In essence, the authors argue that the demiose of the x-USSR was due to the country's ruling elite decision to abandon central planning, instead of the purported inefficiency of the central planning itself. Nice try, and generally true, but begs the question 'why did the ruling elite abandon central planning?'
Suggesting the irrationality of the elite behaviour scores no better than bourgeois criticims implying that Soviet system was 'irrational' 9i.e. defying the rationality of the Western institutions).
My answer to that question is that both, the adoption of central planning and its abandonment 70/50 years later, were economically rational decisions rather than irrational pursuits of personal power and shadowy elite dealings. In fact, the history of central planning is perhaps the best empirical illustration of Marxian dialetctics - a mode of production sowing the seeds of its own destruction. The institutions of central planning offered certain advantages when they were implemeneted, and these advantages resulted in the initial spectacular successes of E.Euroepean economies. However, a the development process continued, the central planning system started intrioducing drwabacks that quickly overcame its previous advantages, thus becomin an integument constraining further economic development. As a result, that "integument burst asunder" and the institutional framework of central planning was abandoned.
In 1917 central planning appeared to be the most efficient organizationa of the economy. The idea was developed by the end of the 19th centure by French and Germans, who used goverbnment supported financing as the measn of vertical and lateral integration of the industry into cooperating groups (cartels) with privileged access to investment capital rather than firms competing against each other for market shares and capital. Japan emulated that ystem (Meji restoration) and its superiority became apparent in 1905 when Japan defeated Russia.
Russia at that time was an extremely backward, agrarian nation, trying to shed its feudal legacy (feudalism was formally abolished in Rusia in 1862 - nearly 400 years after its demise in Western Europe! - but its effects still persisted du to the strength of local feudal lords).
The adoption of central planning after the 1917 revolution was in fact an attempt of accelerated industrialization, using the most modern organizational forms developed in Western Europe, and adopting to the Russian conditions - specifically, the lack of adequate banking system was correcteed by using the state as the financing institution (source: Alexnader Gerschenkron, _Economic backwardness in a historical perspective_).
>From a theoretical point of view, central planning system offers two
advantages over the market system during the period of rapid economic
development: elimination of windfall profits going to backward sectors of
the economy (especially agriculture), and savings on transaction costs.
Rapid industrialziation creates huge demand for industrial labor, which in a country like Russia was drawn form backward labor-intentive agriculture. Massive migration from the countryside to cities causes agricultural production to fall, while the demand for food via market drmatically increase. Under the market condition, that arrangement would cause the food price skyrocket and that would pose a very serious financial burden for the industrialization project through a demand for higher wages. As as result, the outlays earmarked for industrial development would end up in th epockets of ineffcient food producers (lords and rich peasants aka kulaks).
The control of food prices through political means averts that danger and reduces costs of industrialization, but poses a political cost by suppression of the agrarian interests. That observation goes a long way in explaining agrarian policies of centrally planned countries.
A similar argument can be applied to other inputs required for industrialziation (raw materials, semi-finished products, etc.).
Transaction costs - vertical and horizontal integration also reduces various costs of doing business (aka transaction costs). Examples of transaction costs include loss due to imperfect information, surveying the market, costs of contract negotation and enforcement, performance monitoring, cost of human intermediaries, etc. By constraining the freedom of the suppliers of inputs through administrative control, those transaction costs can be averted (source: Oliver Williamson, _Markets and Hierarchies_).
If we concpetualize central planning as turining an entire country into one gigantic corporation - the transaction cost argument seems like a rational alternative to the free market, especially in a country that lacks even most rudimentary information technologies and social institutions specialized in servicing business transactions (lawyers, courts, experts, business associations, etc.).
It is therefore clear that central planning posed a very attractive alternative to free market at the beginning of Eastern Europe's industrialization project. This was not merely a theoretical speculation, but reality, as evidence by the spectacularf economic growth during during the initial phases after the implemantation of the central planning system.
Thus I demonstrated that the implemantation of central planning was an econimically rational decision (no need to evoke ideolgoy or value judgment to explain that decision).
The second part is to show that the abandonment of central planning was an economically rational decision as well (no need to evoke ulterior motives to explain it). To understand why, let's consider the transaction model again. In essence, that model posits that organizational hierarchy offers substantial savings in transaction costs versus free market - hence it is a more efficient form of economic organziation than the market. I used that model to conceptualize a centrally planned country as a gigantic 'hierarchy' or a corporation in plain English.
The crticis of the transaction cost model (cf. Charles Perrow, _Complex organizations_) propose two arguments against the claimed efficiency of this institutional form. First, the emodel does not take into account the role of informal social instiutions (social networks, social norms, roles, and expectations, culture, etc.) in reducing transaction costs. Oftentimes, these institutions eliminate the need for formal procedures - thus any savings supposedly offerred by administrtative hiererchy is at best exaggerated.
Second, hierarchies have "systemic" costs of their own. One such cost is "satisficing" behavior of corporate officers who often do only what passess for satisfactory performance, while devoting rerst of their energies to personal gains instead of organizational goals.
Another disadvantage comes from internalization of certain costs that in a market economy can be externalized. The essence of this argument is that a "market" firm can push their losses on someone else and thus remain profitable, whereas under vertical and horizontal integration the corporation must ultimately absorb the loss of its integrated supplier. In plain English, a US corporation can dump much of its cost (personnel training, waste removal, research and development, infrastructure construction) on the taxpayer, or overseas populations and thus remain nominally profitable. Under cenetral planning, where the entire country is one gigantic coproration, such externalization is impossible, and the corporation must eventually bear all the costs of its operations.
Finally, the transaction model implies that information is transmitted within a hierarchy with minimal loss. Without that assumption, the claimed advantage in overcoming transaction costs (stemming mainly from imperfect information of market actors) is a nonsequitur. That however, proved far from being true in centrally planned economies of e. europe. It is a well known fact that information was routinely withheld or distorted by plant managers, leaving the central planners with completely distorted picture of the productive potential and available resources (cf. George Feiwel, _The Economics of a Socialist Enterprise_). The motivation of plant managers to do so is a typical example of "satisficing behavior" - they tried to hoard reserves which they could use if something went wrong in the system and they could not perform the planned tasks, or simply to sell the surpolus on teh black market. The planners' response was so-called "taut planning" (setting goals on industry averages or guesstimates rather than actual input from production units), which exacterbated hoarding and withoulding of information even further.
So thebottom line is that after the initial successes of the central planning system to overcome the limitations of the market system in rapidly growing economies, central planning intruduced disadvanteges of its own, that become what Marx once called an integument of the forces of production. This integument took mainly the form of imperfect information flow due to managerial satisificing, and the inablity of the system to externalize some of its costs (as the US corporations do). Consequently, the the preformace of planned systems declined steadily in all E.European countries since ca. 1951 (Bernard Chavance, _ The Transformation Communist Systems_). On the top of it, the initial treatment of agriculture aimed to contain food cost, resulted in the long term in the underdevelopment of that sector and its dismal productivity.
If anything the demise of the x-USSR and its allies is the case of the failure of the corporate system -- not of a planned economy, and much less so of socialism.
wojtek