), economic planning was primarily accomplished through the Council for Mutual Economic Assistance (CMEA), an international organization meant to promote the coordination of Soviet economic policy amongst the participating countries. The council was founded in 1949 and worked to maintain the Soviet style of economic planning in the Eastern bloc until the Soviet Union's dissolution in 1991.
There is a small amount of information in state archives regarding the founding of CMEA, but documents from the Romania state archive suggest that the Romanian Communist Party was instrumental in beginning the process which led to the creation of the council. Originally, Romania wanted to create a collaborative economic system which would bolster the country's efforts to industrialize.[3] However, the Czech and Polish representatives wanted to have a system of specialization put into place, wherein production plans would be shared amongst members, and each country would specialize in a different area of production.[3] The USSR encouraged the formation of the council as a response to the United States’ Marshall Plan, in hopes of maintaining their sphere of influence in Eastern Europe. There also existed the hope that the less developed member states would ‘catch-up’ economically with the more industrialized ones.[4]
Material balances
Material balance planning was the major function of Gosplan in the USSR. This method of planning involved the accounting of material supplies in natural units (as opposed to monetary terms) which are used to balance the supply of available inputs with targeted outputs. Material balancing involves taking a survey of available inputs and raw
Analysis of Soviet-type planning
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There are two fundamental ways scholars have carried out an analysis of Soviet-type economic planning. The first involves adapting standard neoclassical economic models and theories to analyze the Soviet economic system. This paradigm stresses the importance of Pareto efficiency standard.[6]
In contrast to this approach, scholars such as Pawel Dembinski argue that neoclassical tools are somewhat inappropriate for evaluating Soviet-type planning because they attempt to quantify and measure phenomena specific to capitalist-based economies.[7] They contend that because standard economic models rely on assumptions not fulfilled in the Soviet system (especially the assumption of economic rationality underlying decision-making), the results obtained from a neoclassical analysis will distort the actual effects of STP. These other scholars proceed along a different course by trying to engage with STP on its own terms, investigating the philosophical, historical and political influences that gave rise to STP whilst evaluating its economic successes and failures (theoretical and actual) with reference to those contexts.
The USSR practiced some form of
Soviet-type planning is not the same as
In his work,
Features
The unique features of Soviet-style economy were an ideologically driven attempt to build a total economic plan for the whole society, as well as unquestioned paradigm of superiority of the
Michael Ellman describes specific features of the Soviet economic planning in economic and mathematical terms, highlighting its primarily computational challenges.[11] The theoretical objective of the Soviet economic planning, as executed by Gosplan, was rational allocation of resources in a way that resulted in output of desired assortment of goods and services. The plan was built and executed in annual cycles: each year, a target output of specific goods were determined and using estimates of available input resources Gosplan would calculate balance sheets planning output for all factories. As the number of commodities reached hundreds of thousands, a number of aggregations and simplifications were made to facilitate the calculations, which, until late 1960s, were performed manually.[12]
Actual performance
At first, the USSR's growth in GDP per capita compared favorably with Western Europe. In 1913, prior to the revolution of 1917, the Russian Empire had a
One 1986 publication compared Physical Quality of Life Index (PQLI) based on
Starting in the 1960s, following the market orientated Kosygin Reforms, the Soviet economy suffered from stagnation and became increasingly dependent on undisclosed loans from capitalist countries that were members of the Paris Club, while continuing to present Marxism as progressive and superior to a market economy. At the moment of its default and the dissolution of USSR, Russia alone owed $22 billion to the club,[15] with other Eastern Bloc countries taking loans on their own account.[16][17]
Widespread shortage of goods and failures of
The New Economic Policy (1921-1928) was a short period of economic pragmatism in the Soviet economics, introduced by Lenin in response to widely observed shortcomings of the War Communism system following the 1917 revolution. NEP, however, was criticized as reactionary and reversed by Stalin, who returned to total economic planning.
