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Economic Systems Ohio Wesleyan University Goran Skosples 16. Performance of Planned Socialist Economies Performance of Planned Socialism Lecture 11 Hypotheses: Economic growth • state controls ___________ and ____________ • efficiency issues Efficiency • no ___________ valuation allocative efficiency? • focus on consistency (feasibility) Income distribution • _______________ capital and land • considerable attention to “fair” income by authorities (macroeconomic) Stability • investment spending controlled by the state • control of supply and demand of consumer goods • no job layoffs in ________________ 1 Economic Growth GDP per capita growth rates Annual growth rate (%) 5 4 Planned socialist countries Capitalist Countries 3 2 1 0 1950-60 1960-65 1065-70 1070-75 1975-80 1980-85 1985-90 2 1 Economic Growth _____________ in socialist economies although the authorities placed emphasis on it since mid-1970s, _________ in economic growth, while capitalist economies ______ fear that the system lost its ability to generate growth (______) much more ________ than ___________ growth • productivity growth __________ under socialism • sacrifice now for the future gains, but those gains never materialized 3 Efficiency (1975) 4 Efficiency Do socialist countries systematically obtain less output from their available inputs? compare Italy and the Soviet Union there was a systematic tendency for the output per worker to _________ of output per worker in capitalist countries when inputs are held constant • overall, efficiency in planned socialist countries was _______ than in market capitalist countries 5 2 Income Distribution What are the sources of income inequality in market capitalist economies? • unequal distribution of ___________________ • unequal distribution of __________________ Socialist countries had a more equal distribution of ____________________ • provision of _____________________ The role/effect of the redistributive government in capitalist economies? Overall, ______ differences in income distribution between capitalist and planned socialist countries 6 Income Inequality 7 Economic Stability _____________ in fluctuations in GDP, industrial output, and investment between two systems unemployment smaller in planned socialism • • official prices more stable in planned socialism • new products • prices in the ____________________ • cost of ________________ or paying ________ Qd > Qs rationing via long lines, coupons, ... 8 3 Economic Stability 9 Decline of Planned Socialism What caused planned socialist systems to collapse? • slowdown in productivity - declining ________________________ diminishing returns to capital (capital substituted for labor) - labor less ________ – no improvement in the standard of living, shortages of goods __________________ ________ • inefficiencies • inability of the center to control the periphery • complexity of planning increases with growth and new products (more variety) • incentives – both for workers and managers Inability to ___________ the system 10 4