Consistency and Viability of Socialist Economic Systems

J. Marangos

• Publisher: Palgrave Macmillan
• Year: 2013
• ISBN:
  9781137327253
• Topic: Volkswirtschaftslehre
• Subtopic: Makroökonomie

Economic systems and the reforms processes examined in Consistency and Viability of Socialist Economics Systems are the centrally administered socialist economics system of the Soviet Union, the Liberman-Kosygin reforms, the Gorbachev reforms and market socialism of Yugoslavia.

CHAPTER 1

Introduction

In 1985, Mikhail S.Gorbachev rose to the position of General Secretary of the Communist Party of the Soviet Union and subsequently led the nation into a series of revolutionary changes. The reforms that took place in the Soviet Union were clearly of immense importance to the students of economics. Prior to 1985, many inside and outside the Soviet Union described these reforms as antisocialist and an attempt to restore capitalism—which eventually indeed occurred. These reforms were significant for everyone, not just economists. In an increasingly interdependent world, the struggle of the Soviet leadership at the time to achieve perestroika (restructuring) and glasnost (openness) ultimately affected all of us, in one way or another.

The analytical tools of comparative economic systems help the students of economics establish that motivated the Soviet Union’s leadership to embark on perestroika. These same tools also allow the student to assess the Soviet Union’s leadership’s claims for reform-initiation. Comparative economic systems study the structure of economic systems, their impact on outcomes in different settings, and the allocation of resources. Comparative economic systems focus on how an economy’s organizational arrangements in distinct settings influence economic outcomes. If the economic system, or the system’s elements, influences resource allocation in identifiable ways, we can select an optimal economic system or set of elements to achieve society’s objectives. Using the tools offered in comparative economic systems makes it fairly straightforward to identify that the Soviet economic system was highly bureaucratic in structure, centrally administered, inefficient, and lacked creativity. All of these characteristics inhibited economic progress. This is in contrast to the leadership’s claims, prior to 1985, that socialism in the Soviet Union had established a viable socialist economic system, superior to capitalism.

However, the Soviet restructuring process was not restricted solely to the economic field; it was also accompanied by political and ideological reforms. It would seem that the political and ideological aspects of Gorbachev’s reforms were fundamental; indeed, we cannot understand or assess the reforms using narrow economic terms. This is because the state has a monopoly on the legitimate use of force as a means of imposing restrictions on individual behavior, and the prevailing ideology releases the appropriate directives and establishes moral standards and values designed to motivate people to behave in a certain predictable way. Hence, there is a need to expand the conventional tools of comparative economic systems to, at least, incorporate the role of the state and the prevailing ideology.

If we are to understand and form an opinion about the restructuring process in the Soviet Union, or in any other economy, it is essential to view the economic system in a broad social science context, incorporating economic and political relationships as well as ideology, the external environment, and the process of reforms. To understand changes in an economic system, it is essential to analyze all the relationships that influence economic choices. As such, we must examine the structure of the political authorities and the state, the prevailing ideology, as well as the external environment and the process of reform, all of which influence the making of economic choices. The purpose of the analytical framework developed in this text is to overcome this neglect of the political and ideological elements, the external environment, and the process of reform, which has been explicit or implicit in the study of economic systems. By placing these structures endogenously in an analytical framework, we can incorporate all the elements that influence economic choices, decisions, and outcomes.

Viewing economic analysis and policy from a broad social science perspective is crucial, because the economic structure of a society does not exist in a vacuum. Societies cannot exist only based on economic relationships. Friedrich Engels in a letter to J. Block on September 21–22, 1870, reaffirms this argument that “according to the materialist conception of history, the ultimate determining element in history is the production and reproduction of real life. Neither Marx nor I have asserted more than this. Therefore if somebody twists this into saying that the economic factor is the only determining one, he is transforming that proportion into a meaningless, abstract, absurd phrase” (Marx and Engels 1977, p. 75). Hence, equally as important as economic factors are the political institutions, ideology, the external environment, and the process of reform. This is because there is an intimate connection between these elements, and societies are held together by the equi-proportionate development of these structures and elements.

Hence, the success of an economic system depends not only on specifying the necessary economic conditions, but also on whether certain conditions were satisfied with respect to the noneconomic elements. Differences in historical background, national culture, economic and political structures, and international aspirations can affect growth patterns (Ofer 1987, p. 1768). For this reason, the analysis adopted in this text is in the tradition of “political economy.” This framework takes into consideration economic relationships, the interaction between political institutions, social consciousness, and ideas. The changing of an economic system is a holistic, historical, dynamic, and comparative process, and as such, a political economy methodology would seem appropriate. “Political economy is necessarily procedural, human, institutional and environmental in its scope” (O’Hara 1999, p. 128). Political economy stresses that making economic sense and understanding economic relationships is not feasible without explicit awareness of power, institutions, and values. In particular, political economy maintains that politics and economics are not reducible to one another. However, a political economy approach leads to disagreement and alternative economic systems. Different “views on social reality” and “what is a good society,” along with different speeds of implementing reform, give rise to alternative economic systems.

