{"id":1006,"date":"2017-05-16T12:22:43","date_gmt":"2017-05-16T11:22:43","guid":{"rendered":"http:\/\/blogs.kent.ac.uk\/economics\/?p=1006"},"modified":"2020-02-19T17:18:14","modified_gmt":"2020-02-19T17:18:14","slug":"why-did-socialist-economies-fail-the-role-of-factor-inputs-reconsidered","status":"publish","type":"post","link":"https:\/\/blogs.kent.ac.uk\/economics\/2017\/05\/16\/why-did-socialist-economies-fail-the-role-of-factor-inputs-reconsidered\/","title":{"rendered":"Why did socialist economies fail? The role of factor inputs reconsidered"},"content":{"rendered":"

by\u00a0Tam\u00e1s Vony\u00f3\u00a0and Alexander Klein, discussion paper\u00a0KDPE 1708<\/span><\/a>, April 2017.<\/p>\n

Non-technical summary<\/strong><\/p>\n

The role of institutions features prominently in comparative studies of economic development. Eastern Europe after 1945 provides a textbook case, where relative decline in income per head and productivity has been linked to institutional failure. The inefficiency of central planning compared to the market economy is well established both theoretically and empirically. The socialist system, it has been argued, was relatively successful in mobilizing resources but stifled innovation and entrepreneurship. Planned economies\u00a0thus achieved \u2018a satisfactory productivity performance in the era of mass production, but could not adapt to the requirements of flexible production technology\u2019 (Broadberry and Klein 2011, p. 37). Effective in the phase of extensive growth, socialist economies slowed down abruptly as investment reached diminishing returns, which contributed to their collapse in the 1980s. While Eastern European countries seem to have maintained high rates of labor participation and very high levels of investment in\u00a0 physical\u00a0 capital,\u00a0 they\u00a0 were\u00a0 shown\u00a0 to\u00a0 have\u00a0 become\u00a0 increasingly\u00a0 inefficient\u00a0 compared\u00a0 to\u00a0 western market economies in their use of production factors and intermediate inputs.<\/p>\n

This paper does not challenge the view that the planned economy was inefficient, but the above characterization\u00a0 of\u00a0 the\u00a0 socialist\u00a0 growth\u00a0 experience\u00a0 is\u00a0 out\u00a0 of\u00a0 date.\u00a0 As\u00a0 the\u00a0 literature\u00a0 review\u00a0 will demonstrate,\u00a0 the\u00a0 majority of\u00a0 previous\u00a0 studies\u00a0 found that the last\u00a0 decades\u00a0 of\u00a0 communism\u00a0 witnessed sharply diminishing, during the 1980s often negative, rates of productivity growth. The inefficiency of the socialist system was manifested in productivity failure. We consider these results biased by the inconsistent use of data on output and factor inputs. Researchers benefited from revised data on national income that yielded substantially lower rates of economic growth than what government statistics had suggested, but they have still used official data on capital formation, or estimated capital stock from official investment data. Under central planning, investment statistics are just as difficult to trust as national accounts. We will show that socialist economies invested considerably less in physical capital than previously claimed. Likewise, official employment figures overstate the growth of labour input as average work hours declined from the 1960s onward. We suggest a much larger role for factor inputs and a smaller one for productivity in the relative decline of Eastern Europe, especially in the 1980s, than what earlier interpretations advocated. We reveal fundamental differences between the growth experience of small socialist countries and what we know about the Soviet economy in the same period.<\/p>\n

You can download the complete paper here<\/span><\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

by\u00a0Tam\u00e1s Vony\u00f3\u00a0and Alexander Klein, discussion paper\u00a0KDPE 1708, April 2017. Non-technical summary The role of institutions features prominently in comparative studies of economic development. Eastern Europe … Read more<\/a><\/p>\n","protected":false},"author":37654,"featured_media":1638,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[94130,70],"tags":[],"_links":{"self":[{"href":"https:\/\/blogs.kent.ac.uk\/economics\/wp-json\/wp\/v2\/posts\/1006"}],"collection":[{"href":"https:\/\/blogs.kent.ac.uk\/economics\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.kent.ac.uk\/economics\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.kent.ac.uk\/economics\/wp-json\/wp\/v2\/users\/37654"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.kent.ac.uk\/economics\/wp-json\/wp\/v2\/comments?post=1006"}],"version-history":[{"count":1,"href":"https:\/\/blogs.kent.ac.uk\/economics\/wp-json\/wp\/v2\/posts\/1006\/revisions"}],"predecessor-version":[{"id":1007,"href":"https:\/\/blogs.kent.ac.uk\/economics\/wp-json\/wp\/v2\/posts\/1006\/revisions\/1007"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blogs.kent.ac.uk\/economics\/wp-json\/wp\/v2\/media\/1638"}],"wp:attachment":[{"href":"https:\/\/blogs.kent.ac.uk\/economics\/wp-json\/wp\/v2\/media?parent=1006"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.kent.ac.uk\/economics\/wp-json\/wp\/v2\/categories?post=1006"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.kent.ac.uk\/economics\/wp-json\/wp\/v2\/tags?post=1006"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}