Why Was Central Planning Abandoned in Eastern Europe and the Ussr?
Why was central planning abandoned in Eastern Europe and the USSR?
Abstract
“If a universal mind existed, of the kind that projected itself into the scientific fancy of Laplace – a mind that could register simultaneously all the processes of nature and society, that could measure the dynamics of their motion, that could forecast the results of their inter-reactions – such a mind, of course, could a priori draw up a faultless and exhaustive economic plan. The bureaucracy often imagines that just such a mind is at its disposal; that is why it so easily frees itself from the control of the market and of Soviet democracy.”
Thesis statement
The words of Leon Trotsky, said decades before the eventual demise of central planning, highlight the underlying flaw of the planned economic system; lack of information. The central planner’s realized that the information and signaling required for any modern economy could be found more effectively in a market based system and consequentially central planning was abandoned. The systemic failure of central planning due to poor information was most prevalent in Eastern Europe and the USSR, as evidenced by their economy’s productive inefficiencies, allocative inefficiencies and pricing difficulties. This essay will classify the traditional soviet economy and examine the production, allocation and pricing difficulties which caused its end.
The Soviet Model
Ericson describes the traditional soviet system as “one of centralized planning, implemented administratively through the issuing of direct commands and extensive, detailed coordinating instructions.” After World War II much of Eastern Europe had adopted the soviet system and had distanced themselves from the Western world, so much so that Winston Churchill had referred to their isolation as an living behind an” iron curtain.” A centrally planned economy relied on government agencies to make economic choices, as opposed to the capitalist economies of the west which relied on the
Abstract
“If a universal mind existed, of the kind that projected itself into the scientific fancy of Laplace – a mind that could register simultaneously all the processes of nature and society, that could measure the dynamics of their motion, that could forecast the results of their inter-reactions – such a mind, of course, could a priori draw up a faultless and exhaustive economic plan. The bureaucracy often imagines that just such a mind is at its disposal; that is why it so easily frees itself from the control of the market and of Soviet democracy.”
Thesis statement
The words of Leon Trotsky, said decades before the eventual demise of central planning, highlight the underlying flaw of the planned economic system; lack of information. The central planner’s realized that the information and signaling required for any modern economy could be found more effectively in a market based system and consequentially central planning was abandoned. The systemic failure of central planning due to poor information was most prevalent in Eastern Europe and the USSR, as evidenced by their economy’s productive inefficiencies, allocative inefficiencies and pricing difficulties. This essay will classify the traditional soviet economy and examine the production, allocation and pricing difficulties which caused its end.
The Soviet Model
Ericson describes the traditional soviet system as “one of centralized planning, implemented administratively through the issuing of direct commands and extensive, detailed coordinating instructions.” After World War II much of Eastern Europe had adopted the soviet system and had distanced themselves from the Western world, so much so that Winston Churchill had referred to their isolation as an living behind an” iron curtain.” A centrally planned economy relied on government agencies to make economic choices, as opposed to the capitalist economies of the west which relied on the