1. Planned Economy (Command Economy) Economy directed by the government All means of production (land, labor, capital) are state owned and controlled. The government makes all economic choices of what to produce, how to produce, how to distribute.

2. Rise of the Planned Economy People believed that other economic systems were exploiting the working class. Came as a response to the industrial revolution. Some people believed that if the government controlled the economy and chose what should be produced, how and for whom; there would be greater economic equality.

3. Problems Created by the Industrial Revolution Low wages Long hours Urbanization –Crime –Poverty –Disease –Pollution Unfair labor practices Unsafe working conditions

4. Elements of a Planned Economy Cooperation Public ownership Equality as incentive Central planning –A group of economic experts carry out the goals of the government. –See “Corkscrews vs Bottle Openers” page 325 Ideologies

5. Advantages of the Planned Economy Income & wealth more evenly distributed Little unemployment Experiences fewer booms and busts in economy Profits used to expand production Production of goods and services is planned to meet society’s needs Consumers receive basic necessities.

6. Disadvantages of the Planned Economy Lack of incentive Lack of technological progress Bureaucracies (planning creates inflexibility) Black markets Loss of individuality Inefficient and widespread waste of resources.

7. Father of Communism Karl Marx was the most well known advocate of the planned economy. Wrote the Communist Manifesto & Das Kapital (with Engels) Moved by the problems of the industrial revolution. Did not believe in gradual change rather REVOLUTION. Believed workers (proletariat) must replace the ruling class(bourgeoisie) through revolution.

8. The bourgeoisie exploited the workers by forcing them to create goods and services with a greater value than the wages received. Capitalism would bring itself to ruin –Economic depression –Imperialism –Wars –Revolution by the proletariat. After a series of revolutions capitalism would be eliminated and people would live in a cooperative and voluntary society. Production would be distributed by the motto… “from each according to his abilities, to each according to his needs.” Marx’s Beliefs

9. The Ideal Marxist Society Individual differences would still exist but no one could amass enormous wealth while others lived in poverty. Equal opportunity (classless society) Abolish private property and profit motive (public ownership) With the existence of surplus goods crime and greed would not exist. Common Good

10. Lenin’s Additions To Marxism Adapted Marx’s ideas to conditions in Russia. Views referred to “Marxist-Leninist” Marx revolution could only occur in a capitalist and industrialized country Lenin organized a dedicated group of professional revolutionaries (who sought support from peasants and workers) to overthrow Russian autocratic government.

11. CASE STUDY Central Planning in the Former USSR FIVE KEY ELEMENTS OF CENTRAL PLANNING IN THE FORMER SOVIET UNION

12. 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.

13. 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.

14. 3. CONTROLLED DISTRIBUTION OF WEALTH Controlled planners decide how to distribute the goods produced. (Gossnab determined how commodities were distributed.) 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 because… –Planners believed in economic equality, those who were efficient producers had their efforts used to provide income for others. –Planners concentrated on needs for the future rather than wants for the present.

15. 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.

17. Disadvantages to Central Planning –Slow to respond to changes –Shortages –Absence of initiative/incentive –One bad decision was effected the whole nation

18. 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.

20. A Little More On… War Communism:  Lenin introduced this right after the Communist Revolution to bring about the perfect Communist Society – occurred during the civil war  Involved nationalization and was a failure  Actually resulted in DECREASED agricultural and industrial output.

21. A Little More On… The New Economic Policy Introduced by Lenin to try and kick-start the economy Re-introduced some limited prive ownership of land and business, allowed farmers to sell surplus for profit Obviously this is a step away from “pure” communism, but Lenin saw it as “one step backwards to take two steps forward” Only intended to be a temporary policy Had limited success

22. 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

23. The Five Year Plans The First Plan (1928-32) Concentrated on heavy industry (oil, construction, steel, etc) Citizens asked to make sacrifices in their standard of living because production was not concentrated on consumer goods Stalin promised to concentrate on consumer goods during the second plan (HAHAHA!)

24. 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

25. 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

26. Mikhail Gorbachev Took power in 1985 – USSR way behind in standard of living and quality of life Huge lineups for basic necessities USA and USSR in the midst of the Cold War Gorbachev was faced with an economic crisis

27. Gorbachev’s Changes: Opening Pandora’s Box Reform was needed to keep peace and stability Gorbachev wanted change and reform for his people, but really had no idea what would happen once he allowed this to take place. You give ‘em an inch…..

28. Gorbachev’s Changes GLASTNOST Means “openness” A policy allowing the citizens to “open up” through freedom of expression and dissent The hope was to stimulate creative sprit and boost the economy PERESTROIKA Means “restructuring” A program of economic reforms Limited private enterprise and and pursuit of profit

29. Glastnost and Perestrokia Gorbachev as caught between two rival factions in the Communist Party: - The Communist hardliners (conservatives) who thought he was crazy for deviating from past practice and creating change way to fast - The liberal reformers who wanted him to speed up his program reforms and bring in even more change Gorbachev attempted to appease both, until the Soviet Union ceased to exist on December 25 th, 1991.