Prices, coops, and planning in the USSR

Dear Prof. Wolff, How did the Soviets and other planned economies gauge prices and demands through their central planning? I found this NY Times article from 1988 that mentioned coops in the USSR. I thought Soviets hated coops on the grounds that they were ideologically bourgeois, so I looked into it a little more, and found this link to a law on coops in USSR. Would you be able to breakdown how coops fit into Soviet central planning? Thank you very much, Andrea

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  • Daryl MacFarlane
    commented 2017-02-12 21:32:53 -0500
    A mistake that a lot of capitalist economist make is that they try to use rules that only apply to the markets of capitalism and then use it to analyze a system that was based on central planning. It’s like analyzing the physiology of an alligator, yet only learning the biological rules that apply to the alligator, and then claiming that the same biological rules of the alligator applies to every other species in the animal kingdom – no matter how different they are, whether its a polar bear or a cat, or a moose, etcetera. In other words, most capitalist economist who claim that the soviet union “didn’t follow the rules of supply and demand”, do not know what they are talking about, because the whole point of planning – whether it is centralized or decentralized planning, is so that goods are produced for social need, which is either determined top-down by the state, as in the soviet union, or bottom-up by the people and workers within their community who democratically create a ‘plan’ for their own communities social needs (which i fully agree with the bottom-up democratic model of planning). So therefore when an economist tries to claim that planned economies "didn’t adhere to the markets, they are pretending that a completely different style of economy should absolutely conform to rules that only apply to capitalism, and thus are being incredibly dishonest in order to produce a false criticism.

    To answer your question more directly, because the soviet union was based on a network of planning, this meant that the wages of a single community could be compared to the quantities of goods that are available, and therefore the price of all goods and services within the community were made to be proportional to ‘wages’ within that community, so as to ensure a maximum utility of everything within the community. If the cumulative prices are higher than the cumulative wages within a community, this would result in an unnecessary waste of goods. So the commissars of a local community, because they are supposed to plan for the community, always made sure that mathematically speaking, prices of everything in the community were equal to the wages within that community. This was a hallmark of central planning that the soviet union was very pleased with, they achieved a maximum utility of commodities produced across the economy. This is why the soviet economy grew rapidly for most of its lifetime, even after losing most of its western industry to the nazi’s and then quickly recovering in five short years. however, due to successive liberalizations within the economy – in other words, privatizing chunks of the industry and farms for private interest, made planning for social need became increasingly difficult. The major problems came about in 1985, due to a program called “perestroika” implemented by Mikhail Gorbachev. This particular reform meant that many commissars in various communities could now ‘control’ the local economy for private-profit. This spelled extreme disaster for the entire system. Instead of making sure that prices had to be proportional to wages, the commissars could now price any commodity at any price they wanted to within any given community, all for their own gain. In effect, the soviet economy was literally transformed into a capitalist economy over night, under the ‘guise’ that everything was still state-controlled – which was true in name only. So as a result of this insta-capitalist program of perestroika, it is of no surprise that prices of everything skyrocketed and through the entire system out of whack. Food became more expensive, basic necessities of all kind became more expensive, things of entertainment were more expensive – everything was more expensive, everywhere. The former commissars became full-blooded capitalist, who had monopoly control over their local economies. This made many of them into the equivalent of billionaires in just the matter of years, especially the commissars that controlled a bigger city with more people. However, by selling everything far more expensive than the total wages people had to afford things on a local level, this caused an artificial shortage of ‘everything’. The entire soviet system was effectively destroyed by Gorbachev and the re-capitalization of the entire economy.

    The way worker-cooperatives played into the equation of the soviet economy, that is – ‘before’ the perestroika, was that they were worker-owned, but not worker-controlled. however, upon dissolution of the USSR, the state factory managers who were previously employed by the government to ‘manage’ worker-cooperatives, where no longer present. This meant that many cooperatives realized “hey, we no longer have a distinction between manager and worker, why don’t we just continue operating it ourselves?”, and that is exactly what many worker-cooperatives chose to do. Most people don’t know this, but 2/3rds of russians polled, wanted their previously state-owned industries to be converted into worker-controlled cooperatives, so as to build a new interpretation of socialism instead of becoming capitalist.
  • Andrea Iannone
    published this page in Ask Prof. Wolff 2017-02-12 16:46:17 -0500