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Basic Knowledge on Economics.- by Róbinson Rojas
Notes: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Session 17

            An examination of the political and economic reasons for
            the collapse of central planning in bureaucratic socialist
            societies ( especially Soviet Union ), and the problems
            faced in the transition from centrally planned to the
            market economy.

            A discussion of the main economic, social and political
            problems faced by Eastern European societies in the process
            of transition.


                    Economic efficiency and social efficiency as
                    relative notions. Welfare and profits. Cold War.
                    Bureaucratic socialism. Perestroika. The social
                    role of employment.

Data from the International Monetary Fund:



                1950  1960  1970  1980  1986

Japan            100   185   561   884  1096 
Germany          100   233   362   472   514
France           100   164   282   404   436
U.S.A            100   138   200   262   303
United Kingdom   100   131   174   211   235

The above indexes show a substantial improvement
in standard of living.


                1950  1960  1970  1980  1986

China            100   284   421   735  1268
U.S.S.R.         100   265   529   861  1052

The above indexes show a substantial improvement
in standard of living.

    Even more, the gap between United States and the U.S.S.R. in
income per capita was dramatically narrowed:


                      1950       1986

                      6.8         1.9

Moreover, in accordance with the World Bank conversions to 
Parity Purchase Power Dollars, in 1986 the U.S.S.R. income
per capita was higher than in United States.


Period          U.S.S.R.   Industrialised Countries

1951-55           11.6              5.3
1955-65            7.8              4.2
1965-73            7.0              4.6
1973-80            4.7              2.9
1980-89            3.2              2.8


              Less Developed Countries U.S.S.R.   O.E.C.D.

Agriculture                 1            35          33
Industry                    1             4           9
Services                    1             4          13

source: The World Bank


Since the early times of the Bolshevik revolution the economy was
organised around "central planning". The central government received
information from each unit of production about inputs and output, and
the central government devised a general plan for the economy fixing
targets for each unit of production.

The system meant the following:

First Stage:




Second Stage:

CENTRAL GOVERNMENT send targets of production to ENTERPRISE 1

CENTRAL GOVERNMENT send targets of production to ENTERPRISE 2

CENTRAL GOVERNMENT send targets of production to ENTERPRISE 3

Third Stage:

ENTERPRISE 1 sell/buy intermediate goods to/from ENTERPRISE 2
to produce its output, etc.

Hypothetically this system is excellent, because demand and supply
will be always balanced...IF...the information is accurate.

Why information could be inaccurate? Incompetence, dishonesty,
fear to become unemployed, etc.

Information will be accurate only if there is a high level of
political commitment, the latter possible only if society is fair and

In the Soviet Union, since the 1920s military invasions by Japan,
Canada, United States, Britain, and other capitalist countries trying
to toppled down the soviet government, the central planning had two

a) giving priority to the defence industry, which meant heavy industry,

b) the Communist Party exercising a dictatorship and not a democratic
   government. The Communist Party justified that saying that "the war
   economy" made it necessary.

The outcome of the above was the creation of

1) bureaucratic socialism;

2) a new ruling class where MANAGEMENT was the main source of power
   for this new ruling class.


In 1947, the U.S. president at the time, Harry Truman, delivered his
famous speech unleashing the "cold war". Truman said that for that date
on, the United States economic, political and military main objective
was "to destroy" communism, to "wipe it out".

In the early 1960s, after putting Soviet Union in the lead in the space
race and computer technology for delivering nuclear bombs across
continents, the Soviet secretary general Leonid Brezhnev presented
his "military doctrine" to win the military race. In ten years or so,
Brezhnev said,

-soviet strategic nuclear forces had to reach superiority over the
 United States;

-soviet conventional military forces would be built up to reach
 superiority over all possible opposing forces;

-nuclear and conventional military superiority would be used to make
 military, political and economic gains.

