Command Economy

Command Economy, a form of the economy characterized by rigid central planning and regulation by the state, generally associated with states espousing Communism. The collapse of the political system in Eastern Europe in 1989, and in the Union of Soviet Socialist Republics (USSR) in 1991, is popularly held not just to exemplify the failure of central economic planning and of the socialist project, but as evidence of their impossibility (see Communism, Collapse of). A more sober judgement, addressing the political and economic particularities of these countries, could not press such heroic generalizations. Firstly, an unqualified negative assessment of central planning cannot be made on the basis of its economic record; secondly, the conflation and confusion of centralization with socialism or Communism is to presume that this system was the only form of alternative to capitalism.

The centralized decision-making system in the USSR begins not with the Russian Revolution in 1917 but with the resolution of the inner-party struggle in favour of Joseph Stalin in the mid-1920s. Until then, the success, and indeed the survival, of the Revolution was assumed to depend on economic aid from revolutionary regimes that were expected to emerge in the more developed countries of Central and Western Europe in the aftermath of World War I. The isolation of the new society, once that wave of revolt had subsided without the expected result, led the Bolshevik government to adopt pragmatic rather than dramatic economic policies. Designed to rebuild the economy in the short run, their medium-term aim was gradual economic development through the balanced growth of all sectors. It was Stalin’s victory over Leon Trotsky and the Left Opposition that led to the policy of forced industrialization. Three interrelated economic and political projects were involved: forcible collectivization of the agricultural sector into state farms (from 1931), centralized control of the economy through medium-term five-year plans (from 1929), and the neutralization of opposition through changes in political processes (from 1926). Collectivization was intended to rescue the industrial sector from food dependence by eliminating the peasantry as a class, and by raising the agricultural surplus. Resisted by the peasantry, this policy was ruthlessly prosecuted, with forced population transfers. Suppression of the market and centralization of economic decision-making was designed to maximize the resources that could be devoted to industrialization. The policy had the required adverse effect on living standards. Resistance was minimized by elevating the Communist party monopoly on political debate from a temporary expedient to a matter of principle, by securing loyalty by making the party the conduit for advancement, by outlawing inner-party opposition, and by turning the soviets, or workers’ councils, from formally independent legislatures into party-appointed bodies. These processes are considered by some to have constituted a counter-revolution against Bolshevism and caused the party apparatus to constitute itself as a new, exploitative class.

The effect on economic performance was dramatic. Spurred by a striving for rapid industrialization, forced on the ruling group as the condition for surviving the threatened military confrontation with the West, the structural character of the economy was transformed in a remarkably short period. In 1913, Russian output per head had been comparable to that of Romania, and half the British level; its level of industrialization in relation to population size was comparable to that of Great Britain in 1810. From an economic base which in the late 1920s was smaller than Great Britain’s, the Soviet economy grew to three and a half times larger than Great Britain’s by the late 1970s. By 1950 output had reached 33 percent of the level of the United States; by the mid-1970s, 60 percent. From being an underdeveloped giant, the USSR became the world’s second industrial power. Efficiency, in terms of per capita output, improved from 50 percent of the European average in 1929 to 75 percent in 1950, and to 90 percent in 1970. State direction of the economy had enabled a dramatic rise in the rate of accumulation. Rapid industrialization laid the basis not only for sustaining the burden of defence from 1945 to the 1980s, but also enabled the USSR to withstand invasion and to play a chief role in defeating the forces of Nazi Germany in the 1940s.

Centralized economic management facilitated rapid accumulation, but produced a sub-optimal performance. Five-year plans were necessarily aggregate in character since disaggregation to the estimated 12 million items produced in an industrialized society was impossible. In leaving considerable discretion to sector, industry, and enterprise managements, however, aggregate planning could only work efficiently with a commitment to the objectives that inspired the plan’s construction. The efficiency of aggregate planning depended upon politics. With managements rewarded by their ability to meet plan targets, however, a structural encouragement existed to mislead the centre by overestimating input requirements and underestimating output capacity. With the suppression of all democratic processes, neither trade unions nor Soviets could act as collective constraints on such sectional interests. Centralization was thus, paradoxically, responsible for the development of a sectionalist orientation that was inconsistent with effective planning. Indeed, if economic planning entails the rational deployment of resources to attain given ends, and hence requires both accurate information and cooperative, imaginative, and motivated implementation, then it would be misleading to describe the administered economies of the Stalinist states as having been “planned” at all.

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Moreover, with producers enjoying monopoly status, a little incentive existed to accommodate changes in demand or improve product quality. Overproduction of some goods and shortages of others was the result. Such imbalances in microeconomics were supplemented by imbalances at the level of macroeconomics as the wage fund exceeded the supply of goods for which a demand existed. While open inflation was prevented by price controls, the effect of shortages could be otherwise observed in queueing and empty shelves, and in bottlenecks in the production process. For some consumers, this meant the growth of unusable rouble bank accounts which would empty shelves with alacrity if a desirable product appeared; for managers, fearful of not meeting their targets, the threat of shortages of industrial inputs, including skilled labour, led to their hoarding of, or unofficial trade in, resources. The plan was thereby further compromised. Hence, while centralized decision-making could overcome some of the inadequacies of market economies which clearly render the latter sub-optimal (mass unemployment, underutilization of resources, severe income inequalities, and dramatic fluctuations in business cycles), it could do so, in the absence of democracy and popular engagement, only by generating difficulties of its own.