Falsification of statistics and "output juggling" of factories in order to satisfy central plans became a widespread phenomenon,[7][19][20] leading to discrepancies between "reality of the plan" and the actual availability of goods as observed on site by consumers.[7][18][19] Plan failures, when it was no longer possible to hide them, were blamed on sabotage and "wrecking".[21][22][23] Shortages and poor living conditions led to industrial actions and protests, usually violently suppressed by the military and security forces, such as the Novocherkassk massacre.
Performance in the Eastern Bloc
Poland
The destruction caused by
Poland during the Cold War also saw advancements in healthcare. Before the Second World War, Poland was one of the countries with the poorest health in Europe.[27] In the 1930's life expectancy in Poland was around 46 years and infant mortality was estimated at the level of 150 deaths per 1000 live births. Following the creation of the Polish People's Republic, the life expectancy in Poland increased to 70 years and infant mortality decreased to 30 deaths per 1000 live births.[28] However, this success was limited by a rise in alcohol and cigarette consumption, which saw a rise in preventable deaths.[29]
Council for Mutual Economic Assistance
During the 1950s, the economic alliance between members of the Eastern bloc and the state monopoly acted as a safety net in the face of economic sanctions being imposed. As a result, the Eastern Bloc countries started to develop autarkic tendencies which would last until the Soviet Union's dissolution.[30] Trade was also able to grow, not just between member states but within them as well,[4] and the agrarian states of the eastern bloc began to industrialize. The Soviet Union also gave Eastern bloc countries subsidies in the form of raw materials at prices lower than those offered in the global market. However, despite these efforts, varying degrees of development still remained between the industrialized countries and the more agrarian ones, which would contribute to the Bloc's economic stagnation in later decades.[citation needed]
The council began to lose its credibility from the 1960s onwards, because disagreements between member countries over the necessity of various reforms led to the slowing of economic growth.[citation needed] In order to encourage economic integration and maintain soviet economic planning, the International Bank for Economic Cooperation was established in Moscow in 1963, and the 'transferable ruble' was introduced.[4] The integration failed to materialize for a number of reasons. Firstly, the new currency was separated from foreign trade as is characteristic of centralized planned economies, and so was not able to perform the various functions of money outside of being a unit of account [31] Additionally, integration failed due to a general lack of interest, as well as the implementation of 'market liberalization' policies within several member states throughout the decade.[4] Hence, the CMEA switched gears in the second half of the 1960s, and instead a reform was proposed which encouraged countries to pursue their own specialized industrialization projects without the needed participation of all other member states.[32] East Germany, Poland, Hungary, and Czechoslovakia agreed to these terms, however Bulgaria and Romania did not, and many political officials throughout the Eastern bloc prevented the 'market liberalization' policies from being implemented at the CMEA level.[4] The inability for member countries to reach a consensus about economic reforms coupled with the desire to create 'dynamics of dissent' within the Council against the USSR contributed to a lack of planning coordination by the CMEA throughout the decade.[32]
In the 1970s, the CMEA adopted a few initiatives in order to continue economic growth and to modernize the economy. Firstly, the Eastern bloc heavily imported technology from the West in order to modernize, increasing the debt of the Eastern Bloc to the West dramatically.[4] In 1971, the CMEA introduced the 'complex program', designed to promote further trade integration. This integration plan heavily relied on countries specializing in the production of certain goods and services, and parallel initiatives were discouraged and to be avoided. For instance, Hungary specialized in the manufacturing of buses for local and long-distance transport, which encouraged other member countries to trade with Hungary in order to acquire them.[4]
However, the economic problems of the Eastern bloc continued to increase as reforms failed to pass and specialization efforts failed to incentivize states to improve their products.[citation needed] This resulted in economic growth which paled in comparison to that of the West. In a study assessing the technical efficiency of two Eastern bloc countries (Hungary, Poland) from the 1970s to the 1980s and comparing it to that of developed and developing countries, it was found that the two European socialist countries were less efficient than both developed and developing countries, and this efficiency gap had only widened in the years of analysis.[33] It was seen that Hungary was more efficient than Poland at this time.[33] The raw material subsidies (Molotov Plan) that the Soviet Union had provided since the 1950s were drastically reduced to the point of insignificance by the end of the 1980s, due to Eastern bloc countries having to buy industrial goods at a higher price than what was offered on the global market.[4] The lack of support from the USSR as well as the lack of political consensus over reforms only hastened the decline of the CMEA.
