Archive for October 20, 2007

Former Soviet Union’s absurd economics

Another quote from Nazarbayev’s autobiography from the chapter “Poisoned Legacy” p. 46:

“The whole thing was worsened by the absurd way in which the economic indicators were calculated.  Although officials would boast in their speeches about millions of tonnes, square metres or kilowatt hours of output of a product, performance was actually calculated in financial terms.  In a Western-style market system this is logical, but in a planned economy, when prices are arbitrary and there is no competition, it makes no sense at all.  The more a plant increased the cost of inputs needed to make each unit of production, the more it could charge and the more its turnover increased; in other words, the more inefficiently an enterprise worked, the better it seemed to be doing.  Why make miniature switches for machinery when you could boost revenues hundreds of times by making enormous, outmoded ones instead?  Why use inexpensive but sturdy materials for construction when you could hit your rouble-denominated targets much more easily by using huge concrete blocks and panels?

The whole Soviet system formed an enormous vicious circle.  Every breakthrough cost us tremendous effort.  It was increasingly clear that this vicious circle was caused by an absurd economic system which had developed a momentum of its own and almost completely turned its back on the real needs of the people whom it was supposed to be serving.  Of all the 15 Soviet republics, Kazakhstan was the most vivid example of this.”

I don’t know, I think Ukraine had some fairly staggering examples of absurdity in their Soviet-style economics as well!!!

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