By 1985, the soviet military machine was the largest and most powerful
in the world, as follows:

                              U.S.S.R        U.S.A.  NATO

Military personnel (million)    5.3           1.9     2.8
Military reserves               5.4            -       -
Internal security               0.7            -       -

     TOTAL                     10.7               4.7


                              1,398            1,037


                                981              592

STRATEGIC BOMBERS               380              300

NUCLEAR SUBMARINES               79               35


Source: Stockholm International Peace Research Institute


The long-term economic and social costs of achieving military
superiority over the United States and its allies were dramatic.


               AS % OF GNP  US$ MILLIONS   PER CAPITA  GNP/capita

United States       6.3      306,412         1,246       19,780
U.S.S.R            11.9      297,500         1,035        8,700



United States                    6.3
U.S.S.R                         11.9


During the Brezhnev era 25-35% of GNP was dedicated to military


See: Military expenditure. 186 countries. 1988 (The Róbinson Rojas Archive)


By the end of the 1980s, the soviet system lost credibility in the
Soviet Union, specially because the level of social, political and
economic corruption was beyond control.

The ruling of the new ruling class was creating bottlenecks in the
economy, and, in accordance with Gorbachev (1987),

-a gradual erosion of the ideological and moral values of our people

-creative thinking was driven out from the social sciences;

-there emerged a disrespect for the law and encouragement for eyewash
 and bribery, servility and glorification;

-the social sphere began to lag behind other spheres in terms of
 technological development, personnel, know-how and, most importantly,
 quality of work.

By 1986 Gorbachev was proposing a restructuring (perestroika) of the
communist party because, he said:

-we face a serious social, economic and political crisis;

-in the late 1970s economic failures became more frequent;

-difficulties began to accumulate and deteriorate, and unresolved
 problems to multiply;

-a kind of "braking mechanism" affecting social and economic development
 formed slowing economic growth, efficiency of production, quality of
 products, scientific and technological development, the production of
 advanced technology, and the use of advanced techniques.

He added,

 "the worker of the enterprise that had expended the greatest amount of
  labour, material and money was considered the best"..."with us,
  however, the consumer found himself totally at the mercy of the
  producer and had to make do with what the latter chose to give him"...

Gorbachev proposed the building of a "new" communist party, and the
introduction of "accountability". That is, the civil servants, specially
members of the communist party, responsible before the public scrutiny.

The bureaucratic ruling class, of course, opposed Gorbachev's proposals
and even tried a military coup d'etat against his government. In the
process, the anti-communist forces gathered strength, and the whole
soviet system collapsed.

Today, the former Soviet Union and Eastern Europe are imposing
private ownership of means of production.

After 1989 a shock treatment to install a market economy has created
high unemployment, extremely polarized distribution of income, extreme
low level of wages, on the one hand, and extreme wealth for a small
numbers of citizens, the majority of them former members of the
communist party.

By and large, the former Soviet Union and former bureaucratic socialist
countries in Eastern Europe are in a long and painful process for the
creation of a legal and financial infrastructure to stimulate private
industry. Massive unemployment, as "the right price" to pay for
producing at "competitive" prices will be the outcome.


BOX 1___________________________________________________________________

A society becomes a class stratified society, where particular social
groups have more access to economic and political resources than others,
i. e., when the following conditions are met:

1.- a social group decide WHAT to produce, HOW to produce and FOR WHOM
    to produce.

       -The individuals belonging to this social group have particular
        relations with factors of production (means of production and

       -They are able to decide how these means of production are going
        to enter in a productive relation with labour.

       -They can be:

                1) individual owners of means of production;
                2) cooperative owners of means of production;
                3) individual managers of systems of production;
                4) cooperative managers of systems of production.

       -A system of this type will have a range that goes from:

           a) total private ownership of means of production to
           b) total state ownership of means of production.

        In the case of a), private owners of means of production
                           will organize themselves to have that
                           type of system meeting their individual
                           and collective needs;

        In the case of b), civil servants will organize themselves
                           to have that type of system meeting
                           their individual and collective needs.

2.- the social group that decide what, how, and for whom develop
    interests, points of view, political behaviour and social
    behaviour which meet the economic, political and social needs
    of the group.

