Efficiency and Change in a Planned Economy: Lessons from the Soviet Experience

EFFICIENCY AND CHANGE IN A_ PLANNED ECONOMY: LESSONS FROM THE SOVIET EXPERIENCE Fyodor I. Kushnirsky AJV the context of the debate about government's role in economic activity, the Soviet experience is both interesting and instructive. Should the laissez-faire approach be accepted as the best choice for free-market economies, or should government actively intervene to fight market imperfections?1 The U.S. economy is characterized by a relatively small amount of government involvement in business activity, as federal, state, and local government enterprises are legally of minor economic importance . The Soviet economy, however, typifies the opposite approach. The private sector in most activities is officially outlawed, which indicates that an assessment of the Soviet economic model might in fact contribute to an understanding of political economy as well as actual policymaking. Unfortunately, the criteria for evaluating economic systems are ambiguous , so both opponents and proponents of government intervention can use the Soviet example to prove their case. Opponents may argue that planned economies necessitate huge bureaucracies, reduce incentives, generate inefficiencies, and are generally unable to meet consumer demand. Proponents may point to some impressive achievements of the Soviet state such as creating a modern economy, educating the population, and raising standards of living. The 1. On the popular account of economic theories, see Jahangir Amuzegar, "Economics, Ideology, and the World Economy," SAIS Review 4 (Summer-Fall 1984): 169-80. Fyodor I. Kushnirsky is assistant professor ofeconomics at Temple University in Philadelphia. Professor Kushnirsky received his doctorate in economics from the Institute of the National Economy, Moscow, and is the author, most recently, of Soviet Economic Planning, 1965—1980 (Boulder,Colo.: Westview Press, 1982) 121 122 SAIS REVIEW fact that both sides are correct emphasizes the complexity and the contradictory nature of the Soviet phenomenon. The Soviet Union is an affluent country with poor citizens, an industrialized nation with vastly underdeveloped areas. The industrialization of the Soviet Union, with its exclusive emphasis on heavy industry, was quite different from that of developed economies. But beyond the difficulty of analysis, it is theoretically impossible to isolate the problems inherent in the model per se from those accompanying the implementation of that model. For instance, do the drawbacks of the economy result from weaknesses in the model or from the government's failure? Since people tend to believe that the model can always be improved, they usually blame the government for the failure. Literature on comparative economic systems takes a similar stand: It accepts the Soviet economic model as given and holds the authorities, especially planners, responsible for deficiencies. However, as repeated but unsuccessful attempts to improve the economy were made by many different authorities, it may follow that not only were the policies inappropriate, but that an even more fundamental problem may have existed. For this reason, it is necessary to investigate whether something in the economic model hinders efforts at improvement . Thus, the characteristics of the Soviet socioeconomic model, the aims and the accomplishments of economic reform in the last thirty years, current efforts to improve efficiency, and some prospects for the future will be rigorously examined in this paper. An ironic aspect of the Soviet socioeconomic system is that although it is built on the principles of Marxism, Marx and Engels excluded the state as an institution from Communist society: "Society thus far, based upon class antagonism, had need of the state. . . . When at last it becomes the real representative of the whole of society, it renders itself unnecessary ."2 To illustrate what the victorious proletariat would do to the state, they used such epithets as "destruction," "amputation," and "smashing." As a result, the Communist society would get rid of the bureaucratic apparatus, armed men, and the police—the three basic forces of the state's repression. But what about the economy? According to Marx and Engels, the victory of the proletarian revolution would automatically lead to an unprecedented boost in productivity. Marx and Engels realized, however, that management would in fact be necessary to guide the economy: "The government of persons is replaced by the administration of things and the management of the process of production ."3 Exploring this idea, Lenin went further in outlining the economic...