Identify Several Complexities Of Central Planning

Kiev to Pay Russian Debts with Bombers

Russia has agreed to accept bomber aircraft as payment for part of Ukraine's huge debt to Russia for natural gas

Blackjack bomber

Blackjack bomber

Ukraine owes

Russia $l.Sbn

Ukraine Really pays for gas in bart«^--inal prices set at around three times^the ma^ce for the goods . . . [but] Ukraine and Russia aie stantlv at loggerheads over gas debts.

Zl in the past has shut off gas supplie, m UkÏÏne due to nLpayment but Ukraine has hen ÏÏTi Rusj gas bound for Europe instep AH of Russia's gas exports to Europe travel thiough Ukrainian pipelines.

—The Financial Times, August 9, 1999

In the absence of pure communism, the former Soviet Union is the most frequently cited example of a communist economic system. The early Soviet economy showed the main advantage of a command system—that it could mobilize resources and change direction in a short period of time. The sudden disintegration of the Soviet economy in the late 1980s, however, demonstrated the essential flaws of communism.

The Economy Under Lenin and Stalin

MM In 1917 a revolutionary named Vladimir pi' Ilyich Ulyanov, or Lenin, overthrew the government of Russia. In its place, he set up a communist government. Lenin was a strong believer in theoretical communism, and he quickly took steps to develop a communist society. Large estates were taken from the rich, and the land was divided up and given to the peasants. Lenin also outlawed private property and turned the country's few factories over to the workers.


The workers, however, did not have the skills to manage the factories. Before long, production fell and the economy began to disintegrate. People lost faith in the money supply, and a system of barter emerged. The government sent armed forces to the farms to confiscate surplus food for the hungry city dwellers and industrial workers. The angry farmers retaliated by reducing their production so there would be no surplus crops.

By 1927, many changes had taken place. Russia had become the Soviet Union, and the country was under Communist Party control. Lenin had died, and Joseph Stalin was the new leader. Stalin wanted to transform the Soviet economy from agriculture to industry.

To accomplish this goal, he introduced the government's first Five-Year Plan—a comprehensive, centralized economic plan designed to achieve rapid industrialization.

Under Stalin's leadership, the process of collectivization—the forced common ownership of all agricultural, industrial, and trading enterprises—began. Not surprisingly, many people opposed the reforms. Peasants even destroyed their livestock and sabotaged their equipment rather than turn their property over to the collective farms.

Stalin's retaliation was brutal. Millions of people were killed or imprisoned. Ukrainian grain stores were seized in the winter of 1932, causing the starvation of more than five million peasants. The suffering in the cities was nearly as harsh. Workers were forced to work in heavy industry, and the standard of living deteriorated drastically.

Although the first Five-Year Plan did not achieve all of its goals, the government continued with more planning. The plans that followed concentrated heavily on defense industries, heavy manufacturing, and some consumer goods.

The Soviet Economy After Stalin

Stalin's brutal regime ended in 1953. By then the Soviet economy had successfully completed its transition from a backward agrarian economy to a major industrial power. The Soviet government and its comprehensive system of planning dominated the Soviet economy, but the real force was the ruling Communist Party.

Complexities of Central Planning

In the Soviet economy, the Gosplan was the central planning authority that devised the Five-Year Plans. As the Soviet economy grew, however, this process became increasingly complex.

Consider the difficulties in a single industry such as shoes. First, the planners have to decide how many shoes should be produced in any given year. This amount would depend on the population and the number of pairs that each person, on average, would need. The planners would then have to decide how many pairs to make of each style, including colors, sizes, and widths.

Next, the various sizes, grades, and amounts of leather, dye, metal eyelets, thread, glue, and other materials needed to produce the shoes had to be estimated. After the central planners developed this data, individual factories were given monthly and annual quotas. Even a factory that produced thread would be told how much thread of every diameter and color to produce for use in shoes.

Similar decisions had to be made for all industries, including clothing, farm implements, stationery, and military goods. The planners detailed everything that would be needed in the economy right down to nails and paper clips. Even these minor items required the planners to make estimates of iron ore, coal, coke, blast furnaces, mining equipment, trains, and ore cars.

To ensure the growth of the economy from one year to the next, all the planners had to do—or so they thought—was to increase the quotas given to the factories. In short, the central planners determined almost everything beforehand.

Difficulties With Agriculture

The situation was similar in agriculture, where food was raised on state, collective, and peasant farms. The state farms were large farms entirely owned and operated by the state. Workers on the state farms were paid for the number of items they produced. All output was turned over to the government at prices fixed by the government.



Peasant families worked collective farms, small private farms collected into large units for joint operation. The land, buildings, tools, livestock, and machines belonged to the government, which bought a certain amount of produce per acre. Peasant families were allowed to keep their homes and household goods, and a small plot of land.

Despite its efforts, the government was not able to make agriculture as efficient as that of many capitalist countries. In the mid-1980s, before the collapse of the Soviet Union, nearly 25 percent of the workforce was in agriculture. In the United States at the time, only 3 percent of the workforce was in agriculture.

The Soviet Economy Collapses

MR The Soviet Union made considerable progress with industrialization, but it never caught up to the United States. Despite its larger population and land area, the Soviet Union's GNP never exceeded two-thirds of that of the United States.

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To offset low morale in the factories, a number of incentive programs were attempted. One involved the use of piecework, meaning that workers are paid for each piece of output they produce rather than for the number of hours they work.

Although this system may seem like a good idea, piecework quotas often were set at unrealistically high levels. This led to storming, the practice of rushing production at the end of the month to make up for the slower pace at the beginning of the month. The rush at the end often affected the quality of the products. Because of storming, knowledgeable Soviet shoppers often avoided buying goods made at the end of the month.

