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5 Reform
5 Reform
5 Reform
5 Reform
5 Reform
5 Reform
5 Reform
5 Reform
5 Reform
5 Reform
5 Reform
5 Reform
5 Reform
5 Reform
5 Reform
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5 Reform

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    • 1. Reforms and Collapse of Central Planning
    • 2. Foreign Trade in USSR <ul><li>60 foreign trade organizations (FTO) </li></ul><ul><ul><li>No direct interaction between Soviet enterprise and a foreign entity </li></ul></ul><ul><ul><li>FTOs specialized by group of products </li></ul></ul><ul><ul><ul><li>Soyuzneftexport - world’s largest oil exporter </li></ul></ul></ul><ul><li>Ministry of foreign trade </li></ul><ul><ul><li>Purchased commodities from producers at domestic prices </li></ul></ul><ul><ul><li>Sold at world prices </li></ul></ul><ul><ul><li>Vice-versa for imports </li></ul></ul><ul><ul><li>Little incentive for enterprises to produce for export even when world prices were high </li></ul></ul><ul><li>Major imports in 1980s: </li></ul><ul><ul><li>Agricultural products (grain, fertilizer) </li></ul></ul><ul><ul><li>Machinery and equipment </li></ul></ul><ul><ul><li>Chemicals, metals, fuels </li></ul></ul><ul><ul><li>Medicine, computers, furniture, </li></ul></ul><ul><ul><li>rolling ball pens, pantyhose </li></ul></ul><ul><li>Major exports in 1980s: </li></ul><ul><ul><li>Oil and oil-related products </li></ul></ul><ul><ul><li>Natural gas </li></ul></ul><ul><ul><li>Military hardware </li></ul></ul>
    • 3. COMECON or CMEA, 1949 – 1991 Council for Mutual Economic Assistance <ul><li>Trade with COMECON members: </li></ul><ul><ul><li>60 - 75% of trade </li></ul></ul><ul><li>Trade with capitalist countries </li></ul><ul><li>10-25% of trade in Comecon </li></ul><ul><ul><li>West Germany, Italy, France </li></ul></ul><ul><li>Low volume of trade </li></ul><ul><ul><li>Relationship with hostile capitalists limited </li></ul></ul><ul><ul><li>Unwillingness to become dependent on technology imports </li></ul></ul><ul><li>Countries did not fully specialize according to comparative advantage </li></ul><ul><ul><li>In absence of objective prices, difficult to determine comparative advantage </li></ul></ul><ul><ul><li>“ Block isolation” </li></ul></ul><ul><li>USSR subsidized ECE countries with cheap fuels </li></ul><ul><li>1960s: USSR tried to create supra‑national planning agency </li></ul><ul><ul><li>did not want to produce according to the needs of the Soviet Union </li></ul></ul>
    • 4. Eastern Europe: socialism imposed <ul><li>Behind the rest of Europe economically </li></ul><ul><ul><li>serfdom and reactionary autocratic governments </li></ul></ul><ul><ul><li>agricultural economies, impoverished peasants </li></ul></ul><ul><ul><li>hyperinflation in 1920s </li></ul></ul><ul><ul><li>unemployment in 1930s </li></ul></ul><ul><li>Socialist movement supported from Moscow </li></ul><ul><li>More homogeneous </li></ul><ul><ul><li>ethnically, culturally, religiously </li></ul></ul><ul><li>More industrialized than USSR when socialism began </li></ul><ul><li>Small, resource poor, not self-sufficient </li></ul><ul><ul><li>trade aversion not as strong </li></ul></ul><ul><li>Central planning based on 5-year plans </li></ul><ul><ul><li>emphasis on machinery, heavy industry </li></ul></ul><ul><li>Experienced socialism for shorter time </li></ul><ul><ul><li>memory of market forces much stronger </li></ul></ul><ul><li>More open for trade with the West </li></ul><ul><ul><li>susceptible to world market conditions </li></ul></ul><ul><ul><ul><li>world recession of late 70s/early 80s </li></ul></ul></ul><ul><li>Stronger information flows from outside </li></ul><ul><ul><li>lower travel restrictions in Hungary, Poland, Yugoslavia, Germany </li></ul></ul><ul><li>Central planning not as complete as in USSR </li></ul><ul><li>1948: Yugoslavia expelled from Soviet block </li></ul><ul><li>1956, 1968: revolts in Hungary and Czechoslovakia </li></ul>