3.- the individuals belonging to the above group behave like a
    subset of the whole society and device means to prepare
    successors, and reproduce the organisation of the system over
    time. Special access to education, and economic and political
    resources, becomes a component part of this type of class
    stratified society. 

4.- in a society were private ownership of means of production
    prevails, the private owners of means of production will become
    the core of the ruling class;
    in a society were civil servants manage means of production without
    being accountable to the rest of society, the civil servants will
    become the core of the new ruling class.


END OF BOX 1____________________________________________________________



From A. Kossof, "Persistence and Change", included in A. Kossof (ed.),
                "Prospects for Soviet Society", Pall Mall Press,
                                                London, 1967, p.9)

..."Meanwhile, the accumulation of problems entails high costs in the
   form of wasted human resources and implies defects in social
   planning that are a potent source of trouble"...and created "the
   peculiar unevenness of social and economic development"...

..."Among the examples are the mixture of highly advanced technologies
   in some sectors with virtually primitive techniques in others;
   "the disproportionately large rural population relative to the
   Soviet Union's rank among world industrial powers;
   "the striking differences in cultural level between the European
   peoples of the U.S.S.R. and many of its non-Slavic populations
   elsewhere (especially in Central Asia);
   "the gap between the relative affluence of a substantial segment of
   the technical and bureaucratic intelligentsia and the hardships
   experienced by ordinary workers and peasants;
   "the sharp discontinuities between the welfare and educational
   facilities of the cities and the backwardness of the village.
   "The existence of such contrasts means that a mode of solution that
   may be appropriate at one level will only lead to trouble when
   applied to others. In this respect, Soviet policy-makers are required
   to cope not with a single, homogeneous society, but in effect with a
   series of sub-societies requiring sometimes distinct, and even
   mutually contradictory, treatment".


END OF BOX 2____________________________________________________________



From M. Gorbachev, "Perestroika. New Thinking for our Country and the
                    World", Collins, 1987, pp. 21-23.

..."An absurd situation was developing. The Soviet Union, the world's
   biggest producer of steel, raw materials, fuel and energy, has
   shortfalls in them due to wasteful or inefficient use.
   "(The U.S.S.R.) one of the biggest producers of grain for food, it
   nevertheless has to buy millions of tons of grain a year for fodder.
   "We have the largest number of doctors and hospital beds per thousand
   of the population and, at the same time, there are glaring
   shortcomings in our health services.
   "Our rockets can find Halley's comet and fly to Venus with amazing
   accuracy, but side by side with these scientific and technological
   triumphs is an obvious lack of efficiency in using scientific
   achievements for economic needs, and many households appliances are
   of poor quality.

   ..."This, unfortunately, is not all. A gradual erosion of the
   ideological and moral values of our people began..."
   ..."a breach had formed between word and deed, which bred public
   passivity and disbelief in the slogans being proclaimed.
   ..."Political flirtation and mass distribution of awards, titles and
   bonuses often replaced genuine concern for the people, for their
   living and working conditions, for a favourable social atmosphere.
   ..."An atmosphere emerged of 'everything goes', and fewer and fewer
   demands were made on discipline and responsibility.
   ..."Working people were justly indignant at the behaviour of people
   who, enjoying trust and responsibility, abused power, suppressed
   criticism, made fortunes and, in some cases, even became accomplices
   in-if not organizers of- criminal acts."


END OF BOX 3____________________________________________________________





Occupational groups                            Monthly wages in roubles

Directors of 'large industrial enterprises'          450-500
Managerial personnel                                   191
Skilled manual workers                                 141
Unskilled manual workers                               106
Clerical, office employees                              90
Cleaning staff                                          60

source: M. Yanowitch, "Social and Economic Inequality in the Soviet
                       Union", Martin Robertson, 1977


                                               Percentage who are
Education attained                               Party members

Eighth grade* or less                                  7
Incomplete Secondary education                        11
Completed Secondary education                         18
Incomplete Higher education                           22
Completed  Higher education                           31
Completed Postgraduate education                      46


NOTE: * Age 14 approximately.
Source: J. F. Hough, "Political participation in the Soviet
        Union", SOVIET STUDIES, Vol. XXVIII, No. 1, January 1976.





