Social Scientist. v 16, no. 185 (Oct 1988) p. 31.

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Efficiency, Planning and Reforms in Socialist Economies: Some Theoretical Comments

In recent years, the socialist countries have initiated major reforms in the mode of management of their economies, reforms relating to prices, enterprise autonomy, the planning system, agricultural organisation and foreign trade. These reforms have been justified on the grounds that the earlier system of economic management, which, though in a significantly modified form, carried over the essential features of a command economy, had led these countries into a phase of stagnation. The picture of stagnation is not borne out by the available statistics; but the veracity of the statistics itself has been questioned. There is however no gainsaying the fact that a noticeable slowdown in the growth of output had occurred in the socialist countries of Eastern Europe for well over a decade. While the fundamental reason behind the slowdown is undoubtedly the exhaustion of the earlier labour reserves, i.e. the inevitable transition of these economies from the so-called 'extensive* to the 'intensive* phase of growth, critics point to certain built-in features of the system of economic management which kept economic performance considerably below its potential in the intensive phase. It is these so-called 'inefficiencies' of the system which the reforms are supposed to overcome.

Two broad kinds of 'inefficiency' are mentioned in the context of socialist economies: the first is their inability to generate innovativeness, as exemplified by the fact that they have lagged behind several capitalist countries, notably Japan, in the pace of their technical progress, and in particular in their participation in the electronics revolution. The second, which has figured more prominently in the discussion of reforms, is the 'slack' in resource use which exists in these economies. The economic literature coming out of Eastern Europe is full of instances of this latter kind of 'inefficiency.' In this paper I shall be concerned with this latter kind of 'inefficiency.' Since the case for reforms has been argued in the context of this 'inefficiency', any assessment of the nature of the reforms must address itself to the following questions: What is this 'inefficiency'? In what way can the current reforms overcome this 'inefficiency'? What other implications

* Centre for Economic Studies, Jawaharlal Nehru University, New Delhi.

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