    • 5. USSR after Stalin (1960s) <ul><li>1956: Khruschev condemned Stalin&apos;s personality cult </li></ul><ul><li>Soviet Union as a world power </li></ul><ul><ul><li>Aid to developing &amp; socialist countries </li></ul></ul><ul><ul><li>space technology and weaponry research </li></ul></ul><ul><ul><li>launched first artificial earth satellite Sputnik </li></ul></ul><ul><ul><li>first manned orbital flight </li></ul></ul><ul><li>Industrial growth slowed </li></ul><ul><li>Reforms: </li></ul><ul><ul><li>Publications on western innovations </li></ul></ul><ul><ul><li>Decentralization  disruption, inefficiency </li></ul></ul><ul><li>Agricultural reform: </li></ul><ul><ul><li>State procurement prices raised </li></ul></ul><ul><ul><li>Farms given more control over production </li></ul></ul><ul><ul><li>decisions - decentralization </li></ul></ul><ul><ul><li>Increase investment in agriculture </li></ul></ul><ul><ul><ul><li>“ Virgin Lands Campaign” to develop new </li></ul></ul></ul><ul><ul><ul><li>fields in Kazakhstan </li></ul></ul></ul><ul><ul><li>Output increased, agriculture still inefficient </li></ul></ul>Nikita Khrushchev General Secretary, 1953-64 “ We will bury you!”
    • 6. Growth Rates of Output <ul><li>USSR in 1960-70s: </li></ul><ul><li>Economy grew more complex – planning complicated </li></ul><ul><li>Oversized, inefficient bureaucratic apparatus </li></ul><ul><ul><li>USSR GDP 40-70% of US economy </li></ul></ul><ul><ul><li>world&apos;s largest producer of oil and steel </li></ul></ul><ul><ul><li>parity with US on strategic nuclear weapons </li></ul></ul><ul><ul><li>6.4 times ahead of US in manufacture of tractors </li></ul></ul><ul><ul><li>16 times ahead of US in manufacture of grain harvesters </li></ul></ul><ul><ul><li>agriculture used 3 times more capital per unit of output, but had 6% of US labor productivity </li></ul></ul>
    • 7. <ul><li>1928-70: USSR grew 5-6% per year </li></ul><ul><ul><li>1970-85: 2% per year </li></ul></ul><ul><li>Extensive growth </li></ul><ul><ul><li>Increasing capital inputs </li></ul></ul><ul><ul><ul><li>Public postpones consumption to finance investment </li></ul></ul></ul><ul><ul><ul><li>system borrows from the future </li></ul></ul></ul><ul><ul><li>Mobilization of labor </li></ul></ul><ul><ul><ul><li>Shifting labor from countryside, women in labor force </li></ul></ul></ul><ul><ul><ul><li>Limit – population growth </li></ul></ul></ul><ul><li>Intensive growth </li></ul><ul><ul><li>making resources more productive </li></ul></ul><ul><ul><li>working more efficiently </li></ul></ul><ul><li>Extensive growth trap </li></ul><ul><ul><ul><li>Capital grows faster than labor </li></ul></ul></ul><ul><ul><ul><li>Substitution between the two is low </li></ul></ul></ul><ul><ul><ul><li>Investment poorly allocated </li></ul></ul></ul><ul><ul><ul><ul><li>No market, no price for capital </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Lack of incentives for efficient allocation </li></ul></ul></ul></ul>Soviet Growth Model (B.Ickes)
    • 8. <ul><li>1965: Market-oriented reforms (Liberman) </li></ul><ul><ul><li>Give enterprises more control over production mix and some flexibility over wages </li></ul></ul><ul><ul><li>Work for profit, allow enterprises to put a proportion of profit into their own funds </li></ul></ul><ul><ul><li>Resistance from planners: started issuing more detailed instructions for enterprises </li></ul></ul><ul><ul><li>Resistance from workers: reforms aimed at increasing productivity by pushing aside surplus labor </li></ul></ul><ul><li>1960s-80s : best period for ordinary citizens </li></ul><ul><ul><li>Rising wages, living standards, stability, peace </li></ul></ul><ul><ul><li>Administratively-set prices kept low </li></ul></ul><ul><ul><li>Building millions of one-family apartments </li></ul></ul><ul><ul><li>Manufacturing more consumer goods, appliances </li></ul></ul><ul><li>Social and political reforms stopped </li></ul><ul><ul><li>Crime and soaring alcohol and drug abuse </li></ul></ul><ul><ul><li>Dissidents began to surface </li></ul></ul>Stagnation Brezhnev Brezhnev ( 1964 -1983)