This text develops an analytical framework postulating that all the elements of the economic system (economic structure, political structure, ideology, external environment, and the process of reform) must be interconnected and thus evaluated in terms of achieving “consistency.” By viewing the economic system in its totality, the terms of analysis are not narrow, economic “independent” variables; rather, the analysis encompasses the complete economic-politico-ideological spectrum. Nevertheless, this analytical framework does not dismiss developing economic systems based on different priorities and sequencing of the elements of the reform program.

Exploration of the economic systems in academic literature appears to dismiss or discount the complexities involved. In most cases, economists writing on economic systems have reduced economic system to an isolated variable of the economic sphere. The economic systems have been pigeonholed into thematic subcategories like pricing policy, government expenditure, investment policy, and unemployment, thus ignoring the interrelated nature of economic policies, institutions, and behavior. These economists provide a solution to any economic problem by sometimes explicitly, but mostly implicitly, assuming specific behavioral traits and/or economic relationships. These assumptions result in presenting and defending a predetermined position as the only feasible one. Thus economists modeling in this way offer a view of the economic system that is highly subjective and based on value judgments; comparisons between economic systems, which ignored these aspects, are meaningless.

As with any other society, the socialist society of the Soviet Union was governed by the need for equi-proportionate development of the economic, political, and ideological structures jointly with the external environment and the process of reform. However, the Soviet Union, with a history of more than seventy years of socialism, was not able to develop these structures in such a way as to provide a viable alternative to capitalism. Socialism ended up having only limited historical significance. The economic, political, and ideological development of the Soviet Union and the positioning of these aspects within the external environment and the process of reform was a struggle to find an appropriate combination. The reform introduced by Gorbachev was another attempt to achieve an appropriate socialist combination of these structures. It is in this context that we should view perestroika and glasnost.

An economy consists of people located within a specific geographical area, who have a common historical and political identity, and are producing and consuming goods and services. A fundamental dilemma of any economic system is the scarcity of resources relative to wants. It is necessary to determine how a given volume of resources is made accessible to production, what production techniques are to be used, and how the income derived from production is to be distributed among various production factors such as capital, labor, and land. Human wants, if not unlimited, are at least indefinitely expansible. However, the goods and services that can satisfy these wants are not indefinitely expansible, and neither are the factors of production that can produce the desired goods and services. These productive factors also usually have alternative uses in the production of any number of different goods and services. Every economic system must allocate limited productive resources that have alternative uses to satisfy increasing and unlimited consumer wants.

In any system, large amounts of capital will not be available for use in production unless there is a process of saving and capital formation. This process is fundamentally the same in all economies. It cannot operate unless the available productive resources are more than adequate to provide at least a subsistence living for the people. Once the subsistence level is in reach, the capital production process involves spending part of the income on capital goods rather than consumer goods. In other words, saving and capital formation require the allocation of a part of productive resources of the economy to producing capital goods rather than consumer goods. The cost of obtaining capital goods is the same in all economic systems: the best value alternative foregone produced of the quantities of consumer goods and services by the factors of production (opportunity cost).

To understand how an economic system works, it is necessary to be aware of the institutional arrangements. Societies continue to exhibit fundamental differences in their institutional structures, notwithstanding the growing trade and capital flows and increasing economic interdependence that apparently generate significant pressures toward convergence in economic systems (Matthijs 2011, p. 6). An institutional arrangement is a practice, convention, or custom that is part of life and is a persistent element of the culture within an economy. Notably, an economy functions according to certain rules, customs, and laws that underpin the institutional framework within which the people live. The most interesting aspect of comparative economic systems is the comparison of the institutional frameworks that exist within differing economies. Economic institutions arise in reaction to certain economic and social phenomena that economies have to face. Some economic institutions become justified based on custom, whereas others are formally recognized and enforced through legislation. Institutions matter because they maintain order. Whenever there are rules of behavior, there must be a means of enforcing these rules. Thus, institutions consist not only of the rules themselves, but also of the means of their enforcement. When classifying different economic systems, we need to consider the endless variety of institutional frameworks.

Thus, there is a need within the institutional context of the economic system to identify a few key variables and to specify a finite number of relationships in order to construct an analytical framework. This analytical framework is useful for classifying and comparing economies, as well as, determining the process of change. The analytical framework developed in this text has the goal to understand the relationship between economic, political, and ideological structures in conjunction with the external environment and the process of reform within an economic system. This analytical framework embodies the view that noneconomic factors partly influence the behavior of individuals. Consequently, an institutional approach united with an evolutionary methodology is the foundation of the analytical framework used in this text to examine elements of an economy as well as change and reform of economic systems. Put simply, the text adopts an institutional and evolutionary approach to economic systems.

