The central planning model of the Soviet Union of 1950-1970s: how it really functioned

Overall the record of the Soviet Union in maintaining economic growth and high level of welfare indicators is quite spectacular, especially until the mid-1960s. The major strength of the CPE in the 1950-70s came from its ability to mobilize savings and to turn them into investment. After the Second World War the “big push” (industrialization) of the 1930s started to pay off – massive retirement of fixed capital stock has not yet started, so new investment could have been used to alleviate inherent supply bottlenecks.  The 1950-70s is the period when the drawbacks of the CPE (economic calculation problem) started to outweigh the advantages (ability to mobilize savings for investment). Centrally planned economy (CPE) is sometimes characterized as an antonym of a market economy, but this is not true. The ability of the central planning authority to develop and implement a coherent balanced plan for the national economy (not even to speak about the optimal plan) is limited and hence the vacuum is being filled with the automatic mechanisms of self-regulation that are in essence similar to the market adjustment process, but less efficient.  This paper argues that the planners influenced the development of the national economies not so much via adopting the planned targets, but by choosing the priority investment projects. The financing of these projects gave impulses to the other industries via multiplier process that triggered either price increases or output increases, depending on the gap between the potential and actual output, very much like in a market economy.