Question

During the first half of the 20^th 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?

Answer 1

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

******************************************************Thank You**********************************************