6.1.3 Command Economies

The economic system in a totalitarian communist country is called a command or centrally-planned economy. As you have learned, three key principles of a collectivist ideology are economic equality, collective interest and public property.
In a command economy, the means of production (land, labour, and capital) are owned by "the people" but not by individual people. They are owned by the government, with the wealth generated from production distributed to the people according to the communist idea "from each according to his ability, to each according to his need." The government decides how the economic system will work. It plans what will be produced, how it will be produced, how and where the goods produced will be sold, and how the money that is earned will be distributed. Private individuals and corporations do not compete for business.



 "Communism vs. Socialism: What's the Difference?". NowThis World, You-tube 

 

 



Deda Chicken Processing Plant. Courtesy of Edward Burtynsky.  Quotation by Karl Marx
Click image for larger view
At its most extreme, a nation with a command economy owns the banks and decides who gets loans, the interest people are paid on their savings, and how the bank's profits will be spent. It owns the factories and decides how many pairs of shoes should be made, how much they will cost, and where they will be sold. It owns the farms and tells the farmers what to plant, when and how much their fields should produce, and how much the workers will be paid. It decides which countries it will deal with and which nations can invest or do business with it.

You learned that one of the reasons for the collapse of the Soviet Union was the failure of its economy. Central planning failed to provide the people of the Soviet Union with economic freedom. Their needs were not met through central planning.

The photo by Canadian photographer Edward Burtynsky is of a modern-day chicken processing factory in Communist China.

In recent years, China has taken a very different economic approach in its communist economy, leading to astounding economic growth. You will learn more about China in the next section.

Is a centrally-planned economy necessarily destined to fail?


As you read about command economies, take notes on the following:
  • What are the characteristics of a command economy?


How much freedom is there in a command economy?

Your study of the economic system of the former Soviet Union showed you that people had very little economic freedom. Business owners could not compete with one another for economic success. There was very little opportunity for people to work in their self-interest. Individuals could not get rich by having a great idea and building a product to sell. Consumers had little choice in the products they could buy. Individuals were not always free to choose their own career paths.

Central Planning


In the USSR, the State Planning Commission (GOSPLAN) produced "Control Figures" or forecasts for the economy in the early years of communist rule. They made plans and suggestions to increase production in state enterprise. After 1927, Stalin demanded more ambitious plans and the first of many "five-year plans" was presented. The first Five-Year Plan concentrated on the development of iron and steel, machine-tools, electric power, and transport to produce machinery to improve agricultural production. There were 12 Five-Year Plans during communist rule in the Soviet Union. All enterprises were required by law to fulfill their targets.

Cooperation


The communist goal of working towards the collective interest was also encouraged in the production of goods. To meet production quotas, factories often engaged in the practice of "storming" or racing to meet goals in the last week of the month, causing accidents and producing poor goods. Soviets learned not to buy goods made in the last week of the month. Workers who did not cooperate were imprisoned, and those who tried to organize strikes were arrested for "anti-Soviet" activity. Factory managers often covered their failures by reporting the output of their factories inaccurately to avoid being fired.

Incentives


Initially, higher wages, better housing, and public recognition were used as incentives to meet and exceed production quotas. Those who performed most impressively were called "heroes of labour" and became national celebrities. This campaign ended in the mid-fifties and was replaced with more tangible rewards such as vacations, cash bonuses, and imported goods. Trade unions, unlike in capitalist economic systems, did not act to protect the worker; instead, they ensured members met targets and punished unsatisfactory workers.

Property Ownership


As the poster below notes, communism calls for the the abolition of private property. Did that mean that no one in a communist economic system can own anything? Not at all. Although capital in a communist system was government-owned, individual people could still own things including agricultural plots of land and their own homes. What could not be owned were the land, labour, and capital that could be used to produce greater personal wealth. The idea that one human being could not use the labour of another human being (sometimes called "human capital") is a key difference between capitalism and communism. In the early days of communism, natural resources, heavy industry, and banking were nationalized. In other words, the government took over these important industries from private owners. The government was able to use its power and control to modernize industry rapidly through state ownership and planning. This wealth was used initially to enrich the nation through social programs and greater employment. In the early years of the command economy, there was rapid economic growth, but in later years poor planning, bureaucracy, and the resulting inefficiency led to decreasing effectiveness.

Collectivization of Agriculture


Under Stalin, a plan to nationalize agriculture was put into action with less successful results. Reflect on the translation of a Soviet poster created in Stalinist Russia. Does it suggest any that any of the principles of liberalism should be followed? Does it suggest principles of collectivism?
Soviet Poster
  1. Recruit manpower in an organized way, by means of contracts with the collective farms, and mechanize labour.
  2. Put an end to labor mobility, do away with wage equalization, organize the payment of wages properly, and improve the living conditions of workers.
  3. Put an end to the lack of personal responsibility at work, improve the organization of work, arrange the proper distribution of forces in our enterprises.
  4. See to it that the working class of the USSR has its own industrial and technical intelligentsia.
  5. Change our attitudes towards the engineers and technicians of the old school, show them greater attention and solicitude, and enlist their cooperation in work more bravely.
  6. Introduce and reinforce financial accountability and increase the accumulation of resources within industry.




Review figure 5-14 in your textbook Perspectives on Ideology.

Watch this lecture on the difference between command and free market economies.



"Command and Market Economies/Basic Economics Concepts/AP Macroeconomics/Khan Academy", Khan Academy, You-tube   

 

 




As you read below, take notes on the following:
  • To what extent does a command economy meet the needs of its people?
  • Why did a command economy in the Soviet Union fail?
  • How did Perestroika and Glasnost attempt to liberalize the Soviet Union?

Perestroika and Glasnost



"Glasnost and Perestroika", Mr. Allsop History Clips, You-tube"  

 

 



Beyond Perestroika

Although the Soviet Union and China both used command economies to redistribute wealth and to modernize industry in their countries, by the 1980s there were many signs that the command economy was not working. Government ownership led to a lack of incentive for workers to produce the best product possible. The citizens of these nations wanted greater freedoms both politically and economically, and they participated in demonstrations to make their voices heard. They took very different routes to achieve change, one resulting in the collapse of the formerly powerful communist nation and economic hardship for its citizens, and the other leading to continued communist control and ongoing economic success.

 The people of both the USSR and China wanted more choice of goods and services. They wanted the opportunity to prosper based on their own initiative. As well, the economies of nations around the world were becoming more interconnected. Foreign corporations wanted to invest. The governments of both nations could see that their economic systems were not accomplishing the same kind of economic growth that was happening in liberal capitalist states.

Soviet Restructuring

Under Soviet President Mikhail Gorbachev, the process of perestroika, or reform, began. Economically, Gorbachev initiated laws to allow private ownership of industry and foreign investment. His first reforms looked at majority Soviet ownership and control of foreign investment, but this soon changed to allow foreign firms to own and control Soviet business. By 1991, the communist party had lost control of not only the economy, but the support of the people. The Soviet Union collapsed and its member states left the union to form their own governments.

The American political cartoon by a former resident of the USSR shows Marx, Stalin, and Lenin looking down in amazement from their communist version of heaven on the death of communism with its funeral parade led by President Gorbachev.

"I Can't Believe My Eyes!" by Edmund Valtman, Courtesy United States Library of Congress 

 





"Fall of the Soviet Union Explained in 5 Minutes", The Life Guide, You-tube 

 


Please watch the following video explain what is a command economy:

 

 

"What is a Command Economy?" Mr. Sinn, You-tube