The Inefficiencies of the Command Economy

by Amy Johnson, April 2001

The Stalinist command economy was built during collectivization in the 1930's and stayed alive until the fall of communism in 1991. The 'plan' was doted by Soviet Marxists as the key to scientific management of manpower and resources, the undeterring path to achieving the highest levels of growth and productivity, and the Utopian device for reaching its goal of becoming the world's mightiest economy with little or no economic crisis along the way. (Smith, Page 289)

 While these long-term plans cushioned the Russians from the gyrations of double-digit inflation, they had significant problems of their own. The long-term plans, which were part of the command and control economies, create inefficient allocation decisions, a black-market, and poor labor moral and quality. The plans gave allocations to the individual firms, dictating the quantity of inputs needed and the amount of labor allowed in order to meet their overall production goal. With these long term plans, prices did not respond to supply and demand, as retail and wholesale prices were independent of each other and set by the central body. This was the main problem for the Russian economy as it caused its inefficiency. The production of goods was also fixed and based on decisions made by a core group of central planners who mistakenly assumed they knew and could forecast the population's preferences. These incorrect predictions and fixed prices created shortages of popular and necessary goods, surpluses of the not so popular, poor quality of goods, and horrible delays in services.

 Corruption and illegal private enterprises in Russia, known as 'creeping capitalism', grew out of these inefficiencies, and constitutes a black market. Out of the shortcomings, which arose from the planning of a command economy, materialized this black market, a parallel to the official economy. This thriving counter-economy handled an enormous volume of hidden or semi-hidden trade that is indispensable for both firms as well as individuals. Any material or service from buying shoes to plumbing could be purchased through the black market. This opposing economy had become an integral part of the Soviet system, a built-in permanent fixture of the Soviet society. The black market gave to the ordinary people illegally what the politically elite gained lawfully through their system of privileges. According to Marx, this social phenomenon of thieving (capitalism) under the command economy would create economic disorder. This intrusion of the black market operating under the command economy would ruin everything the planned economy set out to accomplish. 

Another significant problem, which was a direct result from the planning under the command economy, was the decline of the quality of goods and poor worker moral. The basic labor principle itself was a predicament, as it was very difficult to discipline workers. Not only because it is nearly impossible to fire them, but also because labor is generally short and an annoyed worker knows he can quit and find another job easily elsewhere. Theoretically, Soviet Marxism states that workers aren't exploited under socialism; however, poor working conditions and lack of side benefits are some reasons for worker dissatisfaction during this time. Because of all of the frustration, a popular national pastime became playing hooky from work. Due to these absences from work, this lack of manpower created a crunch time after the fifteenth of the month in order to meet monthly production quotas. Volume is the main agenda under the plans, and little emphasis is put on quality. All goods carry tags with production dates, and it has become common knowledge that products made after the fifteenth are made in a rush and aren't top quality. 

Overall, the plans, first instituted by Stalin in 1928 to force the pace of industrialization, while credited with multiplying Soviet output 50 fold from 1913 to 1973 and building the backbone of the Soviet economy, had many huge inefficiencies. One disgruntled worker once said, "Money alone is not enough, why work harder and longer for more money when there's nothing to spend it on?" (Smith, Page 296) This workers frustration amplifies some of the worst inefficiencies of good shortages and wage ceilings. This command economy planning with its consistent short comings eventually gave rise to the fall of the Soviet Union some 63 years after Stalin instituted the first plan.


1) The Russians, Hedrick Smith
2) Stalin's Five Year Plan,
April 9,2001





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