Political constraints on economic efficiency: a reconsideration of the American and Soviet economies

The formulation and execution of economic policy towards the Soviet block has generally been based on the presumption by Western governments of the inevitable and demonstrable economic superiority of capitalist over communist systems. Expectations derived from theoretical analysis of the misallocation of economic resources that would obtain in an economy lacking a rational price system appear to be sustained by empirical investigation of the Soviet Union. The impossibility of ensuring consistent and optimal plans, the failure to meet demand in terms of both quantity and quality of consumer goods and the requirement of excessive inputs of factors and resources per unit of output in both industry and agriculture compared with the mixed economies have been well documented, and appear to be endemic in Eastern Europe. Although it is more difficult to make international comparisons of dynamic efficiency due to the lack of an appropriate conceptual framework, both theoretical and empirical analyses appear to sustain the conventional orthodoxy. Material balances planning, and in particular the system of factor rewards prevailing in the U.S.S.R., give rise to expectations of bias against technical progress. The most comprehensive investigation into the sources of technological progress in the Soviet Union shows that in the period 1945–65, only 11 per cent of the technologies then in use had been internally generated, the rest being imported from capitalist sources. It has been estimated that, the technology gap between the U.S.A. and the U.S.S.R. may be between 10 and 25 years. The impressively high growth rates achieved by the Soviet Union in the 1950s and early 1960s, it is further claimed, are not evidence of the eventual dynamic superiority of the planned system, as Soviet economists insist, but are no more than a reflection of the low level of economic development which the Soviet economy had attained by the beginning of the period of the Five Year Plans. Once abundant and under-utilized factors of production were fully absorbed into the economy, the requirement of the extensive growth model for large inputs of labour and capital per unit of output would cause a deceleration of growth rates. Statistics for the 1970s appear to bear out the prediction.