experiment with markets under the New Economic Policy (NEP, 1921-1927), Josef Stalin’s “great Socialist Offensive” (1928-1941), war mobilization (1941-1945) and recovery (1946-1955), and the Khrushchevian experiment with regional decentralization of economic planning and administration (1957-1962). This economic system reached its maturity in the period of Brezhnev’s rule (1965-1982), following the rollback of the Kosy-gin reforms of 1967-1972. It provides a concise summary of the nature of the economic system of “Developed Socialism” under Brezhnev, against which the radical economic reforms of perestroika under Mikhail Gorbachev were directed.
The concept of the command administrative economy is an elaboration of the analysis of the command economy, introduced to the study of the Soviet Union by Gregory Grossman in his seminal (1963) article, “Notes for a Theory of the Command Economy.” The term became common in the economic reform debates of the late Soviet period, even in the Soviet Union itself, particularly after its use by the General Secretary of the Communist Party of the Soviet Union, Mikhail Gorbachev, at the reform Party Plenums of January and June 1987, in his critique of the functioning of the Soviet economic system. The term highlights the fact that in such an economic system, most economic activity involves the administrative elaboration and implementation of commands from superior authorities in an administrative hierarchy, with unauthorized initiative subject to punishment.
The defining feature of such an economic system is the subordination of virtually all economic activity to state authority. That authority was represented in the Soviet Union by the sole legitimate political body, the Communist Party of the Soviet Union, which necessarily then assumed a leading, indeed determining, role in all legitimate economic activity. This authority was realized through a vast administrative hierarchy responsible for turning the general objectives and wishes of the Party and its leadership into operational plans and detailed implementing instructions, and then overseeing and enforcing their implementation to the extent possible. This involved centralized planning that produced five-year developmental framework plans and one-year operational directive plans containing detailed commands mandatory for implementation
291
by all subordinate organizations. These plans were elaborated in increasing detail as they were allocated down the hierarchy, eventually becoming direct specific commands to individual firms, farms, stores, and other economic organizations.
The task of directive-based centralized planning in this system was made feasible by aggregation at higher levels and by the delegation of elaboration of details of the plan to subordinate levels in the administrative hierarchy. Thus administrative organs at each level of the hierarchy (central, republic, regional, local, and operational [e.g., firm, farm, etc.]) were responsible for planning, supervision, and enforcement, and engaged in active bargaining with other levels in the hierarchy to develop an agreed plan of activity that in general met the needs and desires of the highest authorities. The result of this administrative process bore the force of law and was not subject to legitimate alteration or deviation by subordinate units, although higher authorities did have the power to alter or reallocate the assignments of their subordinates.
To work properly, this system of administratively enforced implementation of commands requires limiting the discretion and alternatives available to subordinates. Thus the system, within the areas of activity directly controlled by the state, was essentially demonetized. Although money was used as a unit of account and measure of activity, it ceased to be a legitimate bearer of options in the state sectors; it failed to possess that fundamental and defining characteristic of “moneyness”-a universal command over goods and services. Rather it played a passive role of aggregating and measuring the flow of economic activity, while plans and their subsequent allocation documents determined the ability to acquire goods and services within the state sector. Similarly, prices in the command administrative economy failed to reflect marginal valuations, but rather became aggregation weights for the planning and enforcement of the production and distribution of heterogeneous products in a given planned category of activity. Thus in the logic of the command administrative economy, money and prices become mere accounting tools, allowing the administrative hierarchy to monitor, verify, and enforce commanded performance.
The command administrative system in the Soviet Union controlled the overwhelming share of all productive activity. But the experience of war communism, and the repeated attempts to mobilize and inspire workers and intellectuals to work toward the objectives of the Soviet Party and State, showed that the detailed planning and administration of commands were rather ineffective in dealing with the consumption, career, and work-choice decisions of individuals and households. The variety and variability of needs and desires proved too vast to be effectively managed by directive central planning and administrative enforcement, except in extreme (wartime) circumstances. Thus money was used to provide individual incentives and rewards, realizable through markets for consumer goods and services and the choice of job and profession, subject to qualification constraints. But prices and wages were still extensively controlled, and the cash money allowed in these markets was strictly segmented from, and nonconvertible with, the accounting funds used for measuring transactions in the state production and distribution sectors. This created serious microeconomic dise-quilibria in these markets, stimulating the development of active underground economies that extended the influence of money into the state sector and reallocated product from intended planned purposes to those of agents with control over cash.
The command administrative economy proved quite effective at forcing rapid industrialization and urbanization in the Soviet Union. It was effective at mobilizing human and material resources in the pursuit of large-scale, quantifiable goals. The building of large industrial objects, the opening of vast and inhospitable resource areas to economic exploitation, and the building and maintenance of military forces second to none were all facilitated by the system’s ability to mobilize resources and focus them on achieving desired objects regardless of the cost. Moreover, the system proved quite adept at copying and adapting new technologies and even industries from the Western market economies. Yet these very abilities, and the absence of any valuation feedback through markets and prices, rendered the operation of the system extremely costly and wasteful of resources, both human and material.
Without the ability to make fine trade-offs, to innovate and to adjust to changing details and circumstances largely unobservable to those with the authority in the system to act, the command administrative economy grew increasingly inefficient and wasteful of resources as the economy and its complexity grew. This became more obvious, even to the rulers of the system, as microeconomic dis-equilibria, unfinished construction, unusable inventories, and disruptions of the “sellers’ market,”
COMMISSAR
together with a burgeoning second economy (Grossman, 1977), grew with increasing rapidity through the 1970s and 1980s. These consequences, together with the repeated failure of partial and incremental reforms to improve the situation and a growing gap in technology from the levels of the developed West, inspired the radical economic, and indeed political, reforms of Mikhail S. Gorbachev that soon afterward brought an end to the Soviet Union and its command administrative economy. See also: ECONOMIC GROWTH, SOVIET; MARKET SOCIALISM
Ericson, R. E. (1981). “A Difficulty with the Command Allocation Mechanism.” Journal of Economic Theory 31(1):1-26. Ericson, R. E. (1991). “The Classical Soviet-Type Economy: Nature of the System and Implications for Reform.” Journal of Economic Perspectives 5(4):1-18. Grossman, G. (1963). “Notes for a Theory of the Command Economy.” Soviet Studies 15(2):101-23. Grossman, G. (1977). “The ’Second Economy’ of the USSR.” Problems of Communism 26(5):25-40. Kornai, J. (1992). The Socialist System. Princeton, NJ: Princeton University Press. Shmelev, N., and Popov, V. (1989). The Turning Point: Revitalizing the Soviet Economy. New York: Double-day. Wiles, P. J. D. (1962). The Political Economy of Communism. Cambridge, MA: Harvard University Press.
RICHARD E. ERICSON
As a result of peasant and military revolts in 1920 and early 1921, Vladimir I. Lenin was forced to reverse the extreme policies of War Communism in favor of a temporary expedient, the mixed economy of the New Economic Plan (NEP). The Bolshevik Tenth Party Congress (March 1921) adopted a tax in kind on the peasantry to replace confiscations. The Congress also permitted leasing smaller nationalized workshops back to private individuals,
