Analysis of Centrally Planned economics
The end of World War 2 brought new challenges and conflicts to the people of Europe. The Cold War, which included the conflict of economic ideas (Communism vs. Capitalism), would evolve to become a dominant theme of global politics. More immediately after the war, reconstruction of war torn Europe was obviously necessary. In the initial years of reconstruction, the economic system present in Czechoslovakia was one of mixed economy with both public and private institutions. Within three years, Czechoslovakia would incorporate the Soviet economy theory as t became part of the Communsit Bloc in Eastern Europe. This essay will focus on the implementation of command economics in Czechoslovakia and the reasons why the system failed coinciding with a brief historical analysis.
1948 was the year when "...the consolidation of Communist power..."(Feiwel p.4) occurred in Czechoslovakia. However, a glimpse at European history in the first half of the 1900's reveals that the implementation of communism together with the centrally planned economic system was inevitable. The conditions for the acceptance of this theory, in Czechoslovakia, start with the long running ethnic connection that is amongst the slavic people in Eastern Europe. Secondly, the memory of worldwide economic downturn of the 1930's when the people of Czechoslovakia were under the western economic market system. These factors, combined with the liberation of the Czechs and Slovaks from Nazi Germany by the Russians, enticed the nation to adapt the new economic theory that would repair and develop their economy and provided them with the standard of living that they wanted. This resulted in the central planners gaining quick control of the Czechoslovakian economy. "By 1949, for all intents and purposes, the state had achieved complete direct control over the commanding posts of the economy and virtually extinguished the private sector." (Feiwel p.4) The transforming Czech economy, under the planners influence, underwent significant structural change thru the reallocation of the labor force and capital inputs into different sectors of the economy. John Stevens described the transformation as "abrupt" (Stevens p. 20) The full effect of these policies would foreshadow the events that resulted in the political uprising in the 1960's and the collapse of Communism in the late 1980's.
The transition seemed to be a success at first. The plan for the economy was simple and focused on primarily increasing industrial output with the other sectors having secondary priority. This can be seen when looking at sectoral percentages of national income in 1948 and 1955. Industrial production increased from 59 percent in 1948 to 64 percent in 1955. Over the same timeframe, agricultural production decreased by 6 percent to 16 percent in 1955. This comparison shows the change in economic focus. Also, shifts in labor force allocations and fixed capital allowances where seen to benefit the industry sector. Increases in the services sector were only legislated if they assisted in industrial growth. The results of these changes had resulted in the Czechoslovak economy growing 6 to 8 percent a year depending on the viewpoint taken. Inspite of the initial results, the totally planned economy was soon to be discredited.
By 1952, the limitations were starting to appear in the economy. This realization coincided with the death of Joseph Stalin, the end of the Korean War and the first year of economic downturn since the introduction of Communism. All of these events started the discussion on the economic policies put into place in 1948, primarily focusing on what could be changed to see an increase in the Czechoslovak economy's performance. It was these discussions that started the theory of decentralization, which was coinciding with deliberations concerning political reform known as De-Stalinization. It became obvious that there were elements in the economy that would prevent the economy from continuing to grow. The strict planned economy was deemed inefficient and policymakers embarked upon a reform process.
The reforms of 1953 and 1958-9 by the government had three main objectives.
1.) making the five year plans "better coordinated and intergrated" (Feiwel p. 82)
2.) diminishing the role of the planning board somewhat
3.) increasing the efficiency of the nations firms
In spite of the definite objectives of the reformers, the actions were described as "limited decentralization." (Stevens p.14) The main problem of the command economic system lies in the inefficiency that surrounds the system. Targets for production were based upon previous output causing firms not to produce at their full capacity and therefore receive more input allocations the following year. The result of this inefficiency was the economic downturn that was experienced in the early 1960's despite the two reform efforts of the 1950's. Before the depression, however, "...Czechoslovakia entered the 1960's on a wave of self-confidence buoyed up by...the apparently strong performance of the economy." (Batt, p.91) 1962 saw a drop in growth of national income by 5.4 percent to 1.4 percent. The reforms of 1958-9 had seemingly not gone according to plan. The push for a change in the economic system to market socialism began growing and it became realized that "...the authoritarian political system was the main obstacle in the way of complete implementation of economic reform." (Teichova p.157) This movement strengthened and eventually resulted in the 1968 uprising and the Soviet invasion that prevented the changes from continuing and reinforced its principles installed after the Second World War.
As the history of the former Czechoslovakia shows, the implementation of Communism and its centrally planned economic system did not succeed. The only reason why the planned economy lasted so long was because the Soviet Union was the dominant political force in the region at the time. The performance of the planned economy reveals that the system is abound with inefficiencies and that the political movements in Czechoslovakia echo this conclusion. Therefore, once the resolution of the Cold War was reached, the fall of Communism in Czechoslovakia and other Eastern European countries would take only a matter of time.
Judy Batt's "Economic Reform and Political Change in Eastern Europe." (1988).
George R. Feiwel's "New Economic Patterns in Czechoslovakia" (1968).
John Stevens' "Czechoslovakia at the Crossroads" (1985).
Alice Teichova's "The Czechoslovak Economy 1918-1980" (1988).