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Are command economies unstable? Why did the Soviet economy collapse?

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  • Harrison, Mark

Abstract

A transformational recession? Between 1989 and 1992 Soviet GDP per head fell by approximately 40 per cent. In asking why this happened we may hope to learn about the nature of both the old Soviet economy and its transition to the new Russia. But to do so we must first dispense with a series of illusions. Think of a command economy with an initial endowment of physical and human capital. These assets are capable of producing either capitalist or socialist goods, measured along the vertical and horizontal axes respectively in figure 1. The difference between them is that capitalist goods add value at market prices; socialist goods do not add value but create employment, which is why a dictator may command them to be produced, so initially the economy’s assets are specialised in the production of socialist goods at point A.
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Suggested Citation

  • Harrison, Mark, 2001. "Are command economies unstable? Why did the Soviet economy collapse?," Economic Research Papers 269374, University of Warwick - Department of Economics.
    • Handle: RePEc:ags:uwarer:269374
    DOI: 10.22004/ag.econ.269374
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