Reforms OLDRICH KYN: THE RISE AND FALL OF THE  ECONOMIC REFORM IN CZECHOSLOVAKIA

OLDRICH KYN: ECONOMIC REFORM IN CZECHOSLOVAKIA

 

II.Theory

up
down

During the 1950's Czechoslovak economics belonged to the most sterile and dogmatic in Eastern Europe. Unlike Poland, the new wind came very late. In 1962-63, Czechoslovak economists were still discussing whether mathematical methods can in any sense contribute to the development of economic theory, and so-called "bourgeois" economic theory was virtually unknown. Since that time, however, very much has happened. Especially, the young generation of economists quickly learned how to use the modern tools of economic analysis, and even the older generation abandoned most of the ideological prejudices which had hampered the previous progress in theory. Still, much remained to be desired. The acquaintance with modern analytical tools was casual, as it probably could not have been otherwise. Thus, for example, the basic ideas of the reform were originally developed without any knowledge of the famous Lange-Lerner model of market socialism. Moreover, during years of discussing the advantages and disadvantages of the market mechanism, Czechoslovak economists did not realize the importance or even the existence of  "externalities."

up
down

 

These are the main areas in which considerable change in economic thinking has taken place: 
1. The Role of Ownership and Economic Laws.
Dogmatic Marxist theory interpreted ownership (private under capitalism; state and collective under socialism) as a "substance" which determines the nature and character of economic systems and, at the same time, determines economic laws which "rule" the economy. Thus private ownership was conceived as a final cause of exploitation and anarchy under capitalism, while socialist state ownership was supposed to he a necessary and sufficient condition for the working of  "the basic economic law of socialism" and "the law of planned and proportional development." 
At the beginning of the 1960's some Czechoslovak economists tried to return to Marx's notion that legal ownership does not cause economic behavior but rather is a reflection of basic economic relationships, as for example cooperation and division of labor, control over the process of production and forms of distribution. The new approach shifted their interest from speculation about "substances" and "laws" to the analysis of the actual behavior of the agents of economic systems. Eventually, most of the metaphysical "economic laws" of Stalinist economics quietly disappeared from economic theory

up
down

2. Marxist and Non-Marxist economics. Gone are the days when only the officially approved (supposedly Marxist) views were considered to be "scientific" and everything else was "bourgeois" or ''revisionist'' and invented only for ''fooling the working class." Recently the apologetic character and sterility of dogmatic Marxism have been criticized. It is now said that modern Marxist economics ought to absorb all positive methods and theories (after they have been cleansed of all antisocialist ideological interpretations) and ought not be limited by concepts and tools developed in the nineteenth century. For some, it has even become irrelevant whether their views are called Marxist.

3. Character of Socialism. Referring to Marx's Economic and Philosophic Manuscripts, many Czechoslovak economists asserted that the essence of socialism is not only the abolition of private ownership and exploitation, but first of all the humanization of society, abolition of alienation, and true liberation of man from passive dependence on nature and social institutions. Thus, planning and central direction were conceived only as the means and not the end in itself. It was understood that socialism is not a society with ideal harmony, where everything goes as in a "well-oiled machine." The obvious facts of stratification and conflicts of interests were theoretically accepted. Some even lost their belief that Czechoslovakia as well as the Soviet Union and other East European countries are really "socialist."

up
down

4. Critique of the Command Economy. The command system was criticized for inefficiency and waste of scarce resources, permanent disequilibria, extensive growth with declining productivity of factors (both labor and capital), causing deceleration of the rate of growth, fluctuations in the rate of growth, misallocation of investments and distortion of structure (the steel fetish), insufficient growth of the standard of living, rigidity, hampering innovation, administrative monopolization, informational inefficiency and distortion of information, inefficient foreign trade, lack of long-term planning, autocracy, etc.

