3/19/2011. The Planned Economy: Theory & Practice

Transcription

1 The Planned Economy: Theory & Practice Plan => all-encompassing First 5-year plan (1928) 5 yr plans persist until 1990 Supplemented by: Annual plans Quarterly plans How was plan constructed? Theory: top-down Reality: bargaining Politburo Central Committee Gosplan (State planning) Council of Ministers Other USSR-wide agencies (prices, etc.) Party Committees (City, Regional, Republic Partkom (Party committee at enterprise) Party Members Industrial Ministries USSR Republic Industrial Enterprises Workers 1

2 Reality of planning process: Gosplan takes targets established by Politburo Translates them into concrete goals Sends draft plan to ministries & enterprises Ministerial officials & factory managers react Fair amount of give-and-take Goal: do-able plan targets Enterprise managers never admit true capacity ratcheting-up process Tremendous incentive for everyone to lie Result: no realistic picture of economy Pluses & minuses of planning system Facilitates remarkable economic growth: Magnitogorsk in 1929 & 1974 Reconfigures decision-making authority Key decisions made by ministries & by Gosplan Enterprise management not authorized to decide: What to produce How much to produce To whom to sell output At what price to sell output Supposed to make life easier for everyone Set production targets scientifically Maximize productivity Planners are too far removed from prod process How can they make good choices? Complicated by lack of accurate information (lying) 2

3 Reality => gave rise to shortages Task of keeping track of everything was overwhelming Plan was never sufficiently detailed Production targets were politically determined Heavy industry preferenced (tanks) Shortages of almost everything Big-ticket consumer goods unavailable No consumer discipline to ensure quality goods Perverts incentives for both consumers & producers Limited tools for disciplining workers in post-stalin era -- Problems w/ stealing & drunkenness on the job Investment decisions made centrally Real banks don t exist Enterprises compete for investment resources, but decisions are politicized Result: hoarding; unfinished construction sites; inefficient allocation of equipment 3

4 Enterprises are more than just a place to work All needs satisfied through workplace ex: housing; childcare; sports; theater; shortage goods A few functional substitutes for markets persisted -- Housing exchanges -- Farmers markets Success = meeting plan targets Profitability was largely irrelevant Redistribution system All revenues go back to state Redistributed on basis of need (as defined by ministries) Result: efficiency is penalized Soft budget constraint Any debts of enterprise made up by state Meeting plan targets was life-or-death under Stalin Post-Stalin => affected compensation & perks 4

5 Explaining the soft budget constraint: MOSCOW Nothing sent Nothing sent Sends profits to Moscow Regularly loses money Produces parts needed for weapons ENTERPRISE A Typically breaks even Production not critical to defense ENTERPRISE B Regularly makes money Produces consumer goods ENTERPRISE C What consequences? MOSCOW Nothing sent to Moscow; BUT central govt reallocates funds from other better plants to Enterprise A Nothing sent; likely receives little from Moscow Sends profits to Moscow; BUT likely gets little back its profits are redistributed Regularly loses money Produces parts needed for weapons ENTERPRISE A Typically breaks even Production not critical to defense ENTERPRISE B Regularly makes money Produces consumer goods ENTERPRISE C What about agriculture? Collectivization => population shift from rural to urban 5

6 Some vestiges of capitalism remain in countryside Individual homes Private plots Farmers markets Shortcomings of Soviet agriculture Lagging infrastructure poor transportation network Mechanization slow lack of resources Doing business: comparative view Market: All key decisions made by producers Producers operate w/in state-created framework, but are not micro-managed by state Consequences for bad choices => bankruptcy Plan: All key decisions out of the hands of producers Ministry endeavors to be self-sufficient Producers & suppliers matched up w/in sector Consequences for inefficiency: Bankruptcy (exit) is not possible Administrative (state-imposed) sanctions but sometimes inefficient enterprises are rewarded 6

7 How do enterprise managers solve problems, such as a failure to deliver needed inputs? Market solution => find alternative supplier Solutions under planned economy: personal relationships with supplier enterprises Party officials and/or ministerial officials pushers guys who are always able to find shortage items vertical integration don t depend on others Lesson: playing by rules is less important than fulfilling the plan Ends justify means Role of Communist Party in the economy Politburo & Central committee: make strategic decisions Communicated through Gosplan & ministries Party selected top managers Workers have no voice in selecting managers Criteria for advancement: Competence Political reliability likely to be CPSU members All key decisions vetted by chairman of enterprise Party committee Problems inherent to planned economy Soft budget constraint Incentive to lie Consumer shortages & production bottlenecks Prices: set from above Exit & entry to system regulated by state Labor productivity: little incentive to work harder Investment controlled by state 7

8 Reform efforts No reforms under Stalin why? Fear of wrecker label & repercussions System in building & rebuilding mode no time for reflection Khruchshev / Malenkov Key issues: Linking wages to output Emphasis on consumers 1962: Liberman reforms Material incentives used to stimulate productivity Profitability becomes success indicator Decrease in number of targets set centrally Hardening of budget constraints Decrease in petty tutelage by higher planning organs decentralization of system Reaction to reforms Bureaucracy disliked them undercut authority By mid-1970s: reforms dead Common threads in reform efforts: Concern over rigidity of system Struggle to find proper level of central authority Where to situate decision-making authority? No effort to introduce market always trying to fix planning system Failure Why did all pre-gorbachev reforms fail? Power Gosplan & industrial ministries had power they defeat all reforms Enterprise managers lacked power Absence of viable alternative & unwillingness to contemplate introduction of market mechanisms 8

9 Second economy What is it? Informal activity Technically illegal but widely tolerated How manifested? Within industry: finding shortage goods Within households: Home repairs Blat networks Acted as safety valve for Soviet society 9