Soviet Union Economy

Soviet Union: Rise and Fall of an Empire.
The failure of a Command Economy.

by David Chee

Bachelor of Economics(Eco155)
Microeconomics(Eco155)
Tutor: Ms. Sharina Silvaraj
Help University
Department of Business

12th August 2013

” It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages. ” This particular quote by Adam Smith, in his book The Wealth of Nations depicts the human nature, and in a wider perspective, the essence of a capitalistic market in which self-interest is the only incentive that matters and
This was caused by multiple factors, but the core of the problem was the command economy system itself. Centralized planning of the government that led to its glory could no longer be sustained, as the Soviet Union had grown so large in size that the planners simply could not come out with effective economic policies anymore, it had proven to be too much for a central government to handle. (Worldology, n.d.) Under the rule of Leonid Brezhnev, growth was in a steep declined starting from the ninth 5-year plan (1970-1975) with a growth rate of 3% approximately and 1-1.9% and 0.6-1.8% in the subsequent 10th and 11th 5 year plans. The factors that caused the Soviet economy to go into stagnation was further intensified by the war waged on Afghanistan and the arms race with the United States during the cold war era. With almost one third of Soviet’s gross national product dedicated to military expenses, and the depletion of various national resources like oil and natural gas, the Soviet Union was placed in a very tight spot economically speaking. Considering that it was the natural resources that was the Soviet’s last safety net keeping it afloat in the 1970s, the fore-mentioned two factors became too much for the economy to recover from. (Baucom, 1992) This led up to the last leader of the Soviet Union, Mikhail
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