Soviet-type economic planning
[3] The USSR encouraged the formation of the council as a response to the United States’ Marshall Plan, in hopes of maintaining their sphere of influence in Eastern Europe.
[6] In contrast to this approach, scholars such as Pawel Dembinski argue that neoclassical tools are somewhat inappropriate for evaluating Soviet-type planning because they attempt to quantify and measure phenomena specific to capitalist-based economies.
[8] In his work, Revolution Betrayed, Trotsky argued that the excessive authoritarianism under Stalin had undermined the implementation of the First five-year plan.
He noted that several engineers and economists who had created the plan were themselves later put on trial as "conscious wreckers who had acted on the instructions of a foreign power".
[9] Trotsky also maintained that the disproportions and imbalances which became characteristic of Stalinist planning in the 1930s such as the underdeveloped consumer base along with the priority focus on heavy industry were due to a number of avoidable problems.
[10] The unique features of Soviet-style economy were an ideologically driven attempt to build a total economic plan for the whole society, as well as unquestioned paradigm of superiority of the state socialist system.
Dembinski describes the Soviet approach to Marxist economy as "quasi-religious" with economic publications by Marx and Lenin being treated as a "Scripture".
[11] The theoretical objective of the Soviet economic planning, as executed by Gosplan, was rational allocation of resources in a way that resulted in output of desired assortment of goods and services.
[13] One 1986 publication compared Physical Quality of Life Index (PQLI) based on infant mortality, life expectancy and literacy rate (World Bank data) and other indicators such as number of patients per physician and argued that countries that predominantly used socialist-style economic planning in their economies achieved slightly better indicators at low and medium levels of income than countries with predominantly market-oriented economies at the same levels of economic development.
At the moment of its default and the dissolution of USSR, Russia alone owed $22 billion to the club,[15] with other Eastern Bloc countries taking loans on their own account.
[16][17] Widespread shortage of goods and failures of supply chain were presented as "temporary difficulties" by official propaganda, but numerous scholars[weasel words] in the Eastern bloc argued that these are systemic flaws of the Soviet economy.
[21][22][23] Shortages and poor living conditions led to industrial actions and protests, usually violently suppressed by the military and security forces, such as the Novocherkassk massacre.
Following the creation of the Polish People's Republic, the life expectancy in Poland increased to 70 years and infant mortality decreased to 30 deaths per 1000 live births.
The Soviet Union also gave Eastern bloc countries subsidies in the form of raw materials at prices lower than those offered in the global market.
[citation needed] The council began to lose its credibility from the 1960s onwards, because disagreements between member countries over the necessity of various reforms led to the slowing of economic growth.
Firstly, the new currency was separated from foreign trade as is characteristic of centralized planned economies, and so was not able to perform the various functions of money outside of being a unit of account [29] Additionally, integration failed due to a general lack of interest, as well as the implementation of 'market liberalization' policies within several member states throughout the decade.
[4] Hence, the CMEA switched gears in the second half of the 1960s, and instead a reform was proposed which encouraged countries to pursue their own specialized industrialization projects without the needed participation of all other member states.
[30] East Germany, Poland, Hungary, and Czechoslovakia agreed to these terms, however Bulgaria and Romania did not, and many political officials throughout the Eastern bloc prevented the 'market liberalization' policies from being implemented at the CMEA level.
[4] The inability for member countries to reach a consensus about economic reforms coupled with the desire to create 'dynamics of dissent' within the Council against the USSR contributed to a lack of planning coordination by the CMEA throughout the decade.
This integration plan heavily relied on countries specializing in the production of certain goods and services, and parallel initiatives were discouraged and to be avoided.
[31] The raw material subsidies (Molotov Plan) that the Soviet Union had provided since the 1950s were drastically reduced to the point of insignificance by the end of the 1980s, due to Eastern bloc countries having to buy industrial goods at a higher price than what was offered on the global market.
To maintain a fixed currency value, all the state has to do is balance the total value of goods available during a given planning period with the amount of wages it pays according to the following equation,[33] where
[35] Since the state is effectively the sole business proprietor and controls banking, it theoretically avoids classic financial frictions and consumer confidence challenges.
Because the state makes labor compulsory and can run enterprises at a loss, full employment is a theoretical possibility even when capital stocks are too low to justify it in a market system.
There was always a Pareto superior alternative available to the USSR rather than full employment, specifically with the option to close some enterprises and make transfer payments to the unemployed.
These scholars consider STP's inability to predict things like weather, trade and technological advancement as an insurmountable drawback to the planning procedure.
[47] Lastly, these scholars argue that the semantic limitations of language made it impossible for STP planners to communicate their desires to enterprises in sufficient detail for planning to fully direct economic outcomes.
After the collapse of the USSR, other scholars have argued that a central deficiency of Soviet economic planning was that it was not premised on final consumer demand and that such a system would be increasingly feasible with advances in information technology.
