Was Soviet Union a Command Economy?
The Soviet Economy has been termed a ‘command economy’. Do you feel this is an appropriate and adequate characterisation?
A command economy is one in which the co-ordination of economic activity is controlled and undertaken through administrative means rather than through the market mechanism (Ericson, 2005). Many aspects of the Soviet economy fit this description such as its organisational structure, the methods by which aims and directives were carried out and its lack of a use of pricing within its financial mechanisms, thus it can be argued that the term command economy is an accurate description. However there are another of other aspects to consider such as the use of bargaining to develop a second ‘economy of agreement’ and the use of economic incentives to achieve targets that seriously undermine the description of the Soviet Economy as a command economy. This essay will discuss the points above and show that despite some factors such as the existence of a second economy there can be no other way to describe the Soviet Economy as many economists would agree as the best example of a ‘command economy’ there has ever been.
The institutional structure of the Soviet Economy certainly suggests that it was in fact a Command Economy. The Communist Party of the Soviet Union (CPSU) was the ruling power in government and played a central role in planning the economy as a whole. The state was responsible for over 88 percent of final agricultural product in 1986; 75 percent of urban housing and 98 percent of retail trade (Narkhoz, 1987), with such an extensive stake in so many markets, a vast and complex organisational hierarchy was needed to gather information, manage inter and intra industry communications as well as to ensure effective targets were set and met accordingly (Ericson, 1991). What could be considered the zenith of this hierarchy was known as the Council of Ministers which consisted of a number of ministries or central planning agencies and was
A command economy is one in which the co-ordination of economic activity is controlled and undertaken through administrative means rather than through the market mechanism (Ericson, 2005). Many aspects of the Soviet economy fit this description such as its organisational structure, the methods by which aims and directives were carried out and its lack of a use of pricing within its financial mechanisms, thus it can be argued that the term command economy is an accurate description. However there are another of other aspects to consider such as the use of bargaining to develop a second ‘economy of agreement’ and the use of economic incentives to achieve targets that seriously undermine the description of the Soviet Economy as a command economy. This essay will discuss the points above and show that despite some factors such as the existence of a second economy there can be no other way to describe the Soviet Economy as many economists would agree as the best example of a ‘command economy’ there has ever been.
The institutional structure of the Soviet Economy certainly suggests that it was in fact a Command Economy. The Communist Party of the Soviet Union (CPSU) was the ruling power in government and played a central role in planning the economy as a whole. The state was responsible for over 88 percent of final agricultural product in 1986; 75 percent of urban housing and 98 percent of retail trade (Narkhoz, 1987), with such an extensive stake in so many markets, a vast and complex organisational hierarchy was needed to gather information, manage inter and intra industry communications as well as to ensure effective targets were set and met accordingly (Ericson, 1991). What could be considered the zenith of this hierarchy was known as the Council of Ministers which consisted of a number of ministries or central planning agencies and was
Bibliography: 1. Adams, J.S. 1967. ‘People’s Control’ in the Soviet Union. Michigan State University Press 2 8. Gregory, P.R. and Stuart, R.C. 2001. Russian & Soviet Economic Performance & Structure 7th Edition. 9 11. Maresse. M, 1981. The Evolution of Wage Regulation in Hungary. Northwestern University Department of Economics.