Growth Strategies 

 


Comparison of the growth under

 the three strategies
 

 

A) Growth of the total output X.

 

There is a hesitant start under strategy II and a slight initial decline under the strategy III - but only in the first year. Starting in year 2 the aggregate output of the economy is greater under both strategies II and III than under the steady state growth of strategy I. At the end of the first five year plan there is already quite a visible difference. At the end of the second five year plan steady state strategy I increased the aggregate output by just 10%, strategy II by 50% and strategy III by more than 100%. After three five year plans strategy I resulted in a meager 16% increase of total output; strategy II increased output by 90% and strategy III by almost unbelievable 245%. 

 

"See the power of central planning? Communism is a bright future of the mankind!" At least that is what economists of the Former Soviet Union and Eastern Europe indoctrinated by Marxian economics genuinely believed at first.

 

B) Growth of the Production of Consumer Goods X2.

 

Under strategy II consumption declines for three years and then begins to grow with accelerated rates. The total decline of consumption amounts to only 9 %. After seven years the level of consumption overtakes the steady growth path. With strategy III the decline of consumption is deeper, but not much longer. Within the first three years it declines by 25% but the subsequent acceleration of its growth is even greater than under strategy II. The steady growth path is overtaken in the eighth year and already at the end of the third five year plan the standard of living is twice as high as under the steady growth strategy.

 

 

This is what planners hoped for. It did not happen. Why? This cannot be fully explained within the framework of just presented model. There are several additions or modifications of this simple version that need to be done before we can try to answer such a question.

 

 

 

 

 

 

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