Transition Economies: Who Lost Russia?

Consider several of the differences between a command economy and a market economy: • In a command economy the means of production — the factories and airlines, the banks and retail stores, the houses and apartments, are owned by the state; in the market economy the factories et al. are owned by companies and individuals. • In a command economy prices are set by the planners in the central government and are only tangentially related to the costs of production; in the market economy the price of each good and service is closely related to its costs of production. • In the command economy the funds necessary to finance the costs of government are collected in the prices of goods (which is essentially a form of indirect taxation); in the market economy the taxes necessary to finance the costs of government are added to the prices of goods and a significant part of taxes are direct individual incomes and corporate incomes. • In the command economy the major task of the factory manager is to produce the volume of goods necessary to satisfy the targets set by the central planners; in the market economy the major task of the factory manager is to design the goods that the consumers are eager to buy. • In the command economy everyone had a job and there was full employment; in the market economy there have been high levels of unemployment because some individuals wanted to take more out of the pot in the form of wages than they were contributing to the pot in the form of productivity. In effect they weren’t earning their keep — which meant that they had discovered a free lunch or a partial free lunch. • In the market economy each worker receives the value of his or her marginal product — at least, that is what the textbooks say. • In the command economy engineers are at the top of the decisionmaking hierarchies; in the market economy the marketing specialists or the finance MBAS are at the top of the hierarchies. • In the command economy of what had been the Soviet Union and its allies in Eastern Europe, there was a strong belief that the most efficient pattern of production involved extremely large factories, so that each major good would be produced in only one or several plants. The factories that produced certain inputs would at times be at a considerable distance, and even in different countries, from the factories that used these inputs. • In the command economy there are no commercial disputes because there is no private property; in the market economy there is a need for a system of courts — and of lawyers and independent judges — to resolve disputes between producers and consumers and among different producers. • In the command economy those who get to the top have sharp elbows; in the market economy those who get to the top have sharp elbows.