AP/SOSC 2340/2349 9.0

Foundations of Business & Society

Lecture 1

Centrally Planned EconmiesI. 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’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) Population ≈ 150 million

ii) Over 80% worked in agriculture

iii) GDP per capita < 20% of U.S. figure

The Soviet EconomyThe 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 ProblemThe Information Problem

Vast complexity and number of variables to plan

Too much for a single mind or a planning authority to know.

Planning in PracticePlanning in Practice

1) Planning from the achieved level

2) Taut planning

3) Bonuses for plan fulfilment

4) Punishment for under fulfilment

The Enterprises’ PerspectiveThe Enterprises’ Perspective

Enterprises wanted:1) Just to fulfil their plan target

2) An easy (‘slack’) plan target (mendacity)

3) To avoid technological innovation

4) To acquire inputs through illegal means if there were shortages (tolkachi)

ResultsResults1) 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 EconomyAdvantages of the Command Economy

1) Social justice (?)

2) Mobilization of resources to priority areas

3) No waste through advertising costs

What’s Missing?What’s Missing?

α) Competition

β) Bankruptcy

γ) Entrepreneurship

δ) Private property

ε) Market prices

ζ) Freedom

The ‘Economic Problem’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 ThesauriShea, 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)?