When Socialism Goes Bad

How capitalism can reform a corrupt socialist system

Communism - cons
Disadvantages
•bureaucratic and inflexible
•little incentive for efficient
management
•stifles individual effort
•freedom of choice is restricted
•quality, quantity, and variety of
goods are limited
Central Planning in the
Soviet Union
“From each according to ability, to each according
 Under Lenin
 1917 – Bolshevik revolution overthrows the Tsar (peace, land and
bread)
 Civil war = difficult for Bolsheviks to keep promises
 War Communism = food surpluses had to be given to the state (while
famine took over the land).
 Industrial production declining

 The New Economic Policy – attempt to stimulate industrial and

agricultural production through small scale private enterprise
 = abandonment of Marxist vision during the dictatorship of the
Proletariat
 Under Stalin
 Believed industrialization vital to protect against capitalist invaders (more
industrially developed nations)
 Five Year Plans – focused on heavy industrialization
 successful in industrializing nation rapidly
 consumer goods largely ignored

 Human Cost of Industrialization

 laborers overworked
 peasants forced off the land
 spies and threat of force used to encourage meeting quotas
 millions killed or imprisoned
 Collective Farms – large scale farms where peasants
could pool resources under state control to increase
output. Yearly income was to be divided among the
farmers who kept their own homes and animals
 State Farms – tended to be larger than collective farms
and were run like agricultural factories
 Peasant Resistance – did not support collectivization
and the Kulaks often burned crops and killed livestock
in protest. Stalin used force against this rebellion
 Economic Planning
 Past economic performance used to calculate future needs,
GOSPLAN informs ministries of specific sectors the needs
required, GOSNAB decides how goods will be distributed
while other agencies set process, arrange labor, foreign
trade, etc.
 Ministries decided whether targets can be met and draws
up list of needed resources for GOSPLAN
 GOSPLAN coordinates all the demands, discussions and
negotiations are held between the large firms, ministries
and GOSPLAN to create a national economic plan
 Each firm is issued orders setting out production quotas
Problem of Incentive – Some Examples of Solutions

 Year end production profits divided up among farmers

according to contribution
 Bonuses used to encourage factory production
 Higher wages assigned to dangerous work
 Managers exceeding quotas given special privileges

These were not overly successful – the drive for quotas

meant that little care was given to product quality or
efficiency
The collapse of Soviet
Socialism
(ie Communism)
Gorbachev’s Reforms
to improve Soviet exports, fund modernization and provide
high quality domestic goods

 Plant managers given more input into production needs

 Stopped producing unwanted goods
 Large state enterprises became self-financing
 Small private enterprises were encouraged
 Joint ventures with Western companies encouraged
 Glasnost – openness (allowing the citizens a greater
say, and more transparency in government)

 Perestroika – change (reforming the communist system

to adapt to the current environment)
 The Results of Economic
Change
 USSR dissolves in 1991 – now must rebuild the nation
 Yeltsin (elected after standing up to attempted coup prior to collapse)
 Calls for rapid transition to market economy

 Result:
 Lack of good infrastructure, stock markets and banking systems meant a
difficult transition
 Value of ruble plummets, GDP drops 50%
 Privatization led to unemployment and inflation, along with reduced social
programs
 Many industries, like oil/gas, went to “oligarchs”
 Increased number of homeless, crime rate
 Russia in the 21 century st

 2007 was ninth straight year of growth (rebounding from the 1998 crisis)
 Due to high oil prices and a cheap ruble, along with important tax and banking
reforms instituted by President Putin

 Poverty had declined and middle class is expanding

 Using surpluses to pay off debts and improve international financial position
 Possible entry into WTO
 Concerns: raw materials are a large component of exports (volatile), corruption
(in business and government)= lack of trust for domestic and foreign investors
 Journal Entry
 Reflect on your previous journal entry on the value of
capitalism
 Now that you have gone through a discussion of liberal
(capitalist) and anti-liberal (communist) economies,
which do you prefer?
 Provide examples both from the theory and case studies to
support your position
 Other Examples
 China: Great Leap Forward (Cultural Revolution)
 North Korea: massive famine while building up
military complex
 Cuba: dependence on other Communist nations – led to
serious decline after end of Cold War, lack of human
rights
 Venezuela: use of the economy to gain political support