Other incentives included patriotic and emotional appeals. Workers who had outstanding records or did something special were awarded hero medals, such as the Order of Lenin and the Hero of Social Labor. Some of these medals brought rewards such as free public housing or vacations.

Production Quotas

As with incentives, quotas also failed at the factory level. During the 1950s, the Soviet economy had a reputation for producing some of the world's poorest consumer and industrial goods. Shoe factories, for example, were given quotas in terms of millions of pairs of shoes. Because small shoes could be made fastest, more were made than were needed. When the quotas were changed to measure production in the amount of shoe leather consumed, the result was shoes with some of the thickest soles in the world.

Production of Consumer Goods

Another major problem was the inadequate supply of consumer goods. After World War II, the Soviet people were asked to make sacrifices so their children might have a better life. Many willingly did so. In the 1970s and 1980s, those children were adults. When they were asked to make sacrifices so their children could have a better life, they were not as willing as their parents had been. The new generation had not suffered from the ravages of war and they were aware of the standards of living in other parts of the world. As a result, they were impatient for more consumer goods.


When Mikhail Gorbachev assumed power in 1985, the Soviet economy was weaker than anyone imagined. The main cause was the burden imposed by centralized planning. The economy had become too complex and too large to be managed in the traditional manner.

Plant managers were under increasing pressure to meet or exceed quotas. Glitches in planning, however, were creating shortages and other problems. To facilitate the process, "fixers" called tolkachi were employed to resolve shortages or dispose of excess inventories. The tolkachi soon became indispensable to producers who wanted to fulfill their quotas. At the same time, they also caused problems for other plants whenever they rerouted a shipment or otherwise interrupted the master plan of the central planners.

To solve these problems, Gorbachev introduced a policy of perestroika, the fundamental restructuring of the economy and government. Under the restructuring, Five-Year Plans were retained, but the various ministries of production were to be converted to efficient, state-owned enterprises that would compete in a market economy. Plant managers were given more freedom to buy and sell in pursuit of profits, and small business was encouraged.

Perestroika represented a halfway point between a market economy and centralized planning. Gorbachev, however, did not remain in power long enough to see his plans realized. Those in industry who opposed Gorbachev's reforms allowed shortages and other problems to persist, and then used these problems as proof that the reforms were failing. Gorbachev's successor, Boris Yeltsin, faced similar opposition. Ultimately, the collapse of the economy, the collapse of the political leadership, and the stresses of ethnic diversity and unrest combined to cause the downfall and breakup of the Soviet Union.

Did you know?

Frozen Treasures Siberia covers 75 percent of Russia. It has the largest supply of mineral resources in the country, including gold, diamonds, and coal. Siberia remains mostly undeveloped because of its harsh climate and few transportation routes.

Checking for Understanding

1. Main Idea Using your notes from the graphic organizer activity on page 496, describe how the former Soviet Union's economic system functioned.

2. Key Terms Define Five-Year Plan, collectivization, Gosplan, state farm, collective farm, piecework, storming, perestroika.

3. Explain how the Soviet economy developed under Lenin and Stalin.

4. Identify several complexities of central planning.

5. Describe how central planning contributed to the breakdown of the economy of the Soviet Union.

Applying Economic Concepts 6. Perestroika Since the mid-1980s, the former Soviet Union has undergone tremendous changes, some of which led to hyperinflation. Why would this hyperinflation hinder the movement toward capitalism?

Critical Thinking

7. Making Predictions Based upon recent changes, is the former Soviet Union moving toward capitalism or away from capitalism? Give evidence to support your conclusions.

8. Summarizing Information What did Soviet planners think they had to do to ensure economic growth?

Practice and assess key social studies skills with the Glencoe Skillbuilder Interactive Workbook, Level 2.




Reshaping the World: ^

Karl Marx


Marx was an economic historian and a social scientist. He earned his doctorate in philosophy and history from the University of Berlin, but because of his radical views, he could not get a teaching position.

Throughout the 1840s, he wandered from Cologne to Paris to Brussels. He joined with socialist and radical groups. Persecuted by Prussian and Parisian authorities, Marx fled to London in 1849 where he began a life of exile and, eventually, died in poverty.


Marx is best known for The Communist Manifesto, published in 1848, and Das Kapital, the first volume of which was published in 1867. In these works, Marx argues that "the history of all hitherto existing society is the history of class struggles." In each era, one class was pitted against another: master against slave, lord against serf, capitalist against worker—the "oppressor and oppressed."


Marx argued that the oppressed of his day was the proletariat— people who must work for others



because they have no means production of their own. Their oppressors? The capitalists or bourgeoisie-people who own the means of production.

Marx argued that labor was exploited in a capitalist society. He gave the name "surplus value" to the difference between the wage paid to the worker and the market value of the worker's output. He believed this value was unfairly kept by capitalists as profits.

Marx argued that each cycle of prosperity would add to the suffering of the proletariat and the wealth and power of the capitalists. Eventually, he said, oppressed workers would rise up in a violent revolution. "Let the ruling classes tremble at a communist revolution," he wrote. "The proletarians have nothing to lose but their chains. They have a world to win. Working men of all countries, unite!" During the transition, the proletariat would, Marx argued, have to depend on a strong government: a "Dictatorship of the Proletariat." Thus, authoritarian Communism as practiced in the Soviet Union and other countries was born.

Marx believed that eventually the dictatorship would be replaced by a "classless society," without government, in which people would produce to the best of their abilities and consume to the extent of their needs.

Examining the Profile

1. Analyzing Information According to Marx, through what stages must society go before it can reach the ideal state of communism?

2. For Further Research Annotate a world map to show the extent of Marxist economies in the world today.


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