Efficiency and Change in a Planned Economy: Lessons from the Soviet Experience

Abstract

AJV the context of the debate about government's role in economic activity, the Soviet experience is both interesting and instructive. Should the laissez-faire approach be accepted as the best choice for free-market economies, or should government actively intervene to fight market imperfections?1 The U.S. economy is characterized by a relatively small amount of government involvement in business activity, as federal, state, and local government enterprises are legally of minor economic importance. The Soviet economy, however, typifies the opposite approach. The private sector in most activities is officially outlawed, which indicates that an assessment of the Soviet economic model might in fact contribute to an understanding of political economy as well as actual policymaking. Unfortunately, the criteria for evaluating economic systems are ambiguous, so both opponents and proponents of government intervention can use the Soviet example to prove their case. Opponents may argue that planned economies necessitate huge bureaucracies, reduce incentives, generate inefficiencies, and are generally unable to meet consumer demand. Proponents may point to some impressive achievements of the Soviet state such as creating a modern economy, educating the population, and raising standards of living. The