THE ECONOMY OF THE FORMER SOVIET UNION

SEPTEMBER 25, 2014

NATIONAL DECISION MAKING

CHAPTER 2

COMMAND ECONOMY

PUBLIC OWNERSHIPSTATE OWNED LAND AND PROPERTY

NO PRIVATE OWNERSHIP

SOME EXCEPTIONS EX. RETAIL BUSINESSES

CENTRAL PLANNING• STATE PLANNING AGENCY MADE

DECISIONS AND NOT INDIVIDUAL PRODUCERS AND CONSUMERS

CASE STUDYCENTRAL PLANNING IN THE FORMER USSR

FIVE KEY ELEMENTS OF CENTRAL PLANNING IN THE

FORMER SOVIET UNION

1. NATIONALIZATION

NATIONALIZATION• THE TAKING OVER OF OWNERSHIP OF A

COMPANY BY THE GOVERNMENT.

• NO INDIVIDUAL OWNS CAPITAL (MINES, MILLS, MACHINES, RAILWAYS).• GOVERNMENT CONTROLS THEM AND

APPOINTS MANAGERS TO MANAGE THEM.• NO ONE CAN MAKE A PROFIT FROM THE

NATION’S RESOURCES.

2. COLLECTIVIZATION OF AGRICULTURE

COLLECTIVIZATION• THE PRACTICE OF WORKING TOGETHER IN

GROUPS SUPPOSEDLY FOR THE GOOD OF ALL.

• DURING THE 1920’S & 30’S PRIVATELY OWNED FARMS WERE SEIZED BY THE GOVERNMENT AND MADE INTO LARGE STATE OWNED FARMS. (KULAKS)• 97% OF FARMLAND WAS GOVERNMENT

OWNED.• WORKERS WORKED ON IMMENSE

GOVERNMENT OWNED FARMS. (500-700 WORKERS)• STATE FARMS ALSO SET UP TO TEST NEW

AGRICULTURAL METHODS. (OPERATED BY GOVERNMENT BUT WORKERS WERE PAID ON A WAGE BASIS.

3. CONTROLLED DISTRIBUTION OF WEALTH• CONTROLLED PLANNERS DECIDE HOW TO DISTRIBUTE

THE GOODS PRODUCED

• SOVIET UNION USED PRICE CONTROLS TO INFLUENCE BUYING PRACTICES BASED ON WHAT WAS IN THE BEST INTEREST OF THE COUNTRY.(I.E. LOW PRICES ON SCHOOL BOOKS, HIGH PRICES ON VODKA)

• STANDARD OF LIVING IN THE USSR LAGGED BEHIND OTHER MAJOR COUNTRIES

4. COMPREHENSIVE PLANNING

GOSPLAN• THE ECONOMIC PLANNING COMMISSION FOR THE FORMER USSR.

• WITH THE BEST EXPERTS, ADVISORS, COMPUTERS AVAILABLE IT WAS GOSPLAN’S TASK TO DECIDE…

•WHAT TO PRODUCE?•HOW TO PRODUCE?• FOR WHOM TO DISTRIBUTE TO?

• MAJOR ADVANTAGE OF CENTRAL PLANNING WAS IT ALLOWED THE GOVT. TO DETERMINE WHICH GOODS THE COUNTRY NEEDED/EQUALITY IN DISTRIBUTION.

5. CONTROL BY THE COMMUNIST PARTY

• GOSPLAN WAS THE ECONOMIC PLANNING COMMITTEE FOR THE FORMER SOVIET UNION.

• GOSPLAN TOOK ORDERS FROM THE COMMUNIST PARTY.

• THE COMMUNIST PARTY ESTABLISHED THE NATIONAL GOALS AND IT WAS GOSPLAN’S TASK TO ACHIEVE THESE GOALS.

DISADVANTAGES TO CENTRAL PLANNING•SLOW TO RESPOND TO CHANGES

•SHORTAGES

•ABSENCE OF INITIATIVE/INCENTIVE

•ONE BAD DECISION WAS EFFECTED THE WHOLE NATION

JOSEPH STALIN• TRANSFORMED THE ECONOMY AND SOCIETY OF THE USSR INTO THE FORM IT

WOULD REMAIN UNTIL 1991

• KNOWN FOR HIS FIVE YEAR PLANS

• THIS INVOLVED SETTING GOALS AND “QUOTAS” FOR EVERY INDUSTRY IN THE SOVIET ECONOMY IN 5 YEAR CHUNKS OF TIME

THE FIVE YEAR PLANS

• STALIN CONCENTRATED ON HEAVY INDUSTRY FOR TWO REASONS:

1. FEAR OF CAPITALIST DEMOCRACIES ATTACKING

2. KNEW WAR WITH FASCIST GERMANY WAS INEVITABLE

• IN ORDER TO ENCOURAGE PRODUCTION, PLANNERS USED INCENTIVES SUCH AS BONUSES (FOR MEETING QUOTAS) OR HARSH PUNISHMENTS (FOR FAILING TO MEET QUOTAS)

• FOR THE MOST PART, IT WAS A SUCCESS IN HELPING THE USSR “CATCH UP” WITH THE REST OF THE WORLD

THE FIVE YEAR PLANS

THE SECOND PLAN (1933-38)

• HEAVY INDUSTRY (ESPECIALLY COMMUNICATIONS)

• HUGE RISE IN STEEL PRODUCTION

THE THIRD PLAN (1938-42)

• MECHANIZATION FOR THE WAR

THE FOURTH PLAN + FIFTH PLAN (1946-55)

• RECONSTRUCTION