ussr economic planning -- 6/3/25

03 Jun 2025

ussr economic planning -- 6/3/25

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Today's selection -- from The Soviet Economy by Morris Bornstein. The strengths and weaknesses of the Soviet planning system:

“No adequate cost-benefit analysis of the Soviet system or its constituent parts has yet been attempted. Here we simply list some of the system's principal achievements and disadvantages.

“Advantages

“ 1. The system succeeded in enforcing allocation of a very high proportion of GNP to investment over a long period. Within this allocation, resources were concentrated on the growth-inducing producer goods industries, which were transformed from high-cost to low-cost industries. In general, it is possible with this kind of mechanism to enforce successfully high-priority crash programs (e.g., the sputniks).

“ 2. A high degree of centralization enabled the planners to inculcate the latest technology, imported from more advanced economies, into the whole economy at a rapid rate. Project institutes, such as Gipromez (the State Institute for Projects of Iron and Steel Works), were able to plan large-scale technological advances for a whole industry on a national scale. For many major technological problems, the Soviet system of centralized research also proved effective at a more advanced stage of development (e.g., nuclear research).

“ 3. Considerable economies of scale (including economies from standardization) and economies of effort were possible in nationally planned industries.

“ 4. The output drive from above, characteristic of Soviet planning throughout rapid industrialization, provides a powerful instrument for enforcing high capacity utilization, and for keeping management and men working at a high pace.

“Disadvantages

“ 1. The cost of concentrating resources on producer goods industries was very high. Thus the policy adopted toward the peasantry led to a drastic decline in agricultural production. Hunger and famine resulted. The slaughter and death from undernourishment of large numbers of draft animals also undermined the state plans for industry. It forced the state to reallocate unexpected resources to the agricultural equipment industry and hence to the high-grade steel industry. It also had a drastic long-term effect on peasant morale.

“ 2. When the central planners made a wrong technological choice, the cost (because the policy was carried out on a national scale) was proportionately heavy. For example, there was overinvestment in the coal industry and underinvestment in oil and chemicals.

“ 3. Centralized administrative planning is inherently clumsy in its effects at the point of production. If the success indicators are very detailed, initiative and innovation at the factory level are prevented. But if they are not very detailed, factories produce what is easier to produce, rather than what is wanted. Control of quality through success indicators is also very difficult. The sellers' market which was coupled with Soviet administrative planning reinforced these difficulties. At the same time it led to the tendency for each industrial ministry to become a self-contained ‘empire,’ carrying out wasteful backward integration in order to control its supplies. If advertising and inflated sales organizations are a high cost of modern capitalism, inflated supplies organizations were (and are) a high cost of Soviet central planning.

“To sum up with an example: Central planning enabled the construction of iron and steel works, using home-manufactured equipment, which in their main technologies were as good as those in the United States and were utilized at a higher capacity. It also produced a situation where Soviet bedsteads were the heaviest in the world (because they were planned in tons), were produced on too small a scale (because they were made under several ministries) and were therefore costly, and owing to the sellers' market were made of iron, when the consumer would have preferred something more modern.

“This is a mere list of factors. Economists need to ask themselves: how costly and beneficial were these various factors? How far were the advantages and disadvantages of the system inextricably tied together? Could the Soviet strategy for rapid growth, or some features of it, be employed without the disadvantages? How many of the unsuccessful features were due to the special conditions of Russia (including the difficult external and internal position of the government) and to the inexperience and imperfect knowledge of the people who made the system?”