Thursday, March 13, 2008

Capitalism Has Entrepreneurs And The Soviet Union Had "Expediters"

In capitalism, alot of market activity is driven by entrepreneurs who start new businesses, create new products and innovative technologies. They see an unmet need and try to fill it. This makes the whole system work better.

But what if you have a planned or command economy? The government decides what needs to be produced and how much. The government also had to make sure the factories got all the resources they needed to produce the quantity of goods they had been told to produce. But having a plan that worked, so that each factory got exactly the resources it needed, no more no less, was practically impossible.

So how would a factory manager get what he needed? He would send an expediter. They would bribe or bargain the producers of needed resources to get what the factory needed. This article has a good description.

"Suppressing a market is a bit like squeezing a balloon—the trade will usually pop up somewhere else. The Soviet Union was full of markets. The factory in north Vladivostok would be allocated too much sheet metal but not enough coal. The factory in south Vladivostok had the reverse problem. Both factory managers would ask for extra resources, but in the command-and-control system the incentive was to ask for more of everything, with little hope of success. So, the managers would quietly, and illegally, do a deal with each other. Professional expediters would be sent out to barter for scarce inputs, and the informal market reached a high level of sophistication."

Economist Robert Heilbroner also has a good explanation of this. It is from his article Socialism.

"Through the sixties the Soviet economy continued to report strong overall growth—roughly twice that of the United States—but observers began to spot signs of impending trouble. One was the difficulty of specifying outputs in terms that would maximize the well-being of everyone in the economy, not merely the bonuses earned by individual factory managers for "overfulfilling" their assigned objectives. The problem was that the plan specified outputs in physical terms. One consequence was that managers maximized yardages or tonnages of output, not its quality. A famous cartoon in the satirical magazine Krokodil showed a factory manager proudly displaying his record output, a single gigantic nail suspended from a crane.

As the economic flow became increasingly clogged and clotted, production took the form of "stormings" at the end of each quarter or year, when every resource was pressed into use to meet preassigned targets. The same rigid system soon produced expediters, or tolkachi, to arrange shipments to harassed managers who needed unplanned—and therefore unobtainable—inputs to achieve their production goals. Worse, in the absence of the right to buy their own supplies or to hire or fire their own workers, factories set up fabricating shops, then commissaries, and finally their own worker housing to maintain control over their own small bailiwicks."

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