Question

The early Soviet economy generated relatively high growth rates as the system adopted modern industrial technology, but growth rates declined in the later years. Suppose modern internet and electronic communication tools were available to the Soviet economy in 1960. Do you think the Soviet economy could have used electronic communication tools to accelerate their growth rates, or would these communication tools undermine productivity by providing planners and managers with the wrong incentives? Please explain

Answer 1

SOLUTION :

Soviet Union experienced rapid economic growth. Because the lack of open markets providing price signals and incentives to direct economic activity led to waste and economic inefficiencies, the Soviet economy posted an estimated average annual growth rate in gross national product (GNP) of 5.8% from 1928 to 1940, 5.7% from 1950 to 1960, and 5.2% from 1960 to 1970. (There was a dip to a 2.2% rate between 1940 to 1950.)But when economic reform was implemented then The Soviet economy became increasingly complex just as it began running out of development models to imitate. With average GNP growth slowing to an annual 3.7% rate between 1970 and 1975, and further to 2.6% between 1975 and 1980, the command economy's stagnation became obvious to Soviet leaders.These reforms, however, tore at the root of the command economy’s institutions and Khrushchev was forced to “re-reform” back to centralized control and coordination in the early 1960s. But with economic growth declining and inefficiencies becoming increasingly more apparent, partial reforms to allow for more decentralized market interactions were reintroduced in the early 1970s. The quandary for Soviet leadership was to create a more liberal market system in a society whose core foundations were characterized by centralized control.