Behind the Iron Curtain part 26 – Five Year Plans

These are my recollections of a life behind the iron curtain. I do not aim to give perfect and objective evaluation of anything, but to share my personal experiences and memories. It will explain why I just cannot get misty eyed over some ideas on the political left and why I loathe many ideas on the right.

This seems like a fitting theme for the beginning of a new year.

A few years ago somewhere around FtB I have said that “socialism doesn’t work” and I got immediately criticized for that statement. That day I learned that some people understand the word “socialism” to mean something different from what it means to me. Because when I say the word “socialism” without qualifiers, I mean the economic system that was practiced in the eastern bloc.

Central to the economy were so-called Five Year Plans, which right until the very end of the regime were touted as the bestest and greatest of things ever, a universal solution to every single economical problem there is. And as it is with universal solutions, it was everything but.

So how did it work? The head honchos of the Communist Party got together, looked at what the economy is doing – how much is produced of this, how much is produced of that, how many people work here and there – and then they have drawn a plan for next year delineating what shall be done in next five years – i.e. how much shall be produced of this, how much of that, and how many people will work doing it. This plan was really very detailed and specific, so not only how much steel ore shall be mined, but also how many cars will be produced, even how much of which agricultural products will be grown etc. The planing also included wages and all costs.

And, as the saying goes, the devil is in the details.

There is nothing inherently wrong in setting a specific long-term goal for yourself, for a company, for a country, or even a conglomerate of countries. The problem is too many and too specific goals. Any change of direction or rescheduling was only possible after the party’s say so, and that has proven too slow and sluggish in today’s world.

The results were twofold.

Firstly the economy could not react to demand for new goods. If during the five-year period a new product appeared for which there was demand, or a demand for an existing product increased unexpectedly, there was no room for meeting that demand. This was one of the reasons for the existence of “under the counter” goods that I mentioned previously. For some goods, like cars, there were waiting lists long many years, even decades. Some goods were sometimes scarce, and not only luxury goods, but even toilet paper and menstrual pads – when those appeared on the counters, they disappeared fairly quickly because everybody stocked up since you never knew when you will be able to buy them again. And people’s grumbling was of no consequence to the manufacturers, because as long as they met or slightly exceeded the plan, everything was officially hunky-dory.

Secondly sometimes goods were produced even if there was no longer demand for them, because meeting the planned target was paramount. A huge waste of resources and manpower. And of course another cause for backwardness. Imagine in today’s world the quick transition from old cellphones to smartphones, which happened in a year. Under the five-year plan a goal would be set to produce X cellphones, so cellphones would be produced for five years, even if a year into the plan the invention of smartphone made them nearly obsolete.

This sluggishness was one of the reasons why the eastern bloc was unable to keep up with the west economically. But the regime had all the best answers and critics were not allowed to speak up, so the system was bone headedly used right until the very end, when the regime started to fall apart.

As a side note, I see similar thinking in today’s USA owned corporations. I have personal experience with two of them. The first one was trying to plan everything centrally, allotting manpower from top down according to the numbers in their theoretical tables and allowing little to no space for local decisions. This has led to a lot of problems and actual waste of money, because instead of workers contractors had to be hired for prolonged times – and in Europe, contractors are more expensive than employees, even when taking into account mandatory severance packages. HR manager tried to tell me otherwise, but when he found out that I can count he shut up and said that he knows that I am right, but the commands from USA say it has to be done like this, so he is doing it.

The second company pretends to give local managers some leeway without actually doing so, and in addition to that forces everybody to use one decision tool, a tool they think is the holy grail of all business tools, the bestest there is, the one solution to all problems. Unfortunately I am not allowed to criticize it or point out its many fold problems in the open, but I have done so to my supervisors, who agreed with me, but were powerless to do anything about it – because despite the pretense, there is still heavy top-down management style. I am very skeptical of everyone who says they have a universal solution. Universal solutions do not exist.


  1. says

    I never lived behind the Iron Curtain so give my opinion the weight it deserves, but I always thought that the legacy of Stalin undermined the whole idea of central economic planning almost from the get-go: it made it almost necessary for the planners to tell comforting lies to their bosses about the state of the Soviet economy rather than report on the real figures, lest they end up in the GULAG or worse. So not only was five years too coarse a unit to be doing the projections on (but probably unavoidable given the computational tools available to the planners at the time), but they were feeding bogus figures into their models to begin with. Garbage in, garbage out.

    IMHO, that is the only advantage a market economy gives you over a centrally-planned one is that there is no “single point of failure” that can be compromised in this way. But that’s probably an engineer’s, rather than an economist’s, way of looking at things. And I don’t believe there really is a “market economy” anymore in the way ideologues in the West would like us to believe, not when it is backed by a financial system that is every bit as corrupt, sclerotic and divorced from reality as the old Soviet system ever was…

  2. brucegee1962 says

    If capitalism is working the way it’s supposed to, then large companies that make poor decisions should collapse occasionally as a consequence of those decisions. And while we’ve got banks that are “too big to fail,” at least in other sectors that doesn’t seem to be the case. I consider the collapse of huge companies like IBM, GE, Sears, and AOL to be signs of our overall economic health — no matter how corrupt our system may be in some aspects, there isn’t enough political insulation in the world to protect these companies from the consequences of their own stupidity.

    The one area in our society where I’d like to see more socialism, though, is in “natural monopolies” — areas where a single company automatically controls all the assets. Utilities, for example — if I don’t like the way my power company does business, (and I don’t), there’s no way for me to get a different company to lay a wire to my house. I’d rather it was run by a state-owned business, which would be at least a bit accountable to me, instead of merely overseen by the state and run by stockholders who aren’t beholden to anybody. Same thing with rural hospitals — what’s the advantage to the community of having them run on a for-profit basis?

  3. Jazzlet says

    brucegee 1962
    The power market in the UK is deregulated for the domestic consumer, in the sense that you can change supplier, and 2018 saw the failure of six or so of the smaller suppliers. There have been good deals to be had, but it requires keeping up with what’s going on in the market as, while all of the suppliers treat potential customers to deep discounts for fixed periods, almost all of them treat their existing customers like a cash cow. That means that to get good prices you have to change, or at least be prepared to use the threat of changing, supplier frequently which is just tedious and not without problems. The most frequent problem in switching supplier is getting your money back -- all of the special deals require you to pay a fixed amount monthly which is calculated to cover your energy costs and some over, so over your time with a company you can build up quite a credit, getting that back can be time consuming. In fact you’ll pay a fixed amount monthy even if you are not on a special deal, and the company will put it up every year even if you are in credit by several hundred pounds, to get a reasonable price you have to argue with the company and to get the excess back you have to argue more. We moved into this house in March and therefore that’s when the company wil review our price, even though we are at that point at the end of the worst winter will do in the UK, they will try to argue that the monthly payments and the credit that we always have at that point aren’t going to cover our fuel costs for the next winter, it’s incredibly frustrating and annoying.

  4. voyager says

    I was always taught to do 5 year plans with an annual review. More like a guide than step-by-step directions.

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