Command Economies
Both in the old Soviet Union and in the East European Soviet satellite countries,
economies were structured according to a quasi-Marxist doctrine of ‘state
socialism’. The hallmark of this was that no form of free market was permitted
except at the periphery of economic life (see alsoNew Economic Policy.
Instead of a process of entrepreneurial competition guided roughly by con-
sumer demand, a rigid and highly-detailed economic plan was imposed on
nationalized monopoly production and distribution units. Central economic
planning calculated exactly how much of every commodity needed to be
produced, both consumer commodities and all intervening production factors.
Together with detailed manpower planning, this allowed the political state to
command the economy. Wages and prices were kept artificially very low, with
workers’ income being purely a notional exchange mechanism. With no
convertibility into outside currencies, and almost no importation of consumer
goods, there was no need to set wages at any internationally comparable level.
Furthermore, incentives for economic activity, if provided at all, were as likely
to be in kind—better housing, holiday privileges and so on—as in wage or salary
terms. As the state provided complete and very extensive, if low quality, health
and social insurance, and retirement pensions, there was also no need to save,
and no need to set wages to allow for private savings to fund capital investment.
The result was an economy which could be used to satisfy politically-set
targets with no need to ensure any balance between state and private con-
sumption preferences; no need to trim political targets according to availability
of capital derived from individuals or from external sources; and no need to
reward scarce skills by incentives. The economic planners could determine
exactly what they thought was needed and arrange for its production and
distribution. Taxation was unimportant as a source of government income, so
there were no public expenditure/income restraints on state planning. This
allowed, for example, for the concentration of as much as 25% of gross national
product (or net material product, to use the Soviet terminology) on defence
costs in the last days of the Soviet system. The problems were twofold: the only
incentives were negative, for example punishment for inadequate perfor-
mance; and the economic system ran at a very low level of productivity.
However, because production targets had to be met, no matter how shoddy the
quality, enormous effort, much of it essentially illegal, went into grabbing
production resources to make these nominal targets. Secondly, when the state
desired to please ordinary people by putting extra resources into consumer
production, there was virtually no way of assessing what products of which
range and quality should be provided.
Central planning may have been an adequate means of working out what
needed to be produced in order to build tanks and aircraft, because the military
Command Economies