5. Market Socialism. Market socialism was considered to be a much better system than the command economy. The aim, however, was not the "pure market system" but rather a combination of central planning with spontaneous market forces. The market ought to provide both stimuli and information for day-to-day coordination of most economic processes, while central planning ought to guide development towards given social ends. The conditions necessary for making market and planning compatible and also the peculiarities of the market mechanism in the absence of private ownership were discussed.

up
down

6. Price Theory. Price theory emerged as a combination of Marxist (labor theory of value) and non-Marxist (marginal utility) price theory. "Rational types of prices" were also discussed, but unlike theories in the USSR and most of the East European countries, the need for free pricing (which would equilibrate supply and demand) was postulated. Free pricing refers here to the situation where only a small part of all prices are directly fixed by the government, while the remaining prices are fixed by the firm, though they are under central price controls.

7. The Real Autonomy of the Firm. The real autonomy of the firm in decision making was considered as crucial for economic efficiency. This implies that planned targets should be given to firms only as "orientation" and not as an order which must be fulfilled at any costs. Firms should be free to look for new combinations of productive factors and to produce any product they find profitable. "Socialist entrepreneurship" was conceived as necessary for promotion of innovations and thus for keeping pace with technical progress in the industrially developed countries.

up
down

It would be possible to enumerate many more aspects of the new stream in economic theorizing in Czechoslovakia. Very interesting, for example, was the rehabilitation of the concept of spontaneity, which was not considered as an evil anymore. Conscious central decisions need not necessarily be rational or optimal; and, therefore, there is no reason to believe that suppression of spontaneity must be good in itself. Reference to Darwin's law of natural selection is relevant here. It shows that such complex systems as the human brain could arise as a result of spontaneous processes.

Let us step down from the realm of pure science to the views of the very people who make the decisions in the economy. To be brief, we shall call them simply planners. Their first reaction to the proposal of theoreticians was negative, as could have been expected. In the fall of 1964 the commission consisting of both theoreticians and planners was established for drafting "The Principles of New System of Management." This first official document (approved by the Central Committee in January, 1965) was in many respects revolutionary, but it still contained statements about the superiority of plan over market. According to views prevailing among planners at that time, the central plan must determine rates of growth and all important "proportions" in the economy, while the market must be subordinated to the plan and be used only as an "instrument" for implementation of the plan.

up
down

The opponents of this view did not dispute the usefulness or even the necessity of central planning for achieving smooth and optimal growth, but they did consider the market as something more important than simply an instrument for plan implementation. Market structure contains channels transmitting information on consumer preferences and scarcity of resources which in the command economy is difficult to obtain. Apart from decentralized coordination, the market mechanism generates parameters (prices) necessary for optimal planning. The remarkable progress in the views of planners is seen from this statement of the deputy chairman of the State Planning Commission in Czechoslovakia, Miloslav Kohoutek:

The plan ought to respect the market as a genuine economic category. At the same time, however, it is bound to be an act of autonomous decision-making, that should affect economic processes and also the market in a sense. Therefore, those concepts, which regard the market as some sort of an instrument for carrying out the plan, are unrealistic, since the market cannot be considered as a category subordinated to the plan. There exists a definition of this problem, which is used in Western countries now and then and which, in my opinion, quite adequately regards the plan as some kind of a model of the future market. It reveals, though not fully, what should be embodied in the plan no matter which society is using it, as long as there exists the market.(2)

up
down

 

OK Economics was designed and it is maintained by Oldrich Kyn.
To send me a message, please use one of the following addresses:

okyn@bu.edu --- okyn@verizon.net

This website contains the following sections:

General  Economics:

http://econc10.bu.edu/GENEC/Default.htm

Economic Systems:  

http://econc10.bu.edu/economic_systems/economics_system_frame.htm

Money and Banking:

http://econc10.bu.edu/Ec341_money/ec341_frame.htm

Past students:

http://econc10.bu.edu/okyn/OKpers/okyn_pub_frame.htm

Czech Republic

http://econc10.bu.edu/Czech_rep/czech_rep.htm

Kyn’s Publications

http://econc10.bu.edu/okyn/OKpers/okyn_pub_frame.htm

 American education

http://econc10.bu.edu/DECAMEDU/Decline/decline.htm

free hit counters
Nutrisystem Diet Coupons