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

2. 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

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

4. 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

5. 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

6. 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

7. 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

8. 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

9. The collapse of Soviet Socialism
(ie Communism)

10. 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

11. 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)

12. 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

13. Russia in the 21st century
2007 was ninth straight year of growth (rebounding from the 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

14. 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

15. 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