1. 1 LEARNING GUIDE 9 THE ECONOMY OF THE SOVIET UNION

2. 2 Marx Characteristics of the State after the Revolution 1.A centrally Planned Economy 2.Increasing economic production 3.Distribution of income according to work performed 4.Increasing economic equality 5.A gradual disappearance of classes 6.Increasing desire to work for the good of society rather than for personal profit 7.Distribution of goods based on the motto “From each according to his abilities, to each according to is work”

3. 3 State would “wither away” Crime and poverty would be eliminated “Human history” would replace “class history” Class differences and & national differences would disappear Live in a cooperative, voluntary society Eventually citizens would recognize that there basic needs will always be met, therefore greed would disappear Formal government would no longer be required --- no ruling class

4. 4 ADDITIONAL PROBLEMS OF CPE They may fulfill a target (quota) of a good nobody wants. Lack of attention to production costs Incentive to exaggerate the demand for labor and material Incentive to resist technological change The lower the output target, the easier it is to fulfill it.

5. 5 CENTRALLY PLANNED ECONOMY ExplanationJustification Centralized PlanningPlanners make all economic decisions about what to produce, how to produce it, and how to distribute it. In order to generate economic growth long range planning is needed and decisions should be made on sound economic information. State OwnershipAbout 97% public ownership of land, resources, factories business, etc. This prevents exploitation of workers and promotes the collective good. Coordination of ResourcesGosplan allocates all resources and labour to those areas emphasized in the five-year plan. With little or no competition for resources or labour, they should be used efficiently with all efforts focused on achieving the plan’s targets. Decentralized Decision Making Very little decentralized decision making, only in the area of consumer purchasing where this consumer decides what to buy and how much. Gives the peoples some freedom of choice and helps the producers determine what consumer good to produce. Conformity of Purpose Between Political and Economic Bureaucracies Political leaders pass economic priorities on to the economic planners who implemented these political priorities through the five-year plans. The government and economic planners must work together in order to best implement economic plans.

6. 6 Advantages and disadvantages Central Planning ADVANTAGES Planning encourages high rates of economic growth Planning helps to reduce wastage of resources. The distribution of income is more equal Essential goods are produced before less essential goods Planned economies do not suffer from unemployment and inflation related to business cycles. Private Enterprise –Business person’s guess about future individual demands Public Enterprise – Governments decisions about future national needs Capable of choosing suitable goals for the country & select proper methods to implement them DISADVANTAGES Planned economies are bureaucratic and inflexible There is little incentive for efficient management. No profit motive to encourage innovation to individual effort. The system stifles Freedom of choice is restricted (conformity). The quality, quantity, and variety of goods are limited. Tremendous power of the lives of citizens Difficulty in coordinating the interrelated decisions necessary to run a CPE.

7. 7 Rationale for Production of Goods Private Enterprise Business person’s guess about future individual demands. Public Enterprise Governments decision about future national needs.

8. 8 A POST MORTEM ON CENTRAL PLANNING USSR in 1980’s 1.The overall growth rate had dropped to almost nothing. 2.Steel production had dropped. 3.The system limited inventiveness and incentive. 4.The system was having difficulty making better and more efficient use of its plants, factories, and technologies. 5.Production targets were often selected because they looked good, not because they could be achieved. 6.The system promoted the production of poor quality products.The system promoted the production of poor quality products. 7.The soviet system rewarded caution and conformity. 8.The stem lacked innovation because meeting the quotas were everything. 9.Economic reforms encountered obstacles because they involved political reform. 10.Agriculture remained the most troubled sector. 11.There was a serious shortage of labour. 12.Your people were leaving the farms for the cities 13.Planners emphasized high profile projects that were often impractical. 14.Soviet citizens faced declining prosperity.Soviet citizens faced declining prosperity.

