title: Analysis of the government-directed economy in the USSR: Politico-economy model
Creators: name: Han, Yong-Sug
Publisher: name: University of Glasgow
Year: 1998

description: The traditional approach in economic Sovietology has emphasised the ideological content, corresponding to the major "isms", such as, capitalism, socialism and communism, and regarded property relations as the essential element in distinguishing systems. However, from an organisational viewpoint, the economic experience in both East and West have more in common. The difference is lying in degree of government involvement in individual economic decision-making, not in fundamental kind. In this context, my first attempt is to develop a general politico-economic model, indicating and emphasising dynamic interrelations between collective political processes and individual economic activities in a political economy. The methodological and theoretical approach and theories of the 'modern political economy' is applied to understand the real nature and problem of the Soviet system as an extreme model of 'non-market' government-command system. With this unified conceptual and analytical framework, the true nature and actual operation of the Soviet government-directed model are examined, indicating its intrinsic information and incentive problems. The evolution of the Soviet government directed socialist system was the outcome of the Soviet regime's ultimate goal: rapid economic growth to catch up the advanced Western countries while maintaining and strengthening the political and economic dictatorship of the Communist Party. This government-directed politico-economic model was designed and intended for the party leadership to direct the whole political economy in order to achieve these goal as fast as possible. Its basic nature can be characterised by the totalitarian political nature under the dictatorship of the Communist Party and the government-directed economic nature, such as the centralised economic hierarchy, the government planning mechanism, and the socialist motivation mechanism. However, the Soviet government planning mechanism, without an active role of market mechanism, was unable to provide sufficient information to economic actors concerning co-ordination errors and any incentive weapons to eliminate these errors. In practice, the Soviet economic participants possessed neither sufficient information nor incentives to appraise the alternative use of scarce resources in production. These information and incentive problems were likely to generate chronic co-ordination problems in individual economic activities, which induced unique intrinsic economic phenomena: 'economic bureaucratism', 'centralised pluralism', 'non-scarcity information', 'supply uncertainty', 'success indicator problems', 'soft budget constraints', and 'economic security'. Confronted with these conditions, each participant, in practice, engaged in operational 'opportunistic behaviours' in activities of 'tactical planning', 'securing plan-fulfilment', and 'low incentive work', which were often not compatible with the intended goals. The outcomes were just 'extensive' and 'intensive' aspects were neglected. For that reason, the party leadership turned its attention towards raising efficiency through better utilisation of inputs, increasing the quality of products and opening up for technological innovation in the production units. Notwithstanding the reform policies of 'further perfection' and later 'perestroika', the regime's attempted reform within the framework of the government-directed model failed and the regime collapsed dramatically. This grand Soviet experience would provide us with important general lessons for long-term stability and dynamism in any political economy.