When Socialism Goes Bad How capitalism can reform a corrupt socialist system

Communism - cons Disadvantages bureaucratic and inflexible little incentive for efficient management stifles individual effort freedom of choice is restricted quality, quantity, and variety of goods are limited

Central Planning in the Soviet Union “From each according to ability, to each according to need”

Under Lenin 1917 – Bolshevik revolution overthrows the Tsar (peace, land and bread) Civil war = difficult for Bolsheviks to keep promises War Communism = food surpluses had to be given to the state (while famine took over the land). Industrial production declining The New Economic Policy – attempt to stimulate industrial and agricultural production through small scale private enterprise = abandonment of Marxist vision during the dictatorship of the Proletariat

Under Stalin Believed industrialization vital to protect against capitalist invaders (more industrially developed nations) Five Year Plans – focused on heavy industrialization successful in industrializing nation rapidly consumer goods largely ignored Human Cost of Industrialization laborers overworked peasants forced off the land spies and threat of force used to encourage meeting quotas millions killed or imprisoned

Collective Farms – large scale farms where peasants could pool resources under state control to increase output. Yearly income was to be divided among the farmers who kept their own homes and animals State Farms – tended to be larger than collective farms and were run like agricultural factories Peasant Resistance – did not support collectivization and the Kulaks often burned crops and killed livestock in protest. Stalin used force against this rebellion

Economic Planning Past economic performance used to calculate future needs, GOSPLAN informs ministries of specific sectors the needs required, GOSNAB decides how goods will be distributed while other agencies set process, arrange labor, foreign trade, etc. Ministries decided whether targets can be met and draws up list of needed resources for GOSPLAN GOSPLAN coordinates all the demands, discussions and negotiations are held between the large firms, ministries and GOSPLAN to create a national economic plan Each firm is issued orders setting out production quotas

Problem of Incentive – Some Examples of Solutions Year end production profits divided up among farmers according to contribution Bonuses used to encourage factory production Higher wages assigned to dangerous work Managers exceeding quotas given special privileges These were not overly successful – the drive for quotas meant that little care was given to product quality or efficiency

The collapse of Soviet Socialism (ie Communism)

Gorbachev’s Reforms to improve Soviet exports, fund modernization and provide high quality domestic goods Plant managers given more input into production needs Stopped producing unwanted goods Large state enterprises became self-financing Small private enterprises were encouraged Joint ventures with Western companies encouraged

Glasnost – openness (allowing the citizens a greater say, and more transparency in government) Perestroika – change (reforming the communist system to adapt to the current environment)

The Results of Economic Change USSR dissolves in 1991 – now must rebuild the nation Yeltsin (elected after standing up to attempted coup prior to collapse) Calls for rapid transition to market economy Result: Lack of good infrastructure, stock markets and banking systems meant a difficult transition Value of ruble plummets, GDP drops 50% Privatization led to unemployment and inflation, along with reduced social programs Many industries, like oil/gas, went to “oligarchs” Increased number of homeless, crime rate

Russia in the 21st century 2007 was ninth straight year of growth (rebounding from the 1998 crisis) Due to high oil prices and a cheap ruble, along with important tax and banking reforms instituted by President Putin Poverty had declined and middle class is expanding Using surpluses to pay off debts and improve international financial position Possible entry into WTO Concerns: raw materials are a large component of exports (volatile), corruption (in business and government)= lack of trust for domestic and foreign investors

Journal Entry Reflect on your previous journal entry on the value of capitalism Now that you have gone through a discussion of liberal (capitalist) and anti-liberal (communist) economies, which do you prefer? Provide examples both from the theory and case studies to support your position

Other Examples China: Great Leap Forward (Cultural Revolution) North Korea: massive famine while building up military complex Cuba: dependence on other Communist nations – led to serious decline after end of Cold War, lack of human rights Venezuela: use of the economy to gain political support