Consumer and Social Welfare  

Report on
"The Consumers"by Stanislaw Wellisz

by Natasha L.Guidicelli

In a Soviet-type economy, policy makers decide what goods are to be provided for consumption by the consumers. The planners use the price system to equate the demand with the supply. In theory, consumer preferences have an influence on consumer goods, but in reality, the central planners have full control of the consumer bill. Also, they must be able to make adjustments in the bill for unexpected increases or decreases in supply or demand. In practice, it is difficult to do either one. If there is a shortage of a good, this means that the price is too low and if there is a surplus, the price is too high. In order for the planners to be able to adjust the prices to restore equilibrium they must know the elasticity of demand. The planners must be flexible in both their prices and in the supply. One option for the planners, when there is a shortage of supply, is to import the goods from the West.

Variance in demand also poses a problem for the central planners. This is because when the planners change the price in the case of a shortage or surplus, they are also changing the demand of other goods. If the price is decreased for an elastic good, the demand for other goods is decreased. If the good is inelastic, the demand for other goods increases. The planners tend to not want to deal with this, so they leave the prices as is. The paperwork and the time to change the prices is too lengthy so it is not cost efficient to make the necessary changes which would return the good to equilibrium. Only if it is an urgent good will the planners take the time to change the prices.

When there is a price change it is done as a major reform. The consumers are a major problem the policy makers encounter when they want to change the prices. Consumers put pressure on the administration to keep the prices down. To minimize the opposition to the increase in prices, the policy makers will decrease the prices of other goods to keep real income at the same level. In circumstances that this is not possible, the government treats the increase as a matter of national necessity. Since it is difficult for the planners to change the prices, they manipulate the quantity supplied to keep supply equal to demand.

In the 1950s, consumers influence over the goods supplied increased. With suppressed inflation disappearing, consumers became more selective. In addition, there were reforms which increased the producers' responsiveness to the consumers. For example, in Poland, the stores could choose their own suppliers and had the right to reject merchandise. Also, the quality of service given to the consumer was improved. Before, each employee was paid according to his quantity of sales. There was usually an insufficient amount of clerks in order to keep the salaries high. This resulted in poor customer service. The new system based the wage on the sale of the entire store. Thus, there was an interest to increase the number of employees which resulted in better service.

There still remained the interest to increase the variety of goods supplied. The stores responded by introducing brand names. The consumers tend to purchase the goods with the brand names which leaves the store with a surplus of the other goods. The store will not reorder these goods giving a signal to the producer to improve quality of its products. In this way, the consumer can influence the quality and variety of the goods supplied. Retail stores are now able to reduce prices of the defective or unpopular merchandise without the approval of the planners. The managers prefer this to inventory accumulation. In addition, these reductions benefit the consumers. The influence of the consumers is still limited to minor changes in the product. For instance, if a certain model of a television is unpopular, the manufacturer will switch to a different model. This can only be done as long as both models are in the manufacturer's plan. The manufacturer is not able to switch from one good to an entirely different good. For example, from bikes to cars.

When it is not possible to satisfy the consumers demand of a good or their desire for improved quality of a good, the Party leadership turns to "facade building". For example, they may show a display of goods which are not in production but will become available in the future. This is used to show that the planners are concerned with consumer welfare. The planners hope that this gives the consumers the idea that they are aware of the situation and, when possible, will offer the goods to them. Unfortunately, there is only so many times the government can do this unless they actually fulfill their promises. Otherwise, the consumers become angry with the empty promises the party has given.

Overall, the planners want to minimize any conflict with the consumers. This way they can keep the decision making in their hands. The task to keep the supply equal to demand through price controls and still satisfy the consumers is a difficult one. In addition, the consumers tend to pressure the planners for a variety of quality goods at a low price. Unlike a market economy where the conflict is between the producer and the consumer, a Soviet- type economy has the conflict between the consumer and the planners. It is hard to imagine this system in effect and actually satisfying the consumers.

First McGraw-Hill Paperbacks edition, 1966 PP. 76-97





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