Theoretically, we can combine the aforementioned different elements in many different ways; nevertheless, only certain combinations prove functionally workable, thus giving rise to certain economic systems. A hypothesis is developed that the survival of every society depends on whether it is able to develop interrelationships, mechanisms, and institutions that facilitate the achievement of its citizens’ goals. Thus, consistency requires the development of an economic system that facilitates the achievement of the economic goals of its members. This text develops the hypothesis that while the economic, political, and ideological structures, the external environment, and the process of reform are interconnected, they must be consistent with each other to maintain functionality. The establishment of a consistent economic system requires several conditions. The first condition is consistency within the economic structure between property and organizational and motivational relations. The second condition is consistency between the economic and political structures. The third condition is consistency between the prevailing ideology and the economic-political structures. Fourth, there must be consistency between the economic-politico-ideological structures and the external environment, and finally there must be a consistent process of implementing reforms. Consistency, however, is not enough. An economic system may be consistent in the short run but not so in the long run.

Economic systems are not static. Even a quick look at history, especially the history of the last three decades, reveals that change in the structure of economic systems is relatively frequent. A social science perspective that embodies an institutional and evolutionary approach produces the view of economic systems exemplified by ongoing processes of dynamic transformation. The goals of the society and its members change with the passage of time, and the society must initiate changes appropriate to the new goals. Consequently, economies are fluid over time, not static, because institutions are subject to modification. Why do economic systems change? Because changes take place in social reality, in what exists. Hence, a consistent economic system must be flexible and be able to adapt to changes in social reality, change under changing economic conditions, thus making possible its survival over time. In other words, the economic system in this case achieves viability. Viability requires the establishment of a consistent economic system that is able to facilitate reforms toward satisfying the new needs of society. This includes the ability to sustain an adequate rate of increase in material production and making those exercising power accountable to the people. Thus, the economic system, in its broad social science context based on an institutional and evolutionary approach, must be both consistent and viable.

Through these two concepts, we are able to view the economic system in its totality. Our attention then is not on the narrow economic relationships but rather on the complete economic-politico-ideological and international spectrum. A consequence of viewing the economic system in this way is that it becomes apparent that changes within the economic structure must initiate changes in other structures; this is necessary in order to maintain consistency. For example, the Gorbachev reforms combined perestroika (restructuring), a reform in the economic structure, with glasnost (openness), a reform in the political structure, all with the aim of achieving consistency. However, the ultimate aim of the reforms should be not only the achievement of consistency but also viability—the establishment of an economic system that has the capacity to change under changing conditions.

The application of the analytical framework developed in this text is useful to examine the interrelationships between the economic, political, and ideological structures, the external environment, and the process of reform of specific economic systems. In view of the fact that capitalism arose as the victorious economic system in the ideological war between economic systems, an analysis of capitalism can reveal important interrelationships necessary for a consistent and viable economic system. Whether the shift from socialism to capitalism will be a permanent state of the world, an irreversible and linear evolution in economic systems, or merely a short-lived development cannot be determined a priori. Nor can one assume that favorable performance of capitalism will continue forever. Nevertheless, the fact that the struggle between capitalism and socialism is over for the time being does not mean that economic systems no longer matter. How a society organizes its economic-politico-ideological institutions in conjunction with the external environment and the process of reform continues to matter. In much the same way as individuals learn from the accomplishments and the mistakes of others, economic systems can learn from the successes and failures of other systems.

In such context, there has been a transformation in the way that we view the subject matter of comparative economic systems. In the past, the contents of comparative economic systems texts emphasized the differences between capitalist and socialist societies. However, the subject itself is undergoing transformation. As the world economies change, comparative economic systems as a discipline has transformed as well. Nowadays, the ultimate goal of the study of comparative economic systems is to learn what is successful within differing arrangements and settings. Thus, the study of comparative economics has never been more important. Achieving a deep understanding of this transformation of the subject manner, I argue, depends on adopting a social science perspective to economic systems. The social science approach embodies an institutional and evolutionary approach and thus allows the student of economics to understand how these historical transformations of economic systems take place.

The study of comparative economic systems addresses the effect of the whole system on economic performance. Although the countries of the former Soviet Union and Eastern Europe appear to have rejected the socialist model, it is still important to evaluate their performance, both to complete the historical record and to assess accurately the performance of those countries that continue to use it in a modified form, such as China, Vietnam, Cuba, and North Korea. A social science perspective, which embodies an institutional and evolutionary approach, provides us with useful tools to accurately discover and assess the unique elements of Islamic economies.

In recent years, the institutional settings have changed, as have economic systems themselves, to provide important new perspectives on the nature and impact of differing economic systems in a global setting. Economists have a new interest in these issues. The objective of this text is to study comparative economic systems through a summary of selected representative “real” economies, describing each ...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• Figures and Tables
• Preface
• Abbreviations
• 1. Introduction
• 2. Consistency and Viability of Economic Systems
• 3. Consistency and Viability of Socialism
• 4. The Soviet Union: From Superpower Status to Collapse
• 5. Consistency and Viability of the Liberman–Kosygin Reforms: The Limited Market Relations Socialist Model
• 6. Consistency and Viability of the Gorbachev Reforms
• 7. Yugoslavia: From Workers’ Self-Managed Market Socialism to the Breakup
• Index