A spin off of the thread on what the Soviet Union did better than the west. An obvious theme is apparent in the replies in that thread. Almost everything discussed are weapons or other items that have military use (tanks, fighter jets, rifles, Zeiss lenses, submarines, nuclear bombs, etc.). It seems that the Soviet Union failed to work on developing better versions of stuff for everyday civilian use. Why is that? Did they consider things like building a better car a waste of money, even though western companies like Ford and GM made, rather than lost money doing just that? I don’t mean to focus just on cars for civilian use, but consumer goods in general. Clothing, furniture, various types of entertainment (movies, music, TV shows, etc.), food other than the basics like wheat, beets, and potatoes, and so on. The Soviet central planners failed to prioritize all kinds of things. Why was that? Could they have managed to keep up with the western economies had they tried, or did they decide they were doomed to failure by even making an attempt to do so, and consequently decided to focus mostly on heavy industries and military tech?
The problem is the central planning itself. No relatively small group of central planners can compete with a free market. You are comparing the efforts of a few so-called experts with that of millions of entrepreneurs. The central planners were doomed to failure from the start.
This was combined with an authoritarian system of government, where individual efforts were punished. In addition, the workers saw no benefit to working harder…so they only worked as hard as they needed to avoid being punished. And corruption was rampant.
They did try. It didn’t work.
A third of the USSR was devastated during WWII, either by the Nazis destroying factories, cities, and farmland to keep them from being used by the Russians, or by Stalin doing that to keep them from being used by the Nazis. Everything in the country had to be rebuilt. Stalin’s problem was that he had no money. GDP per person was less than half of the U.S. He had to prioritize what to rebuild first.
Consumer goods were not high on that list. Military and other heavy industry was far more important to him. The result was an unbalanced economy. Industry grew rapidly, although never getting more than a third of output in the U.S. Other goods were famously scarce, with legendarily long lines whenever something needed finally reached stores.
Stalin had the economic advantage of having the Eastern Bloc as a forced recipient of goods that wouldn’t have been acceptable elsewhere. That and their oil resources gave Stalin a steady stream of revenues.
Khrushchev tried to turn that around in the late 1950s, after the economy had recovered, and promised parity with the U.S. by the 1970s. It did not happen. Military needs always came first.
An academic analysis is available at The rise and decline of the Soviet economy. But you have to get through lines like: “Is a low elasticity of substitution really the explanation for the Soviet climacteric?” [Answer: no.] He thinks that the USSR did better than most analysts have said, and provides an interesting history. I have no opinion; I just wanted to copy that sentence.
Not only does central planning have inherent inefficiencies (another one: Central planning reacts more poorly to local conditions, a problem also seen in the military in the Ukraine War), but the central planners were chosen more for their loyalty to the regime than for their competence in economic planning.
Right!
The Western-style free market economy relies on the profit motive to do a lot of heavy lifting. The idea is that because people and companies want to make money, they’ll do a whole lot of stuff as part of that.
It’s basically a way to crowdsource an economy, if you squint just a little bit. Companies will provide military goods and civilian goods, and to the quality that their customers demand, and for the price that they’re willing to pay. And if there’s extra demand, more companies will move into that space, and if there’s less, they’ll move out. And it works this way all the way from the end consumer to the very first person/company catching the fish, planting the seeds, pumping the oil, chopping the trees, and so forth. At every level someone’s trying to add value and make a profit, which makes the economy extremely responsive (in an economic sense) to changes.
And in an economic sense, it’s very efficient.
Contrast this with centrally planned economies, where the planners look into their crystal balls and try to predict how many tanks, stoves, gallons of gasoline, pencils, rolls of TP, and so forth that an economy may need. And how many feet of armor plate, seat cushions, graphite, logs, heating elements, and whatever else may be required to build those things. And whatever’s needed for those things as well. So it’s a monumental task in its own right.
And let’s say that the geopolitical situation changes- all of a sudden barley is hard to come by. The centrally planned economy is expecting to have a certain level of input and output for anything requiring barley- beer, malt syrup, beef and barley soup, etc… So they’re suddenly off their pace- everywhere that barley is needed is now short of their targets.
In a market economy, the price would rise, substitutes would be found, and things would automatically adjust- maybe beer would be more expensive. Maybe it would have more rice/corn in it. Maybe something would be subbed in for barley in other products. Either way, the system adjusts because the price of things sends a lot of information about scarcity and pushes alternatives to come to the front of the line. Or the reverse if too much of something is being produced is equally true.
Of course, market economies have their own set of problems- workers are frequently mistreated, there are incentives for cheating, and so forth, but those aren’t really germane to why the Soviet system failed.
Basically it sounds good on paper- the idea that an economy could be planned and controlled by the government would seem like an ideal state for a communist regime, because it avoids all the inherent uncertainty and undirected nature of a market economy, but it’s that uncertainty and undirected nature that allow market economies to be as efficient as they are.
The big advantage to a centrally-planned economy is that, if it’s planned intelligently, it can react to changing circumstances quicker, or even react to changes before they happen, if they can be anticipated. In a distributed economy, each part interacts with only one or two layers upstream and downstream from it, and so you end up with companies reacting to other companies reacting to other companies reacting to… reacting to whatever the external change was. And sometimes that reaction speed is slow enough to be catastrophic: In agriculture, for instance, the fundamental time unit is one year, and if everyone now wants barley instead of wheat, you can’t replant your fields to take advantage of that until next year, and if what you have planted right now is unprofitable, it can ruin your farm.
But of course, again, that’s a comparison to an intelligently planned economy. Too often in the real world, in comparison to the free market’s slow reaction, a planned economy reacts not at all, because the planning is incompetent.