Reforms and

1
Reforms and Collapse of Central Planning
2
Foreign Trade in USSR

• 60 foreign trade organizations (FTO)
• No direct interaction between Soviet enterprise
  and a foreign entity
• FTOs specialized by group of products
• Soyuzneftexport - worlds largest oil exporter
• Ministry of foreign trade
• Purchased commodities from producers at domestic
  prices
• Sold at world prices
• Vice-versa for imports
• Little incentive for enterprises to produce for
  export even when
  world prices were high
• Major imports in 1980s
• Agricultural products (grain, fertilizer)
• Machinery and equipment
• Chemicals, metals, fuels
• Medicine, computers, furniture,
• rolling ball pens, pantyhose
• Major exports in 1980s
• Oil and oil-related products
• Natural gas
• Military hardware

3
COMECON or CMEA, 1949 1991

• Trade with COMECON members
• 60 - 75 of trade
• Trade with capitalist countries
• 10-25 of trade in Comecon
• West Germany, Italy, France
• Low volume of trade
• Relationship with hostile capitalists limited
• Unwillingness to become dependent on technology
  imports
• Countries did not fully specialize according to
  comparative advantage
• In absence of objective prices, difficult to
  determine comparative advantage
• Block isolation
• USSR subsidized ECE countries with cheap fuels
• 1960s USSR tried to create supra-national
  planning agency
• did not want to produce according to the needs of
  the Soviet Union

Council for Mutual Economic Assistance
4
Eastern Europe socialism imposed

• Behind the rest of Europe economically
• serfdom and reactionary autocratic governments
• agricultural economies, impoverished peasants
• hyperinflation in 1920s
• unemployment in 1930s
• Socialist movement supported from Moscow
• More homogeneous
• ethnically, culturally, religiously
• More industrialized than USSR when socialism
  began
• Small, resource poor, not self-sufficient
• trade aversion not as strong
• Central planning based on 5-year plans
• emphasis on machinery, heavy industry
• Experienced socialism for shorter time
• memory of market forces much stronger
• More open for trade with the West
• susceptible to world market conditions
• world recession of late 70s/early 80s
• Stronger information flows from outside

5
USSR after Stalin (1960s)

• 1956 Khruschev condemned Stalin's personality
  cult
• Soviet Union as a world power
• Aid to developing socialist countries
• space technology and weaponry research
• launched first artificial earth satellite Sputnik
• first manned orbital flight
• Industrial growth slowed
• Reforms
• Publications on western innovations
• Decentralization ? disruption, inefficiency
• Agricultural reform
• State procurement prices raised
• Farms given more control over production
• decisions - decentralization
• Increase investment in agriculture
• Virgin Lands Campaign to develop new
• fields in Kazakhstan
• Output increased, agriculture still inefficient

Nikita Khrushchev General Secretary, 1953-64 We
will bury you!
6

• USSR in 1960-70s
• Economy grew more complex planning complicated
• Oversized, inefficient bureaucratic apparatus
• USSR GDP 40-70 of US economy
• world's largest producer of oil and steel
• parity with US on strategic nuclear weapons
• 6.4 times ahead of US in manufacture of tractors
• 16 times ahead of US in manufacture of grain
  harvesters
• agriculture used 3 times more capital per unit of
  output, but had 6 of US labor productivity

Growth Rates of Output
7
Soviet Growth Model (B.Ickes)

• 1928-70 USSR grew 5-6 per year
• 1970-85 2 per year
• Extensive growth
• Increasing capital inputs
• Public postpones consumption to finance
  investment
• system borrows from the future
• Mobilization of labor
• Shifting labor from countryside, women in labor
  force
• Limit population growth
• Intensive growth
• making resources more productive
• working more efficiently
• Extensive growth trap
• Capital grows faster than labor
• Substitution between the two is low
• Investment poorly allocated
• No market, no price for capital
• Lack of incentives for efficient allocation

8
Stagnation
Brezhnev

• 1965 Market-oriented reforms (Liberman)
• Give enterprises more control over production mix
  and some flexibility over wages
• Work for profit, allow enterprises to put a
  proportion of profit into their own funds
• Resistance from planners started issuing more
  detailed instructions for enterprises
• Resistance from workers reforms aimed at
  increasing productivity by pushing aside surplus
  labor
• 1960s-80s best period for ordinary citizens
• Rising wages, living standards, stability, peace
• Administratively-set prices kept low
• Building millions of one-family apartments
• Manufacturing more consumer goods, appliances
• Social and political reforms stopped
• Crime and soaring alcohol and drug abuse
• Dissidents began to surface

Brezhnev (1964 -1983)
9
Declining Standards of Living
10
Arms Race

• Militarization in 1970-80s
• USSR GDP
• Defense spending USSR 15-40 of GDP, US
• No spillover of technology to civilian sector
• 80 of all RD in USSR were in military
• Military received higher quality inputs, best
  manpower
• Wall of secrecy around military RD
• New materials, processes, mechanisms available to
  military denied to civilian uses
• no Teflon pans or toasters, poor car industry
• Many non-military scientific discoveries and
  inventions lie around for years without being
  introduced into practical applications

11

• Income Distribution
• socialist economies have more equal distributions
• UK and Sweden have distributions similar to
  socialist
• money inequality omits inequality in access to
  goods and services in socialist economies
  depending on ones position in Party hierarchy

12
Environment
Aral Sea

• Air pollution
• Chernobyl
• Disappearance of Aral Sea in Uzbekistan and
  Kazakhstan
• 1960 Aral Sea -world's 4th largest lake
• Caused by diversion of waters for cotton
  production

13
Yugoslavia (1945-89)

• Federation of six ethnic republics
• Extreme regional economic differences
• Northern republics much better off
• Result low labor immobility between regions
• 1952 Market Socialism
• worker management- decentralized decision-making
• replace central planning with indicative planning
  
• enterprises control profits
• agriculture private farms
• rapid growth
• reduction of regional differences via investment
  in lagging regions
• integration into world economy
• BUT
• Competition between firms prevented
• Political authorities interfered in firm
  operations
• Investment decisions made by party officials
• Managers not responsible for losses soft budget
  constraint

Tito ruled 1945-80
14
Romania

• Absolute authoritarian rule
• enforced by secret police
• Policies
• 1970s borrowed heavily from the West to build
  massive state-owned industrial base
• Export food and oil to pay off his nation's debt
• People half-starved
• Refusing medical treatment for the elderly so
  they would die more quickly
• Birth control and abortion illegal so that
  population would grow
• highest abortion rate and the highest infant
  mortality rate in Europe
• Taxes on childless women
• Villages of ethnic minorities resettled
• Personality cult palace, portraits of himself as
  a young man on every public building
• 1989 refused concessions to the reformers
• executed by revolutionaries

Nicolae Ceausescu 1965-89
15
Albania
Enver Hoxha, 1946-85
Bulgaria
Over 600,000 concrete bunkers across a country of
3 million
Todor Zhivkov 1954-89