The Soviet Economy has been termed a ‘command economy’. Do you feel this is an appropriate and adequate characterisation?
A command economy is one in which the co-ordination of economic activity is controlled and undertaken through administrative means rather than through the market mechanism (Ericson, 2005). Many aspects of the Soviet economy fit this description such as its organisational structure, the methods by which aims and directives were carried out and its lack of a use of pricing within its financial mechanisms, thus it can be argued that the term command economy is an accurate description. However there are another of other aspects to consider such as the use of bargaining to develop a second ‘economy of agreement’ and the use of economic incentives to achieve targets that seriously undermine the description of the Soviet Economy as a command economy. This essay will discuss the points above and show that despite some factors such as the existence of a second economy there can be no other way to describe the Soviet Economy as many economists would agree as the best example of a ‘command economy’ there has ever been. The institutional structure of the Soviet Economy certainly suggests that it was in fact a Command Economy. The Communist Party of the Soviet Union (CPSU) was the ruling power in government and played a central role in planning the economy as a whole. The state was responsible for over 88 percent of final agricultural product in 1986; 75 percent of urban housing and 98 percent of retail trade (Narkhoz, 1987), with such an extensive stake in so many markets, a vast and complex organisational hierarchy was needed to gather information, manage inter and intra industry communications as well as to ensure effective targets were set and met accordingly (Ericson, 1991). What could be considered the zenith of this hierarchy was known as the Council of Ministers which consisted of a number of ministries or central planning agencies and was responsible for translating the aims and objectives of the CPSU into viable plans and instructions for those lower down in the hierarchy to implement. This meant that the council of ministers was essentially responsible for deciding the path and progress the economy would experience. Before Gorbachev took power in 1985 there were over 20 of these ministries responsible for planning the economy, which included the Gosplan (ministry of planning); Gossnab (ministry of materials and equipment supply) and the Gosbank (the state bank). The Gosplan was probably the most imperative ministry as it devised plans and targets for the other ministries to implement and allocate goods and raw materials accordingly and effectively. At the base of this hierarchical structure lay the organisations responsible for transforming the macroeconomic objectives into microeconomic outcomes, these associations and enterprises answered to local administrative branches which were all closely watched and controlled by state establishments (Gregory & Stuart, 2001). For a command economy to function properly there needs to be in existence some form of and large use of monitoring and regulating organisations (Ericson, 2005), such as the political party, a police force and banks. These bodies are needed to prevent and iron out any illegalities whilst also ensuring that all microeconomic organisations were performing well. These organisations were also responsible for ensuring that the aims and objectives of the CPSU were being carried out sufficiently at all levels of the hierarchy, as well as to guarantee that agents did not exploit such problems at the expense of the principle’s aims and targets. An example of such multi-layer, multi-stage monitoring bodies was the Gosarbitrah (State Arbitration), which was a quasi-legal system that was responsible for resolving plan implementation issues between different enterprises on the same hierarchical level. Another such monitoring body was the People’s...
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