    • 9. Declining Standards of Living
    • 10. Arms Race <ul><li>Militarization in 1970-80s: </li></ul><ul><ul><li>USSR GDP &lt;70% of US GDP </li></ul></ul><ul><ul><li>Defense spending: USSR 15-40% of GDP, US &lt;7% </li></ul></ul><ul><li>No spillover of technology to civilian sector </li></ul><ul><ul><li>80% of all R&amp;D in USSR were in military </li></ul></ul><ul><ul><li>Military received higher quality inputs, best manpower </li></ul></ul><ul><ul><li>Wall of secrecy around military R&amp;D </li></ul></ul><ul><ul><li>New materials, processes, mechanisms available to military denied to civilian uses </li></ul></ul><ul><ul><ul><li>no Teflon pans or toasters, poor car industry </li></ul></ul></ul><ul><ul><li>Many non-military scientific discoveries and inventions lie around for years without being introduced into practical applications </li></ul></ul>
    • 11. <ul><li>Income Distribution </li></ul><ul><li>socialist economies have more equal distributions </li></ul><ul><li>UK and Sweden have distributions similar to socialist </li></ul><ul><li>money inequality omits inequality in access to goods and services in socialist economies depending on one’s position in Party hierarchy </li></ul>
    • 12. <ul><li>Air pollution </li></ul><ul><li>Chernobyl </li></ul><ul><li>Disappearance of Aral Sea in Uzbekistan and Kazakhstan </li></ul><ul><li>1960: Aral Sea -world&apos;s 4 th largest lake </li></ul><ul><li>Caused by diversion of waters for cotton production </li></ul>Aral Sea Environment
    • 13. Yugoslavia (1945-89) <ul><li>Federation of six ethnic republics </li></ul><ul><li>Extreme regional economic differences </li></ul><ul><ul><li>Northern republics much better off </li></ul></ul><ul><ul><li>Result: low labor immobility between regions </li></ul></ul><ul><li>1952: “Market Socialism” </li></ul><ul><ul><li>worker management- decentralized decision-making </li></ul></ul><ul><ul><li>replace central planning with indicative planning </li></ul></ul><ul><ul><li>enterprises control profits </li></ul></ul><ul><ul><li>agriculture: private farms </li></ul></ul><ul><ul><li>rapid growth </li></ul></ul><ul><ul><li>reduction of regional differences via investment in lagging regions </li></ul></ul><ul><ul><li>integration into world economy </li></ul></ul><ul><li>BUT: </li></ul><ul><li>Competition between firms prevented </li></ul><ul><li>Political authorities interfered in firm operations </li></ul><ul><li>Investment decisions made by party officials </li></ul><ul><li>Managers not responsible for losses – soft budget constraint </li></ul>Tito ruled 1945-80
    • 14. Romania <ul><li>Absolute authoritarian rule </li></ul><ul><ul><li>enforced by secret police </li></ul></ul><ul><li>Policies </li></ul><ul><ul><li>1970s: borrowed heavily from the West to build massive state-owned industrial base </li></ul></ul><ul><ul><li>Export food and oil to pay off his nation&apos;s debt </li></ul></ul><ul><ul><li>People half-starved </li></ul></ul><ul><ul><li>Refusing medical treatment for the elderly so they would die more quickly </li></ul></ul><ul><ul><li>Birth control and abortion illegal so that population would grow </li></ul></ul><ul><ul><ul><li>highest abortion rate and the highest infant mortality rate in Europe </li></ul></ul></ul><ul><ul><li>Taxes on childless women </li></ul></ul><ul><ul><li>Villages of ethnic minorities resettled </li></ul></ul><ul><ul><li>Personality cult: palace, portraits of himself as a young man on every public building </li></ul></ul><ul><ul><li>1989: refused concessions to the reformers </li></ul></ul><ul><ul><ul><li>executed by revolutionaries </li></ul></ul></ul>Nicolae Ceausescu 1965-89
    • 15. Bulgaria Todor Zhivkov 1954-89 Albania Over 600,000 concrete bunkers across a country of 3 million Enver Hoxha, 1946-85

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