Socialist Economies and the Transition to the Market: A Guide

Socialist Economies and the Transition to the Market: A Guide

Socialist Economies and the Transition to the Market: A Guide

Socialist Economies and the Transition to the Market: A Guide

Synopsis

This provides a detailed account of each of the socialist countries and an analysis of the various problems they have met in the long transition to market economies, each of which is very different.

Excerpt

In the traditional Soviet economic system the state had a monopoly of foreign trade and payments, the purpose being to help carry out party policy and shield the domestic from the international economy. With direct control exercised over exports and imports, tariffs lose their conventional significance as protectors of home industry and sources of budgetary revenue. Two-tariff schedules have been used by command economies, however, as bargaining levers with the West in the quest for ‘most favoured nation’ treatment (the lowest tariff applying to all). Czechoslovakia, Hungary, Poland and Romania belonged to gatt before the 1989 upheavals and agreed to increase imports so as to simulate the effects of tariff reductions.

The institutional hierarchy ran from the State Planning Commission to the Ministry of Foreign Trade and on to the foreign trade corporations, which normally specialized in a particular product or group of products and which operated on a khozraschyot basis. the industrial enterprise that produced the good designated in its tekhpromfinplan as an export did not receive the world price but the domestic wholesale price, with appropriate adjustments in case of factors such as quality differences. the ultimate user of an import was charged the price of its nearest domestic substitute. There was a multiple exchange rate system (the term ‘coefficients’ is often used), with various rates for different products or groups of products. Exchange rates were arbitrarily determined, with a tendency towards overvaluation. in consequence, the higher level of domestic prices for tradeable goods than the world price level typically resulted in accounting ‘profits’ on imports and ‘losses’ on exports made by the FTCs.

The separation of original producer and ultimate purchaser, except for perhaps contact over minor details such as precise delivery times, severely aggravated the problem of quality in production and marketing. Industrial enterprises in command economies produce according to plan and are unaffected by either competition in or, in any automatic sense, the movement of prices on the world market.

planning and foreign trade

In textbook market economies, international trade is based on specialization according to comparative advantage, with firms equally interested in exports or imports in the search for maximum profits. in the traditional Soviet system exports were viewed as a means of paying for the import of goods either totally unavailable or in short supply at home, goods deemed essential to fulfil national plans; exports were not seen, for example, as a means of achieving full employment. As Winiecki puts it, imports were largely determined by drawing up material balances that showed the rough gaps between planned domestic demand and supply. These balances also showed exportable surpluses; if it was not possible to reduce imports,

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