                               Occupations of their children in 1970
                             Intelligentsia Worker Lower      Non  Total
Fathers' occupations                               non-manual Reply

Intelligentsia                    72.5       14.6    11.0      1.9   100
Worker                            31.4       59.1     8.6      0.9   100
Lower non-manual employee         55.2       36.2     7.2      0.8   100
source: M. Yanowitch, "Social and Economic Inequality in the Soviet
                       Union", Martin Robertson, 1977


END OF BOX 4____________________________________________________________


BOX 5___________________________________________________________________


Marxist analysis suggests that the concept of property ownership should
be understood in a broader sense than that of pure legal entitlement.
Milovan Djilas, has suggested that those who effectively CONTROL access
to private property and the allocation of its fruits are the effective
"owners" of property (M. Djilas, "The New Class", Thames and Hudson,
1957): what ultimately matters, then, is not who has the legal
proprietorship of factories and offices, but who has the right to hire
and fire the labour employed in them, and the right to determine how the
share of the product is divided. In Djilas' view, a "new class' has
arisen in socialist society comprised of those who control access to
state resources and who thereby stand in an exploitative relationship to
the rest of the community. In this respect, the "new class" under
socialism occupies an analogous place to the bourgeoisie under

The important point is not simply that the exploiting class under
socialism claim for themselves a disproportionate share of goods and
resources; rather it is that they and they alone decide upon and enforce
the rules of production and distribution. It is because they exclude
workers from the decision-making process that they are equivalent to a
capitalist class. In a genuinely classless society the producers
themselves would play a direct role in deciding how production should
be organized and how the "surplus" was to be distributed. In
contemporary socialist society, however, the proletariat is no better
off in this regard than the proletariat under capitalism.

The veteran French Marxist, Charles Bettelheim, claims that the Soviet
Union -and by extension other east European societies- are not socialist
because they have failed to bring about a transition from the capitalist
mode of production to a "communist mode of production".

     "The existence of the dictatorship of the proletariat and of state
      or collective forms of property is not enough to 'abolish'
      capitalist production relations and for the antagonistic classes,
      proletariat and bourgeoise, to 'disappear'. The bourgeoisie can
      continue to exist in different forms and, in particular, can
      assume the form of a state bourgeoisie." (Ch. Bettelheim, "Class
      Struggles in the U.S.S.R.", Harvester Press, 1977)

This thesis is well in line with the traditional Marxist understanding
of class in that it does not rest upon the fact of mere social
inequality. Its focus is upon the productive system rather than the
distributive system, and hence upon the political process by which
exploitation takes place.

A somewhat different critique of Soviet-type society is presented by
Trotsky. For Trotsky, the Soviet Union even under Stalin's regime, was
still to be regarded as a "workers' state", albeit one which had become
seriously deformed (L. Trotsky, "The Revolution Betrayed", Faber, 1937).
The proletarian basis of the society remained intact because land and
productive property were still under state ownership. That being so,
there could be no exploiting class akin to that found in bourgeois
society. Trotsky argued that the distortions of Soviet socialism were
largely attributable to the activities of the "bureaucracy" -the top
stratum of the Communist Party and the state apparatus. This was the
group which monopolized political power and stifled all proletarian
initiative. True, however, to the tenets of orthodox Marxism, Trotsky
insisted that the bureaucracy was not a ruling class because it did not
legally own the property which it administered. It could not transfer
the means of production to its own offspring in the manner of the
western bourgeoisie. For Trotsky, it seems, no matter what political
abuses might occur, no matter how savage the repression of workers or
how wide the differences between their incomes and those of Party
bureaucrats, the society remains a classless "proletarian" state so
long as private ownership is not revived.
(from F. Parkin, "Class and Stratification in Socialist Societies",
 Study Section 15, Block 2, D207, Open University, 1981)
END OX BOX 5____________________________________________________________