Advantages
From a neoclassical perspective, there are two theoretical advantages to Soviet-type economic planning: the elimination of inflation, and the elimination of unemployment.[34]
Firstly, complete price stability is achievable because of the state's control over setting prices and the money supply. To maintain a fixed currency value, all the state has to do is balance the total value of goods available during a given planning period with the amount of wages it pays according to the following equation,[35] where represents the general retail price level, accounts for the quantity of consumer goods and services, is total household income (wages paid), is
In practice, the USSR suffered from both open and repressed inflation throughout its history, the latter becoming especially pronounced in the second half of the 1980s.[36]
The second advantage is the ability to eliminate
Those scholars who reject the neoclassical viewpoint consider the benefits of STP that the USSR itself adduced. One is the ability to control for
Under the model of STP, during the 5 Year Plans, the USSR was able to rapidly industrialise and modernise their industry. The growth of GDP per Capita in the USSR in this period exceeded some Western countries. Planning led to high rates of capital accumulation, rapid GDP growth, and rising per capita consumption.[41] Industrial production as a result of the 5 Year Plans was also rapid. During the first 5 Year Plan for example, Cast Iron production reportedly saw a 188%, going from 3,300,000 tonnes to 6,240,000 tonnes a year.[42] In 1928, industrial output of electricity was 5,000,000,000 kW/h, rising to 13,000,000,000 kW/h by 1932, an increase of 270%. Industrial output of cars in the same time frame saw an increase of almost 3000%, rising from 0.8 pieces (in thousands) up to 23.9.[43]
Disadvantages
From a neoclassical perspective, there were many disadvantages to STP. They can be divided into two categories:
Macroeconomic disadvantages included systemic
The microeconomic disadvantages from a neoclassical perspective include the following:[47]
- Encouragement of black-marketactivity because of fixed resource allocation.
- Low quality of Soviet goods induced by shielding them from world markets.
- The neglect of consumer need because of the challenge in measuring good quality.
- The tendency of enterprise-level Soviet managers to understate productive capacity in fear of the ratchet effect. This effect resulted from an enterprise overproducing in a given plan cycle. They would have to match their new level of higher production in the next cycle as the plan was adjusted to fit the new data.
- An anti-innovation bias (also from fear of the ratchet effect).
- Storming (shturmovshchina), i.e. the hurry to complete the plan at the end of a planning cycle resulting in poor production quality.
- Scattering of resources, i.e. excessive spread (raspylenie sredstv), where too many projects (especially construction) would have been started simultaneously and it took much longer to complete because of a lack of available inputs on time
Scholars who reject the neoclassical approach produce a shorter list of disadvantages, but because these disadvantages are valid even from the Soviet perspective, they are perhaps even more damning of STP than those listed above. These scholars consider STP's inability to predict things like weather, trade and technological advancement as an insurmountable drawback to the planning procedure.[48] STP's use of coercive techniques such as the ratchet effect and labor camps which are argued to be inherent to STP on the one hand ensured the system's survival and on the other hand resulted in the distorted information that made effective planning challenging if not impossible.[49] Lastly, these scholars argue that the semantic limitations of language made it impossible for STP planners to communicate their desires to enterprises in sufficient detail for planning to fully direct economic outcomes.[50] Enterprises themselves under STP still made a variety of economic decisions autonomously.
After the collapse of the USSR, other scholars have argued that a central deficiency of Soviet economic planning was that it was not premised on final consumer demand and that such a system would be increasingly feasible with advances in information technology.[51][52]
See also
- Eastern Bloc economies
- Economic planning
- Economy of the Soviet Union
- Five-year plans for the national economy of the Soviet Union
- Material balance planning
- OGAS
- Planned economy
- Project Cybersyn
- Socialist calculation debate
- Socialist economics
- State capitalism
- State socialism
- Administrative-command system
References
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