Assume we have such an economy, but with military spending at the normal modern levels, strong rule of law (even if the law is severly limiting economic freedom), low corruption level, high emphasis on good management of state-owned enterprises within the framework of the system, next to none direct political interference in economic matters and emphasis on consumer goods and services rather than heavy industry. What would then be the approximate structural constraints of this economy compared to a Western capitalist one in terms of GDP per capita as well as other measurable factors regarding the quality of life?
What would be the limits of a Soviet-style command economy if non-inherent damaging factors were removed?
byu/Proof_Impact_6009 inAskEconomics
Posted by Proof_Impact_6009
2 Comments
People like Hayek went to a great deal of effort to show one of the fundamental problems with command economies is the lack of information provided by prices.
In a large economy it isn’t possible for a relatively small group of people to gather sufficient information to make well informed decisions to direct the economy efficiently. The market provides this information via prices. As such you can emphasis good management all you want they simply will fail because they will never get as good information as priced would provide.
That is just one of the flaws in your question.
It is a bit humorous your question basically tried to assume we can magically get rid of the real world problems that keep showing up in command economies and than asks would it work? Sure as well as unicorns eating rainbows and farting butterflies works.
Markets are giant collections of information; the information is in the form of prices. Prices both (a) provide information about how easy each producer finds it to produce their good and (b) provide information about how much consumers want a given good.
In command economies, a single person or a group of people essentially guess as to what both (a) and (b) are; they guess what demand is, then make a more educated guess as to how much they can meet that demand. That someone/someones are often very smart, occupy a particularly informed position, and have lots of resources, but even that isn’t as efficient as letting *every single person* involved with supply and demand crowdsource the price.
A non-corrupt Soviet-style economy would have lasted longer, and a non-totalitarian Soviet economy would’ve lasted longer, too (until people voted to let themselves run the means of production), but the biggest structural constraint is still there, i.e. that if only a few people are predicting demand instead of everybody, they’ll rapidly be swamped and fail. I can’t really think of any way in which it’d turn out differently from the USSR, other than that the collapse and transition to a market would be peaceful and not involve the mafia and state security taking over.