Why the Soviet Union Failed Economically
Even bottom feeding communists recognize that markets distribute goods effectively, and that money acts as the most efficient medium of exchange. The problem lies in their desire to have full control over these systems in order to "equalize" its citizens. Trying to leash a market system and its currency distorts the healthy operation of markets, and results in a hideous mutation, where distribution, quality, and quantity of goods and services are affected negatively. Dominating capital, agriculture, and labor can not be done without reducing the overall efficiency of a nation's economy. While economic planners are still trying to figure out what products are needed, and where they are needed most, time is lost for some industry that might find that its operations have come to a stand still. Shortsightedness on the part of the planner fails to get products where they are needed most. The time and money lost by this built in inefficiency of any communist government has a very high opportunity cost. By the time they realize they may have allocated resources incorrectly, some other sector of the economy goes down because of its dependence on the first industry affected by a lack of perfect information and poor planning. Word filters down through the bureaucracy that capital and labor resources need to be shifted to address an idle sector of the economy, but a surplus of goods has been created in another sector.
Do not worry, because the measure of the availability of certain goods will not be affected by price mechanisms. Instead, shortages and surpluses are reflected by the length of the line one finds himself waiting in to get a commodity, which is abundant throughout the free-markets around the world. Is this a mechanism that is good for the citizens living under its insanity? During the Cold War days, a resident of East Berlin needed only to look across the Iron Curtain to answer this. They lived in squalor, while their neighbors enjoyed Walkmans and blue jeans. Yes, there was good reason for a person to risk their life dodging bullets, while making a run from east to west. It's called quality of life. To be a poor person in Mexico was more preferable than existing as a poor person in the U.S.S.R..
You want some objective proof of this. I introduce you to the concept of a production possibilities frontier (see figure). These graphs show varying combinations of goods that an economy can produce at a given time. The outward bound represents 100% efficiency, since we can not get resources in one sector without giving up some resources in the other sector. No economy operates on this boundary, as it is purely an ideal case. However, economies that make poor choices that have high opportunity costs associated with them will fall further from the line. Anything falling below the dividing line between the attainable and the unattainable regions is inefficient, since opportunities to produce more goods and services are being wasted. Although it may be theoretically possible to reach the outward boundary, economies act as if they are on that line, because they may not be able to address the efficiency issues causing them to be short of the goal, and if so, it may take some time to fix problems. The key is in the perception of a society faced with economic challenges.
The fact, remains that communism does a worse job of meeting the requirements of any economy. The job of any economy is to choose output quantities to be produced, input quantities to be used, and balance the distribution of both of these variables to maximize efficiency and generate a higher standard of living for its citizens.
The reason for the superiority of the market system has to do with the production possibilities frontier. In market systems, innovation and productivity generally increase expanding the outward limit, increasing the size of the economy, and allowing for more goods. Our society is structured in such a way that we are driven to produce better products faster. In America, price drives the market to increase efficiency, creating technology that allows us to reach the former PPF, and expand out into the previously unattainable region. In a sense we are constantly raising the bar.
Meanwhile, command economies have built in inefficiencies that cause their productivity to expand at a slower rate, if at all. Some command economies have even squandered most of their producing potential, as they effectively reduce creative incentive. As we have seen one hiccup in a command economy can cause a chain reaction that continues to propagate within their economy for years, sometimes shrinking their overall PPF.
In addition to these considerations, we must talk about the failure of the Soviet Union’s communist economy with respect to Cold War defense spending. As I have stated the United States was constantly expanding their PPF due to technological evolution. The Soviet Union had to deal with a shrinking economy while they tried to compete with our massive weapons programs. The nature of our system allowed us to produce more gadgets and more advanced weapons at the same time. Both sectors of our economy grew during this time span, while they had to constantly allocate resources needed for basic goods and services towards military expenditures, just to compete. The sacrifice of basic amenities, by the Russian people, certainly contributed to attitudes that may have accelerated declining productivity. In addition, the government had to deal with growing Western influence that caused more resentment of the government, and the rapid erosion of political and economic institutions was the inevitable result. Of course, this phenomenon is purely a factor of how closely tied politics and economics are in Marxist-Leninist states. Rest assured the Chinese have taken a lesson, as they have made significant efforts to distinguish the two from one another. However, I think the powerful influence of the West will definitely cause the downfall of their repressive style of government. There is some evidence of this as they are trying to offset some of the ‘damage’ that open markets have caused for a government that rules with an iron fist.
Last edited by Stormin Norman; 07-03-2003 at 06:12 AM.
Why am I so opposed to socialism/communism? Because I understand the difference between people who can and those who can't. People with the skills needed to operate a business or develop new technology are a rare gift and deserve the fruits of their own labor, like all other people. When you start breaking down the distinction between somebody who maximizes their potential and somebody who does not, by saying that playing field ought to be leveled to accommodate those who do not, you effectively decrease the incentive for achievement. Assuming that this is true, I believe it is; where does that leave those of you who do not know the slightest bit about extracting the world's resources, engineering products for consumption, and creating new markets for the betterment of all humanity? Where is the incentive for educating one's self in these high arts? How does your egalitarian view solve these problems without first considering this perspective?-ME