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The Soviet Union and some of its European satellites aimed for a fully centrally planned economy. They dispensed almost entirely with private ownership over the means of production. However, workers were still effectively paid a wage for their labour. Some believe that according to Marxist theory this should have been a step towards a genuine workers' state.

However, some Marxists consider this a misunderstanding of Marx's views of historical materialism and his views of the process of socialization. The planning system in the Soviet Union was introduced under Stalin between and The common features were the nationalization of industry, transport and trade, compulsory procurement in farming but not collectivization and a monopoly on foreign trade. Prices did not therefore incentivize production enterprises whose inputs were instead purposely rationed by the central plan.

This "taut planning" began around in the Soviet Union and was only attenuated after the economic reforms in — when enterprises were encouraged to make profits. The stated purpose of planning according to the communist party was to enable the people through the party and state institutions to undertake activities that would have been frustrated by a market economy for example, the rapid expansion of universal education and health care, urban development with mass good quality housing and industrial development of all regions of the country.

Nevertheless, markets continued to exist in socialist planned economies. Even after the collectivization of agriculture in the Soviet Union in the s, members of the collective farm and anyone with a private garden plot were free to sell their own produce farm workers were often paid in kind.

Socialist economics

Licensed markets operated in every town and city borough where non-state-owned enterprises such as cooperatives and collective farms were able to offer their products and services. The use of market mechanisms went furthest in Yugoslavia, Czechoslovakia and Hungary. From Soviet citizens had the right to engage in private handicraft and in collective farmers could raise and sell livestock privately.

It should also be noted that households were free to dispose of their income as they chose and incomes were lightly taxed. Various scholars and political economists have criticized the claim that the centrally planned economy, and specifically, the Soviet model of economic development, constitutes a form of socialism.

They argue that the Soviet economy was structured upon the accumulation of capital and the extraction of surplus value from the working class by the planning agency in order to reinvest this surplus into the economy—and to distribute to managers and senior officials, indicating the Soviet Union and other Soviet-style economies were state capitalist economies.

On the other side of the argument are those who contend that no surplus value was generated from labour activity or from commodity markets in the socialist planned economies and therefore claim that there was no exploiting class, even if inequalities existed. Wages were set at a level that permitted a decent standard of living and rewarded specialist skills and educational qualifications. The difference between the average value of wages and the value of national output per worker did not imply the existence of surplus value since it was part of a consciously formulated plan for the development of society.

In the USSR communist party members were able to buy scarce goods in special shops and the leadership elite took advantage of state property to live in more spacious accommodation and sometimes luxury.


Although they received privileges not commonly available and thus some additional income in kind there was no difference in their official remuneration in comparison to their non-party peers. Enterprise managers and workers received only the wages and bonuses related to the production targets that had been set by the planning authorities. Outside of the cooperative sector, which enjoyed greater economic freedoms and whose profits were shared among all members of the cooperative, there was no profit-taking class.

Other socialist critics point to the lack of socialist social relations in these economies—specifically the lack of self-management , a bureaucratic elite based on hierarchical and centralized powers of authority, and the lack of genuine worker control over the means of production—leading them to conclude that they were not socialist but either bureaucratic collectivism or state capitalism. This analysis is consistent with Lenin's April Theses , which stated that the goal of the Bolshevik revolution was not the introduction of socialism, which could only be established on a worldwide scale, but was intended to bring production and the state under the control of the Soviets of Workers' Deputies.

Furthermore, these "Communist states" often do not claim to have achieved socialism in their countries; on the contrary, they claim to be building and working toward the establishment of socialism in their countries. For example, the preamble to the Socialist Republic of Vietnam 's constitution states that Vietnam only entered a transition stage between capitalism and socialism after the country was re-unified under the Communist party in , [70] and the Constitution of the Republic of Cuba states that the role of the Communist Party is to "guide the common effort toward the goals and construction of socialism".

This view is challenged by Stalinists and their followers, who claim that socialism was established in the Soviet Union after Joseph Stalin came to power and instituted the system of five year plans.

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Nevertheless, it was recognized that the stage during which developed socialism would be built would be a lengthy one and would not be achieved by the USSR on its own. According to the official textbooks, the first stage of the transition period from capitalism to socialism had been completed by the s in the European socialist countries except Poland and Yugoslavia , and in Mongolia and Cuba.

On Power and inequality in the global political economy

The next stage of developed socialism would not be reached until "the economic integration of the socialist states becomes a major factor of their economic progress" and social relations had been reconstructed on "collectivist principles". Socialist planned economies were systems of commodity production but this was directed in a conscious way towards meeting the needs of the people and not left to the "anarchy of the market".

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It would provide the foundations for a further stage of perfected socialist society, where an abundance of goods permitted their distribution according to need. Only then could the world socialist system progress towards the higher phase of communism.

It involved joint planning activity, the establishment of international economic, scientific and technical bodies and methods of cooperation between state agencies and enterprises, including joint ventures and projects. The main tasks of the CMEA were plan coordination, production specialization and regional trade. In Nikita Khrushchev, the Soviet leader, put forward proposals for establishing an integrated, centrally planned socialist commonwealth in which each geographic region would specialize production in line with its set of natural and human resources.

