Command Economy

10 Key excerpts on "Command Economy"

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  eBook - ePub

  Economics of Institutional Change

  Central and Eastern Europe Revisited

  • Elodie Douarin, Tomasz Mickiewicz(Authors)
  • 2017(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  In comparative perspective, using the market economy as a benchmark, the Command Economy has been typically described by four basic dimensions (Gregory and Stuart 1995 ; Kornai 1992 ; Milgrom and Roberts 1992 ; Gros and Steinherr 1995, 2004 ; Temkin 1996 ; and others): 1. property rights, 2. decision-making rules, 3. the mechanism of information flows, 4. the nature of incentives. Decision-making rules and property rights are two highly related dimensions, as control or decision rights are embedded in property rights; the main reason we distinguish between those is that we follow a presentation style that has become typical in the literature on central planning. Nevertheless, taken together, the first two dimensions describe the formal institutional architecture of the Ancien Régime. In turn, dimensions (3) and (4) present the functional implications of this structure. We discuss all four dimensions below. 2.1 Decision-Making Rules In terms of decision-making, the Command Economy system of production was organised in a centralised, hierarchical way. Enterprises were at the lowest level, industrial conglomerates (grouping enterprises) at an intermediate level, and branch ministries and the central planning commission at the highest level, with final authority resting with the Political Bureau (Politburo) and the First Secretary of the Communist Party. From a formal point of view, little discretion was left to enterprises in their decisions on output mix, output-level, prices, choice of trade partners (buyers and suppliers), investment and finance. This mode of economic organisation can easily be contrasted with that of a market economy, where the choices of enterprises are free, based on decentralised information conveyed by market prices. Under the market economy, the firms do not face administrative orders but instead some regulatory constraints that define the range of choices in some aspects of activities (e.g. with respect to natural environment)

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  Accidental Occidental

  Economics and Culture of Transition in Mitteleuropa, the Baltic and the Balkan Area

  • Lajos Bokros(Author)
  • 2013(Publication Date)
  • Central European University Press

    (Publisher)

  14 In fact, that was the dominant interpretation of (central) planning in all former commu-nist economies, at least at the very beginning. In the classic version of Soviet commu- 14 Accidental Occidental In this respect the mandatory nature of decisions made top-down in an overcentralized super-bureaucracy is what constitutes the very back-bone of a Command Economy and society, where individual freedom of choice (in both production and consumption) is alien and hostile to the smooth functioning of the system and, hence, it is extinguished to the greatest possible extent. 15 Two vital questions follow from the above. First, whether the com-mand economy can be more effective and efficient in harmonizing ever-changing needs with production. 16 Second, even if the Command Economy nism—as we will see it in Chapter 1.3—targets of physical production (and, to a great extent, consumption) identified by both macro and micro level plans were compulsory and were disaggregated into more and more specific targets along the way. These targets constituted a hierarchy of commands , with little or no autonomy for the production units to attain them. That is exactly the reason why it is plausible to talk about a com-mand economy in an idealtypical setting because the ultimate consequence of this hor-rendous edifice of mandatory planning targets is the creation of a fully hierarchical, to-talitarian society. “What our planners demand is a central direction of all economic ac-tivity according to a single plan, laying down how the resources of society should be ‘consciously directed’ to serve particular ends in a definite way.” Hayek (1944) 85.

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  Business and Society

  A Critical Introduction

  • Kean Birch, Mark Peacock, Richard Wellen, Caroline Hossein, Sonya Scott, Alberto Salazar(Authors)
  • 2017(Publication Date)
  • Zed Books

    (Publisher)

  A second difference between a market economy and a centrally planned one is that, in the latter, people are instructed what to do to a far greater degree. For this reason, centrally planned economies are sometimes called command economies : the government commands people to do certain things in accordance with its central plan (e.g. what to produce, how much, which production techniques to use, how much to pay the workers etc.). In a market economy, by contrast, people are free to decide what to do. If a group of people decides to form a business which manufactures USB sticks, it is not because the government instructs them to do so. In a market economy, people are free to decide what to produce or which career to pursue. If some people decide to produce USB sticks, they themselves determine the number of USB sticks they produce per year, at what price they are to be sold, how much to pay the workforce, from where the materials for making USB sticks are sourced etc. But if people are free to decide what to do in a market economy, how can we be assured that the right number of USB sticks is produced and at what price? This brings us to the issue of the market’s ability to ‘self-correct’. Markets, order and self-correction In what follows, we concentrate on one market, namely the labour market, and we ask how order is produced in this market and how the labour market might be said to correct disorder. We start with what Karl Marx calls the social division of labour. This term refers to the distribution of producers to different branches of production in society. Let us take a snapshot of the social division of labour in a country like Canada in the year 2014. In 2014, about 18 million people had jobs in Canada. Of these, nearly 4 million worked in manufacturing, 370,000 in natural resources, 1.3 million in construction and 1.1 million in catering (Statistics Canada 2015a)

