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AP/SOSC 2340/2349 9.0
Foundations of Business & Society
Lecture 1
Centrally Planned Econmies
I. Points covered in this lecture:
- The ‘economic problem’
- Centrally planned economies
- The economy of the Soviet Union
- Problems of central planning
II. Writing skills: quotations/page references
sample reading question
The ‘Economic Problem’
How does society organize its economy?
1) What is to be produced and how much?
2) Who is to produce it?
3) How is it to be produced?
4) Where is it to be produced?
5) When is it to be produced?
6) For whom is it to be produced?
Soviet Union circa 1920
i)
ii)
iii)
Population ≈ 150 million
Over 80% worked in agriculture
GDP per capita < 20% of U.S. figure
The Soviet Economy
Priority: Industrialization (heavy industry)
- Enterprise building
- Setting productions targets for enterprises
- Using modern technology
By 1932: doubling of output of oil, coal, iron
ore; 50% increase in steel production
doubling of unskilled industrial workers
-
The Information Problem
Vast complexity and number of variables to plan
Too much for a single mind or a planning
authority to know.
Planning in Practice
1) Planning from the achieved level
2) Taut planning
3) Bonuses for plan fulfilment
4) Punishment for under fulfilment
The Enterprises’ Perspective
Enterprises wanted:
1)
2)
3)
4)
Just to fulfil their plan target
An easy (‘slack’) plan target (mendacity)
To avoid technological innovation
To acquire inputs through illegal means if
there were shortages (tolkachi)
Results
1) Inefficiency due to:
a) Hoarding of inputs (labour, materials, etc.)
b) ‘Self-supply’ (Bleaney, pp. 51, 55)
2) Disregard of product quality: ‘storming’ (ibid.,
pp. 48-9), targets in terms of weight
Advantages of the Command Economy
1)
2)
3)
Social justice (?)
Mobilization of resources to priority
areas
No waste through advertising costs
What’s Missing?
α) Competition
β) Bankruptcy
γ) Entrepreneurship
δ) Private property
ε) Market prices
ζ) Freedom
The ‘Economic Problem’
1) What is to be produced and how much?
2) Who is to produce it?
3) How is it to be produced?
4) Where is it to be produced?
5) When is it to be produced?
6) For whom is it to be produced?
Next week
The ‘economic problem’ in a market
society
How are markets coordinated?
Who makes the plans?
Sample reading question
Word List
p. 50: myopic
p. 55: profligate
Dictionaries and Thesauri
Shea, V. and Whitla, W. (2005). Foundations:
Critical Thinking, Reading and Writing
(Toronto: Pearson/Prentice Hall), chapter 5.
http://dictionary.reference.com/browse/thesaurus
http://www.m-w.com/
http://www.yourdictionary.com/
http://www.oed.com/
Writing skills
Quotations
Page references (p. or pp.); p. 27; pp.
43-44.
ibid.
Sample reading question
‘What is ‘storming’ and why did it occur?’
(see the section ‘Success indicators’, pp.
47-50)?
Next week’s reading question
‘How, according to Marx, is the
manufacturing division of labour
(‘within the workshop’) determined (see
pp. 212-14)?