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The Soviet Economy: Is Perestroika Possible?
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16613 |
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Section : |
SPECIAL SECTION
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| Issue
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11 / 1989 |
4,554 Words |
| Author
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Gertrude Schroeder
Gertrude Schroeder is professor of economics at the University
of Virginia. |
For over four and a half years, Mikhail Gorbachev has been inspiring and presiding over a mammoth and historic undertaking--the modernization of the Soviet Union through transformation of its political, social, and economic institutions. More specifically, Gorbachev's objective is to extricate the Soviet economy from its "period of stagnation," as he puts it, and to catapult it on to a path of accelerated growth, sharply rising productivity, and increased interchange with the West. Given the deplorable state of the economy, the task is daunting and the outcome highly uncertain.
The Stalinist system and its legacies
The Soviet Union has been running its economy through a system of socialist central planning for over six decades. Economic resources have been allocated in accord with priorities dictated by the political leadership, not by consumers. Under that command economy, the state owned virtually all property. Peasants were forced to join huge collective farms. Business firms were told what to produce through centrally set targets in detailed annual plans, and raw materials and capital were allocated to them through a system of rationing. Thus, firms did not have to find buyers for their products, suppliers for raw materials, or investors to provide needed capital. Because their bonuses and career prospects were so oriented, managers of firms sought to meet the production goals specified in the plans rather than to maximize profits. Moreover, firms were subordinated to bureaucracies (ministries), which determined the system of incentives and the direction of investment. If the firm ran into trouble in coping with the numerous targets in its plans, its ministry could be counted on for rescue. Finally, the government fixed the prices for nearly all products; these prices were based on average costs plus an arbitrary profit markup and remained unchanged for long periods of time. Thus, producers had little contact either with their customers or their suppliers, and prices served largely as accounting units rather than as a means of conveying information about changing costs of products and their relative worth to customers. In turn, profits could not reflect the relative efficiency of firms. All this is just the opposite of a market economy.
Under this system, workers were also rewarded for meeting production quotas. They enjoyed extraordinary job security, since the plans provided everyone with jobs and nobody had to fear layoffs for lack of business. Wages and social welfare benefits were kept low, and income differentials were fairly small. Under such conditions, there was little incentive to work
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