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  Invisible Hands, Russian Experience, and Social Science

  Approaches to Understanding Systemic Failure

  • Stefan Hedlund(Author)
  • 2011(Publication Date)
  • Cambridge University Press

    (Publisher)

  Of even greater importance is the implied role of political priorities that may impact negatively on economic efficien- cy. 40 Before we grapple with these core issues, we need to take a closer look at what Command Economy was really about. 39 Rosefielde, Steven (1998), Efficiency and Russia’s Economic Recovery Potential to the Year 2000 and Beyond, Aldershot: Ashgate, Table S1, p. xxii. 40 The simple fact that the economic system of the USSR was designed to promote resource mobilization over and above efficiency in resource utilization adds further complexity. To what extent overall output suffered will have to be judged against the level of repres- sion that was needed to maintain a high rate of extraction, making the system seem more efficient under Stalin than under Brezhnev. For a balanced account of the system’s post- war performance, see Hanson, Philip (2003), The Rise and Fall of the Soviet Economy: An Economic History of the USSR from 1945, London: Longman. Invisible Hands, Russian Experience, and Social Science 94 Command Economy There can, to begin with, be little doubt that the introduction of central economic planning was one of the truly formative events of the twentieth century. It made a big impression on the superpower confrontation, and it had a major impact on the search for alternatives to the prevailing system of market-based capitalism. As we proceed now to outline how the system really did work, we shall leave those dimensions behind. Accepting that the actual pursuit of Command Economy was widely different from the ideal world of central economic planning, we shall ignore technocratic visions about finding optimal solutions to planning problems. Recalling, moreover, what has been said earlier about the normative aspects of capitalism ver- sus socialism, we also shall disregard ideological projections regarding the superiority of the socialist economy.

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  Dollars and Change

  • H. Clark Johnson(Author)
  • 2001(Publication Date)
  • Yale University Press

    (Publisher)

  Indeed, the pure capitalist market economy is an abstraction not seen in practice, a model only imperfectly descriptive of any of several real-world economies. For their part, models of socialism also vary enor-mously, with some self-styled socialists even viewing that term as inappli-cable to the Soviet system. 11 The form of planned socialism that de-10. Gregory and Stuart, 1999, pp. 374~75-11. The terms centrally planned socialism or centrally planned economy were used above because the term socialism has no universally agreed-upon défi- [ E C O N O M I C S Y S T E M S ] 117 veloped in Russia metamorphosed into other forms before its eventual demise. For a more complete overview of the diverse forms of economy, we consider some of these variants of capitalism, socialism, and other forms of economic organization in the following sections. Variants of Capitalism We can classify as capitalist all those economies in which most resources are owned privately, most prices are freely determined by the parties to exchange, the market is the main mechanism connecting consumers and producers, and labor is inalienable from the worker. Under this heading belong a broad spectrum of economies, from the relatively laissez-faire systems of nineteenth-century Britain or post-World War II Hong Kong, to the elaborate welfare states of contemporary Western Europe, as well as the economy of postwar Japan, with its powerful government-industry partnership and massive industrial conglomerates. Much but not all of the variation concerns the roles that governments play in capitalist econo-mies. Even state ownership of some industrial firms or sectors has played a role in some countries having mainly private enterprises and market eco-nomic coordination. During most of the period since World War II, the government of France has owned about 20 percent of that country's productive assets.

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  Power and Society

  An Introduction to the Social Sciences

  • Brigid Harrison(Author)
  • 2016(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  In other words, they believe that true democracy cannot be achieved until wealth is evenly distributed and the means of production are commonly owned. Government Ownership Socialists believe that wealth must be redistributed so that all persons can share in the benefits created by society. Redistribution means a transfer of ownership of all substantial economic holdings to the government. But the transfer must be accomplished in a democratic fashion rather than by force or violence, and a socialist society must be governed as a true democracy. Copyright 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 62 Part 1 The Nature and Study of Power Command Economy Socialism relies on a Command Economy with central planning by government bureaucrats to produce and distribute goods and services. Free markets are either outlawed or restricted to a few consumer items. Government bureaucrats decide how many shirts, televisions, autos, and so on should be produced. Facto-ries are given quotas to meet, and their output is shipped to government stores. Workers’ wages are also determined by government planners, as are decisions about new investments and developments. Government planners rely on their own judgment about what is needed, rather than relying on market demand. Planners set goals for each sector of the economy, usually in five-year plans. Nationalization Socialists envision a gradual change from private to public ownership of prop-erty.

