The Soviet Block : Economic Decline

The socialist, state-planned economy of Eastern Central Europe and the Soviet Union suffered from a number of system problems :

(1) planned economy regarded competition as a waste of resources; factories worried about fulfilling or exceeding the quotas assigned; little energy was spent on efficiency, cost reduction, innovation.
(2) non-profitable enterprises such as space technology, the arms industry and athletics were given priority over the consumer industry when it came to scarce raw materials or talents
(3) housing was subsidized, as were most consumer goods sold in the official stores. Rising prices would have contradicted the official ideology; so the only way out was to limit production. A lack on the supply side was normal, with the consequences of people wasting time by standing in line, of people hoarding items and thus cleaning out the shelves even faster than normal, of a BLACK MARKET emerging
(4) especially in the GDR a constant outflow of skilled workers.
(5) the exchange rate of their currencies being fixed by the government, Russian Roubles, East German Mark, Hungarian Forint etc. were not excepted as payment in international purchases; the socialist countries needed to generate revenue in western currencies.

In the 1950es and 1960es, socialist politicians and economists still were optimistic regarding the prospect of their economies. The OIL CRISIS of 1973 hit the socialist economies really hard, as the USSR supplied only part of the oil consumption of the Eastern European economies. To face the situation, the following policies were pursued :
(6) replace foreign oil by domestic fuel wherever possible (coal, with the effect of heavily polluting the environment)
(7) raise revenue in western currencies by selling whatever is marketable on the markets of western countries, often at very low prices. This policy only worsened the supply situation at home

In regard to technical innovations, East Germany's pharmaceutical industry did come up with new products enhancing the performance of their Olympic athletes; the Soviet arms industry continued to impress by developing improved fighter planes and missiles. In the field of consumer industry, howeber, little changed; changes which occurred, such as the emergence of an East German COMPUTER INDUSTRY in the late 1980es were the result of industrial espionage rather than East German research.
The TRABANT, East Germany's most popular car, was first produced in 1961. Engineers came up with improved models; yet these would require higher subsidies and therefore were never built; in 1989 the factory still produced the 1961 model.

In the 1980es the economic situation in Eastern Europe and the USSR drastically deteriorated. Industrial facilities were, mostly, outdated and in disrepair, and spare parts were often unavailable. Due to outdated equipment, a lot of energy, natural resources and human labour was wasted. Accidents were frequent, at times with disastrous consequences for the environment.
The consumer goods the official stores had to offer were so insufficient, that POLAND had to reintroduce COUPONS, that BLACK MARKETS emerged everywhere in Eastern Europe, that the West German DM became a second currency, that East Germany opened a chain of stores which accepted only DM (at first only from West Germans, later from anybody who had DM). The 1980es showed the socialist economies faltering.
A shadow economy emerged, people growing vegetables, potatos etc. in their garden and selling them, for prices several times those of the official stores, on the black market.


This page is part of World History at KMLA
First posted on July 17th 2001, last revised on November 11th 2004

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