9. 9 Other Criticisms Imperfect information and data processing No profit motive to encourage innovation Freedom of choice is restricted

10. 10 Time magazine cover of January 4, 1988 featuring Mikhail Gorbachev as Man of the Year. Russian President Vladimir Putin was named Time magazine's "Person of the Year"

11. 11

12. 12 GORBACKEV’S PERISTROIKA REFORMS

13. 13 1.ECONOMY: Decentralization of decision-making in areas of prices, employment, wages, research and sales. State factories that provided unwanted goods were phased out. State factories required to become self-financing. Small privately owned business were allowed - - service sector.

14. 14 2.AGRICULTURE Decentralisation of state-owned farms Strengthened agricultural cooperatives 3.TECHNOLOGY Greater focus on education and research in high-tech. Fields Joint ventures with western companies & governments

15. 15 4.CONSUMPTION Higher quality consumer goods imported PepsiCo Makes a Big Purchase in Russia

16. 16 5.INTERNATIONAL TRADE Supported direct trade form the west. Joint economic ventures with western businesses

17. 17 6.DEMOCRATIZATON Decentralization of the communist party and government Greater freedom of political dissent

18. 18 7.CULTURE Increased freedom of expression was grated in speech, the press, literature, art, movies and religion While the government is fighting to increase the birth rate, the death rate is nullifying the effort. Chaif 1980’s Oi-yo

19. 19 Gorbachev’s reform movement perestroika The aims of Perestroika 1.To persuade Soviet citizens to take reasonability for their own actions. 2.To improve the industrial output of the U.S.S.R. 3.To raise the agricultural output 4.To improve efficiency in industry and agriculture. 5.To improve the quality and selection of goods and services.To improve the quality and selection of goods and services. 6.To reduce the U.S.S.R.’S dependency on foreign imports. 7.To increase worker incentive to encourage personal initiative and creativity.

20. 20 Actions taken or to be taken to accomplish the Goals of Perestroika 1.As of May 1, 1987, workers in the Soviet service industry were allowed to operate individual enterprises or small cooperatives. 2.As of January 1, 1988 the subsidy system which involved charging less than the cost of production for goods and bailing out failing industries was cut off. 3.Quality controls are being implemented in industry. 4.Workers are to be paid money for exceeding quotas and or being more efficient.

21. 21 5.The lazy and inefficient will face bankruptcy or dismissal. 6.The ambitious and diligent will receive rewards and promotion. 7.The number of planners is to reduced. 8.Consumer demands re to receive more consideration. 9.Some businesses will be run for profit. 10.Some Western-style advertising will be allowed.

22. 22 Gorbachev is implementing the following capitalist measures: (1985) 1.The economy is becoming more decentralized (NEP) 2.Competition is being introduced. (NEP) 3.Managers now make some production decisions. 4.Enterprises can go bankrupt. 5.Workers are paid according to performance 6.Quality is stressed. 7.Citizens can make profits. (NEP) 8.Families or groups can own retail and service industries. 9.Enterprises can hire workers. 10.Foreign investment is being promoted. (NEP) 11.Farmers can sell excess products for profits in open markets. (NEP)

23. 23 PROBLEMS WITH PERISTROIKA Lack of any “overall consistent plan” Party members (old guard) and managers unwilling to risk what they had gained. Increase in the black market due to poor production Hyperinflation Attempts at pleasing all pleased no one

24. 24 Time and Place: Former USSR 1985 – 1991 (Gorbachev ) Theory  Restructure the Soviet Economy  Move to private enterprise Aims  Move to the right  Produce more consumer goods & less military goods  Get out of the arms race Role of Government  Less government involvement Policies associated with this program  Encourage foreign investment  Law on state enterprises  Contract brigades  Law on joint ventures  Law on cooperatives Results  Moved to more private enterprise  Devaluation of the Soviet currency  Creation of the C.I.S. Criticism and Weaknesses  Moved ….  too fast or too slow  Reactionaries Liberals  Opposition form the army, KGB and Old Guard