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  Globalization and Sustainable Development

  A Changing Perspective for Business

  • Martin Oyevaar, Diego Vazquez-Brust, Harrie W.M. Van Bommel(Authors)
  • 2017(Publication Date)
  • Red Globe Press

    (Publisher)

  Government can also play a role by imposing new legislation and lower or higher taxes. Any combination of these factors can lead to poor decision making, resulting in a disappointing return for the investor. For the market economy, optimal distribution of resources remains a ‘fixed idea’. 56 Box 2.4 Command economies have also problems with resource allocation Many countries have opted for a form of market economy whereby the price of the goods offered is, for most of the goods, an indication of their scarcity. These economies cannot function optimally for several reasons such as the lack of ‘perfect information’. 57 The allocation of resources could, theoretically considered, be better, which is easily observable in the many countries with severe unemployment. The alternative, the ‘Command Economy’, was experimented with in several communist countries. However, this type of economy does not function optimally, either. Those governments who adopted it took it upon themselves to control resource allocation and government bureaus decided how resources were to be used. Quotas determined what the industrial and farming sectors should produce which led to imbalances in supply and demand. 58 The citizens of these countries had, for example, access to large supplies of toilet paper but staples such as grain were hard to come by. 2.4.2 Forms of monopoly Whether markets function well is, among other things, dependent on whether or not companies compete with each other without creating artificial or natural monopolies. 59 An ‘artificial monopoly’ exists when businesses make deals to mitigate competition. Artificial monopolies are also referred to as cartels and define secret deals that are made behind closed doors. A ‘natural monopoly’ exists when there is only room for a single provider and this is often the case when large investments are made for services yet to be introduced to the public.

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  Routledge Handbook of the Chinese Economy

  • Gregory C. Chow, Dwight H. Perkins(Authors)
  • 2014(Publication Date)
  • Taylor & Francis

    (Publisher)

  3THE CENTRALLY PLANNED Command Economy (1949–84)   Dwight H. Perkins      

  Introduction

  When the Chinese Communist Party took over the government of China in 1949, it set out to fundamentally change the way the economy was organized. Initially the main task was to control the hyperinflation of the pre-1949 years and this was followed by the state takeover of ownership of most of industry and commerce. This in turn was followed by the replacement of household agriculture with agricultural producer cooperatives, a process largely accomplished in the winter of 1955–6. With the state takeover of industry and commerce, the government then moved to replace the production and distribution system, which up to that point had largely been governed by market forces, with a system of central planning where the government decided what would be produced, who would produce it, and from whom enterprises would receive the inputs required for this production.

  This system of government control of the production and allocation of industrial products was patterned on the system then in place in the Soviet Union. The decisions as to what to produce with what inputs was made by a central planning agency that in China was called the State Planning Commission (SPC). The SPC drew up output targets for each industry together with targets indicating which inputs in what quantity would be used to produce those products. These output and input targets were then broken down into comparable targets for individual enterprises. The managers of these enterprises were then expected to carry out their part of the plan as spelled out by these SPC targets. There were a variety of implementation measures designed to ensure that the managers would do precisely that and these will be described below. Industrial inputs and output were not bought and sold on the market – they were allocated administratively by a government agency that completely replaced the market in most cases.

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  China's Economic Reform

  Experience and Implications

  • Zhang Yu(Author)
  • 2017(Publication Date)
  • Routledge

    (Publisher)
• (4) Micro-control. The failure of the market mechanism is another important defect of the market economy, mainly manifested by the externality, monopoly, information asymmetry and public products, etc. In case of market failure, the role of the market mechanism in allocation of resources would be restricted. In this case, the government control is also required, such as controlling the external diseconomy and making use of external economic effects through government intervention, creating the fair and competitive environment for the market and the market order and promoting generation of the effective market structure by preparing rules for market entry, market transaction and market exit as well as unfair competition and anti-monopoly measures, and relieving the danger on economic efficiency brought about by system asymmetry by improving transparency and supply of the transaction information. Since the government intervention often directly involves in the market through non-market measure in the micro-level, it replaces or restricts the role of the market and is therefore called the micro-control.
• (5) Supervision and management of state-owned assets. In the socialist market economy, the state-owned economy plays the leading role in the development of the national economy and occupies relatively greater proportion in some key areas and important industries. Under these circumstances, as the owner of the state-owned economy, the government shall bear the responsibility to represent all people to conduct effective supervision and management of state-owned assets, guarantee maintenance and appreciation of the value of state-owned assets, manage assets and stocks of state-owned economy through state-owned assets management organizations and agencies, appoint or nominate the responsible person for companies controlled by the state, involve in decision-making of major strategies for operation of state-owned assets and supervise operation of state-owned enterprises. This is an important duty of the government in the socialist market economy.
• (6) Institutional innovation. In a socialist country under development and transformation, it is an important function for the socialist state to lead and organize reform and promote institutional innovation. Distinguished from the development history of capitalism in the early stage, the socialist system is built and develops in an independent endogenous way, namely through a planned and organized way under the leadership of the Party and the government. Moreover, the Party and government has also led and initiated the reform and improvement of the socialist system such as the transition from the planned economy to the socialist market economy since Reform and Opening Up. Therefore, the state is the leading power for not only the economic development but also reform and development of the market economy and institutional innovation. The economic reform in China is also a kind of government-guided institutional change.