In: Economics
During the first half of the 20th Century, the Soviet Union had excellent economic growth, with socialism. Friedrich von Hayek nevertheless predicted back in 1945 that the socialist counties would go into future economic decline and eventually collapse. Give and fully explain two different reasons why Hayek believed that the Soviet Union was headed for a long run collapse. With each reason, also give what the Soviet Union tried to do to prevent the problem identified by Hayek?
Solution For the above Problem:
A
Soviet initial growth was mainly due to closed economy and government intervention ,incentives,and direct control of government on market
1928-1940 | GNP 5.8% |
1950-1960 | 5.7% |
1960-1970 | 5.2% |
Soviet also adopt west technology and finance to implement and utilize
focus was also on heavy industrial growth and urbanisation
Later central policy became difficult to implement on ground
level,and also borrowing capacity also decline
1970-1980 | GNP2.3% |
B
Freidrich von hayek intrepreted that market to be allowed to control price of commodities as market having maximum participants.prices to be determined on demand and supply
Market freedom encourage innovation and discoveries which has to be supplemented by incentive for new product growth
Free market has to be legalised by constitution which ensure Fundamental right propert right etc ,which provide a sense of security in economy
Hayek predicted soviet model failure mainly due to its closed economy and welfarist approch of government in economic development of country
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