The resulting document, the "Basic Principles of the International Socialist Division of Labour" was adopted at the end of , despite objections from Romania on certain aspects. The "Basic Principles" were never implemented fully and were replaced in by the adoption of the "Comprehensive Programme for Further Extension and Improvement of Cooperation and Development of Socialist Economic Integration". As a result, many specialization agreements were made between CMEA member states for investment programmes and projects.

The importing country pledged to rely on the exporting country for its consumption of the product in question. Production specialization occurred in engineering, automotive, chemicals, computers and automation, telecommunications and biotechnology. Scientific and technical cooperation between CMEA member states was facilitated by the establishment in of the International Centre for Scientific and Technical Information in Moscow. Trade between CMEA member states was divided into "hard goods" and "soft goods". The former could be sold on world markets and the latter could not.

Commodities such as food, energy products and raw materials tended to be hard goods and were traded within the CMEA area at world market prices.

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Manufactures tended to be soft goods and their prices were negotiable and often adjusted to make bilateral payment flows balance. The Soviet Union also provided substantial economic aid and technical assistance to developing countries including Egypt, India, Iraq, Iran, Somalia and Turkey. In the officially sanctioned textbooks describing the socialist planned economies as they existed in the s it was claimed that:.

On housing the main problem was over-crowding rather than homelessness in the socialist planned economies. In the USSR the area of residential accommodation was Unemployment did not exist officially in the socialist planned economies, though there were people between jobs and a fraction of unemployable people as a result of illness, disability or other problems, such as alcoholism. The proportion of people changing jobs was between 6 and 13 percent of the labour force a year according to employment data during the s and s in Central and Eastern Europe and the USSR.

Labour exchanges were established in the USSR in to help enterprises re-allocate workers and provide information on job vacancies.

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Compulsory unemployment insurance schemes operated in Bulgaria, Eastern Germany and Hungary but the numbers claiming support as a result of losing their job through no fault of their own numbered a few hundred a year. From the s onwards, CMEA countries, beginning with East Germany, attempted "intensive" growth strategies, aiming to raise the productivity of labour and capital.

However, in practice this meant that investment was shifted towards new branches of industry, including the electronics, computing, automotive and nuclear power sectors, leaving the traditional heavy industries dependent upon older technologies. Despite the rhetoric about modernization, innovation remained weak as enterprise managers preferred routine production that was easier to plan and brought them predictable bonuses. Embargoes on high technology exports organized through the US-supported CoCom arrangement hampered technology transfer. Enterprise managers also ignored inducements to introduce labour-saving measures as they wished to retain a reserve of personnel to be available to meet their production target by working at top speed when supplies were delayed.

Under conditions of "taut planning", the economy was expected to produce a volume of output higher than the reported capacity of enterprises and there was no "slack" in the system. Enterprises faced a resource constraint and hoarded labour and other inputs and avoided sub-contracting intermediate production activities, preferring to retain the work in-house.

Enterprises in socialist planned economies operated within a "soft" budget constraint, unlike enterprises in capitalist market economies which are demand-constrained and operate within "hard" budget constraints, as they face bankruptcy if their costs exceed their sales. As all producers were working in a resource-constrained economy they were perpetually in short supply and the shortages could never be eliminated, leading to chronic disruption of production schedules.

The effect of this was to preserve a high level of employment. As the supply of consumer goods failed to match rising incomes because workers still received their pay even if they were not fully productive , household savings accumulated, indicating, in the official terminology, "postponed demand".

Western economists called this " monetary overhang " or "repressed inflation". Prices on the black market were several times higher than in the official price-controlled outlets, reflecting the scarcity and possible illegality of the sale of these items. Therefore, although consumer welfare was reduced by shortages, the prices households paid for their regular consumption were lower than would have been the case had prices been set at market-clearing levels.

Over the course of the s it became clear that the CMEA area was "in crisis", although it remained viable economically and was not expected to collapse. The decline in growth rates reflected a combination of diminishing returns to capital accumulation and low innovation as well as micro-economic inefficiencies, which a high rate of saving and investment was unable to counter. The CMEA was supposed to ensure coordination of national plans but it failed even to develop a common methodology for planning which could be adopted by its member states.

There were very few joint ventures and therefore little intra-enterprise technology transfer and trade, which in the capitalist world was often undertaken by trans-national corporations. After the dissolution of the Soviet Union and the Eastern bloc, many of the remaining socialist states presiding over centrally planned economies began introducing reforms that shifted their economies away from centralized planning.

Edward L. Glaeser

In Central and Eastern Europe and the USSR the transition from a planned economy to a market economy was accompanied by the transformation of the socialist mode of production to a capitalist mode of production. In Asia China, Laos, North Korea and Vietnam and in Cuba market mechanisms were introduced by the ruling communist parties and the planning system was reformed without systemic transformation. Vietnam adopted an economic model it formally titled the socialist-oriented market economy. This economic system is a form of mixed-economy consisting of state, private, co-operative and individual enterprises coordinated by the market mechanism.

This system is intended to be transitional stage in the development of socialism. The transformation of an economic system from a socialist planned economy to a capitalist market economy in Central and Eastern Europe, the former Soviet Union and Mongolia in the s involved a series of institutional changes. China embraced a socialist planned economy after the Communist victory in its Civil War.