ECONOMIC GROWTH

 

Basic Trends in Soviet-type Economic Growth

by Tanya L. Porquez

 

In the section Basic Trends from the book Planning and Profits in Socialist Economies, Jean-Charles Asselain discusses the fundamental underlying trends in Soviet-type economies like increasing rigidities of communist controls with subsequent changes in priorities, the widening of the consumption gap, and the growth of the capital goods sector.

The period of 1953-1965 was a very challenging time for countries practicing the Soviet-style economics. There were many imbalances and restrictions that exisited as a result of the Stalinist regime, and this was the time where the fundamental trends that exisited had to be changed in order to make their economies more competitive on the Western, Capitalist markets. At this time, Socialists liked to highlight the fact that in their countries, living conditions were improving. They were also concerned with the modernization of technology, which was inferior to that of the Western world. These broad, permanent goals were independent to economic policies and short-term fluctuations. These goals were shifts in the existing priorities of communist leaders who created three new priority targets: (1) the strengthening of economic and military potential, (2) technological modernization, and (3) the improvement of Standard of Living. These priorities did not, however, cause a true shift from old production standards as it was intended, but was actually added on to the old Stalinist directives in order to sustain economic growth.

The decision to create a new order of economic priorities had a direct effect on macroeconomic imbalances that exisited causing them to be further distorted. Asselain contends that the decision to change these priorities were made too little, too late at the height of the Stalinist period when orders would be carried out to the fullest and harshest extent, harming the existing levels of consumption. This caused a tremendous push for growth with then setting of higher goals that were difficult to reach even at their lower levels, and a restoration of basic industries. More advanced economies, like Czechoslovakia and East Germany, especially felt the effects that disrupted growth due to the labor, energy, raw materials and resources disparities that existed.

Besides the intersectoral imbalances that existed, the rigidities additionally affected microeconomic management policies. Targets that were created for individual industries were not reached due to unrealistic marks set. Therefore, the duty of authorities began to become more complex and diversified, as they intervened in corporate affairs in order to ensure they were reaching their priority targets. These directives that were uniformly distributed over the entire market were only experimental and theoretical in nature were strictly enforced, so maximum output could be achieved quickly. Planners began to become more concerned with the sources of supply of raw materials, product quality, cost reduction, supply and demand equilibrium, and modernization of technology caused constraints to tighten and interfere with everyday business procedures.

In the period of 1953-1965, when you examine the share statistics that are used to compile the GNP, the rigidity of economic policy is evident. There are phases that show great contrast and diversity in the evolution of individual countries' policies. An interesting observation is that outlines for final uses that were set in 1953 were the same as those made in 1965.

Collective consumption remained almost constant, whereas, consumer goods, housing-starts, and social investments were usually higher. Additionally, there was an increase in basic investments made in this time period that offset the reductions allocated by the government for military spending. Overall, this result was a decrease in private consumption and a shift of investment structure that was unable to cause a balance of growth.

The widening of the consumption gap is one of the fundamental imbalances that are discussed for this period of 1953-1965. From the previously mentioned attempts by Socialist planners to improve standard of living, technology, and economic potential, we notice that despite the fact that they have achieved some advances, they have also caused some long-term damage to the efficiency of countries' economies. It is noted that consumption of basic foodstuffs was some 50 per cent of total household expenditure and levels of consumption for durable, manufactured "traditional" goods, like radios, were greater that those of "new" goods (i.e., televisions). Thus, the aggregate levels of consumption between the East and the West have continued to increase. The consumption of services such as health and education, public consumption, have improved. However, Consumption in arenas such as housing have suffered due to limited capacities of the construction industry, and the competition that ensued between housing and production investment. Also, discrepancies in the amenities of housing stock accounted towards the widening gap in consumption. Asselain characterizes this consumption gap phase as a "Transitory Phenomenon" that developed from the need for the development of a good industrial base with plans for a rapid expansion and growth.

The other imbalance mentioned was that of the growth in the capital goods sector of the economy. The inherent disparity between consumption levels and the development push was related to the growth of light industry compared to that of heavy industry in socialist countries. The article discussed the fact that light industry lagged in growth compared to that of heavy industry and during the periods 1952 to 1958 and between 1958 to 1964, the gap between them has widened in most socialist countries except for Hungary 1. This was a testament to the priority that has exisited in socialist countries to develop the heavy industry more as a growth strategy, and the gap that has ensued has remained and continued to grow due to the decision to use basic industry potential to rapidly develop consumer industries. However, this push for expansion developed severe effects on consumption beginning in the 1960s, and therefore a "new growth path" was developed stating that conditions for balanced growth should entail, "the maintenance of a given ratio in the distribution of investment between the capital goods sector and the consumer goods sector 2." Therefore, for Soviet-type economies to reduce the gap that exists they need to reduce innefficient and wasteful intermediate consumption which are unusually high in this type of economy and cause unbalanced growth.

Work Cited :

Asselain, Jean-Charles. Chapter 4 "Basic Trends" in Planning and Profits in Socialist Economies. (Boston, Routledge & Kegan Paul), 1981.

End notes:

  • 1) Asselain, Jean-Charles, "Basic Trends" in Planning and Profits in Socialist   Economies, (Boston, Routledge & Kegan Paul) p. 102.

  • 2) Asselain, Jean-Charles, Planning, p. 104.

 

 

 

 

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