This was the system exported to Eastern Europe after 1945. The defeat of Nazi Germany added to the planning problem. With an economy exhausted by the war effort and in need of reconstruction, and with an estimated 20 to 50 million citizens killed, Moscow’s initial intention had not been to subdue the liberated countries as colonies but to seek Western aid for reconstruction while maintaining non-Communist but friendly governments in its sphere of influence. By 1947, with the Soviet Union excluded from Marshall Plan aid and suspicious of Western intentions, the strategy changed, and Communist-dominated governments were installed by pretext or force. Economically, the aim was to replicate the centralized economic mechanism, to emphasize self-reliance so as to break a trade inclination towards Western Europe, and to develop for each economy bilateral trade relations with, and ultimately dependence on, the USSR. Moscow’s interest was strategic rather than economic: to preserve a cordon sanitaire against possible Western attack, even at the cost of heavily subsidizing energy exports at below world market prices in return for over-priced industrial goods. After the Communist takeover in 1949, China followed a similar line, and the pattern was copied by Communist regimes in postcolonial developing nations.

The formation of the Council for Mutual Economic Assistance (“Comecon”) embraced the German Democratic Republic, Czechoslovakia, Poland, Romania, Bulgaria, Hungary, and the USSR. It later included Cuba and North Vietnam. With different economic structures, levels of development, technological sophistication, and degrees of private ownership, these economies enjoyed substantial opportunities for mutually beneficial intra-bloc, multilateral trade, but the USSR’s strategic interests impeded that development. The absence of effective mechanisms to determine the advantage and the distribution of the benefits of such trade led to mutual, national suspicions. The absence of a properly convertible currency between the economies made trade settlements imperfect if not impossible. Economic development took place, therefore, with little regard for the possibilities of specialization. Economic nationalism re-emerged in tensions between more and less developed members of the bloc and was partly responsible for the rift between the USSR and Yugoslavia. Elsewhere, command economies broke down far more disastrously: the command economics introduced in Cambodia during the 1970s by Khmer Rouge cadres under the inspiration of Maoism cost hundreds of thousands of lives; whilst the collectivization of agriculture in Ethiopia has been held responsible for the disastrous famines which hit that country in the 1980s.

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The problems associated with centralization had been well understood since at least the early 1960s, and a variety of attempts at reform of the system had been attempted. Yugoslavia developed its own model of partial market socialism and workers’ self-management in competing enterprises. China suffered disastrous economic experiments imposed through central planning, such as the Great Leap Forward, but after the death of Mao Zedong in 1976, it pursued a dramatic economic liberalization which recreated private peasant agriculture and encouraged private enterprise in an increasingly export-oriented and marketized economy. While for the Yugoslav federation the result was disintegration, for China the reforms produced phenomenal rates of economic growth. The most thoroughgoing reform within Comecon was installed in Hungary after the USSR’s invasion and bloody suppression of the revolution of 1956. The New Economic Mechanism provided managements with some independence of action, required enterprises to operate at a profit and measure efficiency by profitability, allowed a substantial role for a market to determine commodity prices, and partially opened the economy to international trade. It was only a limited success: imbalances created through the normal operation of the market sector tended to destabilize the operation of the sectors still subject to plan targets; managements exploited market opportunities to enrich themselves, leading to a worsening in the distribution of income and the creation what workers called “the red bourgeoisie”; loss-making enterprises were rescued if they were too prominent to be allowed to fail; and an extensive “black economy” developed (all phenomena which emerged in China as its promarket reforms gathered pace). For regimes elsewhere, there was, moreover, the fear that economic reform would spill over into demands for political liberalization and create, as in Czechoslovakia in 1968 and in Poland in 1980, a threat to the system itself. To conservatives in government circles, and to members of the nomenklatura whose privileges were threatened by change, reform only seemed safe after a catastrophe in which potential opposition had been crushed.

It was such fears about a reform programme that led, in part, to the overthrow of Nikita Khrushchev in the USSR, and to the onset of the “years of stagnation” in the 1970s and early 1980s under Leonid Brezhnev. These years coincided with a general slowdown in the USSR’s growth performance. While partly reflecting a lack of systemic dynamism, this decline in growth rates was primarily a consequence of the maturation of the economy—the need to negotiate the transition from “extensive” growth, based on mobilizing new resources, to “intensive” growth, based on productivity enhancements. The USSR was ill-placed to manage this change: access to Western technology was highly restricted and not easily disseminated when acquired, and guarantees of employment security, on which the popular legitimacy of the Communist party’s role depended, did not conduce to radical experimentation. The considerable burden of defence expenditure worsened the damage of the slowdown. While the United States committed 5-6 percent of gross domestic product (GDP) unproductively to military procurement, the matching commitment from the USSR’s smaller economy was 12-15 per cent.

This unsustainable situation was the reason for the policy of perestroika, or economic “restructuring”, introduced by Mikhail Gorbachev. Its distinctiveness was provided by its political counterpart glasnost, or “openness”: the partial relaxation of censorship to encourage criticism of superiors and undermine conservative opponents of reform. The strategy spun out of control, first igniting long-repressed nationalist movements amongst the non-Russian peoples of the USSR, and then, most fatally, provoking a working-class revolt by miners and transport workers. The conservatives’ coup attempt in 1991 heralded the end of the USSR. By then the revolutions of 1989 had toppled the Stalinist regimes in Eastern Europe. Defence of the old order was minimal: the bulk of reformers had concluded that the system was unreformable; Communist Party bureaucrats and enterprise managers had repositioned themselves as entrepreneurs or facilitators in a privatized economy, and workers could find little to defend after decades of disillusion. Stalinism as an ideology of forced industrialization was at an end in Europe, and in China, it survives only as an incantation divorced from the realities of economic policy.

Contributed By:
Thomas Hickey