Chapter 2.4.

Chapter 2: Criticism of the Soviet-style planned economy

2.4. Policy deficiencies

The Soviet Union's economy achieved high economic growth during the Stalin administration after World War II. It can be said that the heyday of the Soviet-style planned economy was the era of dictator Stalin. The secret behind this policy was a policy that thoroughly focused on heavy industry and military industries.

In the Soviet Union, the industrial classification of the first sector for the production of producer goods and the second sector for the production of consumer goods, which Marx used to analyze capitalism in his Capital, was used as a basis for classifying production goods as Group A goods and consumer goods as Group B goods - a rough classification in itself-. Of these, the first priority was placed on the production of Group A goods. This, along with the military-first policy aimed at becoming a military superpower in opposition to the United States, led to the growth of the military industry.

This secret to early success has manifested itself in policy deficiencies in the later stages. The production of consumer goods, which had been placed in a subordinate position in the priority policy, was the most important sector in the lives of the masses and was supposed to be the key to achieving the affluence commensurate with economic growth, but the Soviet Union finally began to leverage it after Stalin's death in 1953.

However, even in these sectors, state-owned enterprises became the main producers, and as was often ridiculed in the West, even shoes were manufactured in state-run factories, and the quality was relatively poor. 

In addition, as mentioned in the previous section, the demand-supply imbalance caused by sloppy planning and corruption such as embezzlement of goods led to stagnation and confusion in distribution, resulting in a constant shortage of goods at the state-run stores at the end of the line, which has been dubbed an "economy of shortage" by critical commentators.

In the latter stages of the Soviet economy, the Soviet Union had no choice but to supplement high-quality consumer goods with imports from Western capitalist countries, using foreign currency obtained by taking advantage of the oil price hikes caused by the oil crisis.

On the other hand, for Group A goods, which should have been one of the strengths of the Soviet economy because of its priority policy, the planned economy focused mainly on quantitative expansion of production, so technological innovation did not progress, and aging factory equipment continued to be used without being renewed, resulting in deteriorating production efficiency.

As a result, although the Soviet economy as a whole did not fall into a capitalist state of overproduction, it did have built-in defects: an imbalance between industries due to a priority policy and a decline in productivity due to a policy of quantitative expansion that neglected qualitative innovation.

During the Cold War, the Soviet Union sought to catch up with and surpass its rival market economy, the United States, but in the end, it was only in the area of military industry, symbolized by nuclear development and space exploration, that it somehow managed to match the United States.

The "reforms" of the Gorbachev administration in the final years of the Soviet Union exacerbated the intrinsic deficiencies of the Soviet-style planned economy by introducing market economic principles in a half-hearted policy manner, further spurring the economy of shortages and accelerating the collapse of the system itself.

This was also the point of difference between Communist China, which began by imitating the Soviet-style planned economy and then ambitiously moved ahead of the Soviet Union in adopting a market economy, eventually effectively breaking with the planned economy.

👉The papers published on this blog are meant to expand upon my On Communism.

Chapter 2.3.

Chapter 2: Criticism of the Soviet-style planned economy

2.3. Intrinsic deficiencies

It is a common theory today that the Soviet-style planned economy is a failed economic model. However, this is a consequentialist proposition due to the dismantling and disappearance of the Soviet system itself, and the reality is that the correctness of the market economy, which is regarded as a contrast to the Soviet-style planned economy, is regarded as absolute without proof, without sufficient analysis of what ways and why the Soviet-style planned economy actually failed.

It is true that the Soviet-style planned economy was already at a standstill from the time when the Soviet system was still in existence. The cause, paradoxically, was that it was not a true planned economy.

The Soviet-style planned economy was not so much a "planned economy" as a kind of controlled economy guided by government-led "economic goals" that were born out of the state capitalist process for postwar reconstruction from the violent civil war, as we have seen previously. This essentially remained the same even after postwar reconstruction came to a halt under the Stalinist regime and the full-fledged "Five-Year Plan" for economic development and rapid growth was launched.

Above all, the monetized economy remained in place. Thus, end consumer goods were sold as commodities in state-run stores, and market transaction elements remained in place for the production goods that were at the core of the planned supply.

It is a common theory that the principle of competition did not operate among the state-owned enterprises that played a central role in production activities in the USSR, but in fact there was a certain competition among state-owned enterprises for concessions in the complicated planning process, and individual enterprises adopted a de facto independent budgeting system. This trend increased as a result of the limited "economic reforms" of the 1960s.

Furthermore, labor was based on wage labor, and - the ideal of all capitalists and managers - the piece-rate system was the norm, and the exploitation of surplus value in the Marxian sense remained strictly within the form of state-run enterprises. Despite the ostensibly low unemployment rate, in reality there was a surplus of workers in the enterprises and an accumulation of "internal unemployed."

In short, the Soviet-style planned economy, while certainly dissimilar to a typical market economy, was a state-led mixed economic system with elements of a market economy mixed in, and was a protracted development of state capitalism, which Lenin considered a provisional system, without any theoretical verification.

On the other hand, because the essence of Soviet-style state capitalism was a controlled economy, the black economy that accompanies a controlled economy emerged. This, combined with the lack of a rigorous corporate auditing system, led to corruption among the executives of state-run enterprises, and the black economy took root in society as an organized criminal underground economy through the route of embezzlement and diversion of goods.

Nevertheless, the central planning could have been a more sustained  success if it had been carried out with precision, but the Gosplan-led planning was a sloppy desk plan based on inaccurate economic information due to the neglect of the field, and its philosophy of "material balances" itself was unsuccessful, and the demand-supply imbalance tended to occur. Therefore, despite the official explanation that there were no business cycles in the Soviet economy, there were in fact business cycles, a characteristic of capitalism.

Thus, the Soviet-style planned economy did not succeed as a "planned economy" because it was structurally flawed in many essential ways. The root cause of this failure can be summarized simply as the attempt to forcibly graft a planned economy onto a monetized economy that was originally not adaptable to a planned economy.

To be fair, however, it must be pointed out that the Soviet-style planned economy was quite successful in its early years as a developmental economic method for rapidly transforming Russia from an underdeveloped country into a newly industrialized nation. However, it lacked sustainability after a certain level of growth. This may have been due in part to the policy deficiencies discussed in the next section. 

👉The papers published on this blog are meant to expand upon my On Communism.