Centrally Planned (Command) Economies Case Study: The Soviet Union

Background The USSR was a federation of 15 republics – a great variety of ethnic groups/cultures The USSR was a federation of 15 republics – a great variety of ethnic groups/cultures This diversity meant that the USSR was difficult to govern despite having the appearance that it was “unified” This diversity meant that the USSR was difficult to govern despite having the appearance that it was “unified” The USSR was created through revolution – lead by Vladimir Lenin during World War 1 The USSR was created through revolution – lead by Vladimir Lenin during World War 1 Economic ideals for the new society were based upon the theories of Marxism and Collectivism Economic ideals for the new society were based upon the theories of Marxism and Collectivism

Economic Decisions The Government made all economic decisions – authority was through the “Politburo” (Political Bureau) The Government made all economic decisions – authority was through the “Politburo” (Political Bureau) Economic decisions then carried out by the Central Planning Agency (GOSPLAN) Economic decisions then carried out by the Central Planning Agency (GOSPLAN) This Agency determined how best us use the scarce resources of society This Agency determined how best us use the scarce resources of society GOSPLAN would get the “ball rolling” to fulfill the economic plans of the state ie building new houses if new housing was the priority GOSPLAN would get the “ball rolling” to fulfill the economic plans of the state ie building new houses if new housing was the priority

Any Incentives for people? Quota – a particular amount that is to be reached in production Quota – a particular amount that is to be reached in production Quotas were more important than quality or the efficient use of resources Quotas were more important than quality or the efficient use of resources Often when things were built, there was little concern by officials as to quality – as long as quotas were reached Often when things were built, there was little concern by officials as to quality – as long as quotas were reached This philosophy caused problems – why produce quality when there are no rewards for effort? This philosophy caused problems – why produce quality when there are no rewards for effort? Later on, rewards ($$$) would be offered to managers if they met quotas and maintained quality and profit Later on, rewards ($$$) would be offered to managers if they met quotas and maintained quality and profit

State and Collective Farms Collective Farms- smaller farms put together Collective Farms- smaller farms put together Individuals owned their homes and animals, but machinery was owned by the group Individuals owned their homes and animals, but machinery was owned by the group Farmers’ incomes - based on the farm’s profits and the amount of work each farmer did Farmers’ incomes - based on the farm’s profits and the amount of work each farmer did State farms- all produce and profits went to the state State farms- all produce and profits went to the state Management boards made all decisions for state farms Management boards made all decisions for state farms Some state farms were set up to research better farming techniques Some state farms were set up to research better farming techniques

Private Enterprise Some private businesses were allowed Some private businesses were allowed These were mainly allowed in the service industry These were mainly allowed in the service industry General rule – people could run their own business as long as they did not employ (and therefore exploit) others General rule – people could run their own business as long as they did not employ (and therefore exploit) others Examples-watch makers, taxi drivers, tailors and restaurant owners Examples-watch makers, taxi drivers, tailors and restaurant owners

For the good of society... Extensive social services were offered by government Extensive social services were offered by government Sick leave, pregnancy leave, state- sponsored funerals for the poor were offered Sick leave, pregnancy leave, state- sponsored funerals for the poor were offered Everyone had the right to health, housing, education and cultural benefits Everyone had the right to health, housing, education and cultural benefits

Who paid for these services? Although the government provided these services, the people supplied some of the money for the programs through taxes Although the government provided these services, the people supplied some of the money for the programs through taxes These taxes were some of the lowest in the world – much less than those under Market and Mixed Economies These taxes were some of the lowest in the world – much less than those under Market and Mixed Economies Other sources were profits from state businesses Other sources were profits from state businesses

Advantages of the Soviet System The government allocated scarce resources in the best interests of society The government allocated scarce resources in the best interests of society It provided economic stability and growth while ensuring that Soviet citizens maintained an acceptable quality of life It provided economic stability and growth while ensuring that Soviet citizens maintained an acceptable quality of life USSR became a major industrial power in a very short time – became the 4 th largest producer in the world USSR became a major industrial power in a very short time – became the 4 th largest producer in the world Employment remained consistently high Employment remained consistently high

The same years, but different weather (Crisis in capitalist countries, while soviet economy grows)

Disadvantages Consumer sovereignty was overlooked Consumer sovereignty was overlooked Little attention was paid to supply and demand-products produced often lacked in quality/items often over- produced Little attention was paid to supply and demand-products produced often lacked in quality/items often over- produced Government bureaucracy slowed down the economy – GOSPLAN could not anticipate consumers wants Government bureaucracy slowed down the economy – GOSPLAN could not anticipate consumers wants Standard of Living was not as high as that in developed countries Standard of Living was not as high as that in developed countries The system is set up to control people – the individual was not seen to be as important as the state The system is set up to control people – the individual was not seen to be as important as the state

Problems With Central Planning One method commonly used to control prices for citizens in the era of the Soviet communist bloc was a system of subsidies. One method commonly used to control prices for citizens in the era of the Soviet communist bloc was a system of subsidies. The following are some examples of these subsidies, including some extreme examples. The following are some examples of these subsidies, including some extreme examples.

By 1987, the Soviet Union had spent $115 billion(US) a year to keep consumer prices low. By 1987, the Soviet Union had spent $115 billion(US) a year to keep consumer prices low. This figure was more than three times the amount the government would admit to spending on defense This figure was more than three times the amount the government would admit to spending on defense

In the Soviet Union by the mid-1980’s, an apartment rented for about $18(US) per month. This price had not changed since the 1920’s In the Soviet Union by the mid-1980’s, an apartment rented for about $18(US) per month. This price had not changed since the 1920’s

In Poland by the mid-1980’s, heating coal sold for $3(US) a ton. It cost the state $4.21 a ton to produce the coal In Poland by the mid-1980’s, heating coal sold for $3(US) a ton. It cost the state $4.21 a ton to produce the coal

In the 1980’s, a collective farm in the Soviet Union was caught feeding bread to cattle. Why? Because a kilogram of cattle feed cost 28 cents(US), while a kilogram of bread cost only 25 cents(US) In the 1980’s, a collective farm in the Soviet Union was caught feeding bread to cattle. Why? Because a kilogram of cattle feed cost 28 cents(US), while a kilogram of bread cost only 25 cents(US)

Taxi drivers in Moscow commonly used children’s clothing to clean their cars because the clothing was cheaper and easier to obtain than cleaning cloths Taxi drivers in Moscow commonly used children’s clothing to clean their cars because the clothing was cheaper and easier to obtain than cleaning cloths