I come from a country which was a part of the former Soviet bloc where socialism and central planning were the name of the game. It was meant to be a system with happy people across the board as opposed to capitalism with its exploitation, unemployment and constant boom and bust cycles. Central planners needed to take care of it and they did. Certainly they had to make sure that things are affordable for everybody. It was not an easy task at times when my father who was a finance director in a factory with 5000 employees was making an equivalent to $10 a month (this is not a mistake: one hundred and twenty US dollars per year). You can only imagine how cheap things needed to be in order to make everybody happy. And they were cheap but naturally very difficult to get. I recall times when every day after school I was spending an hour in a line for food, then my mother was taking over from me and after another hour spent in a line she was able to buy food for that day. But it was affordable so we ought not to complain…
For big ticket items they wanted to avoid lines lasting months so they came up with an idea of issuing coupons giving right to purchase certain item at certain time. Underground market immediately developed where for example a new car bought with the coupon could be sold for 4 times as much to somebody who didn’t have a coupon. It was funny to watch 5 years old used cars being sold for more than the new one in the dealership (if you had a coupon…)
When a really big economic crisis hit shortly before the martial law was introduced we had nothing in shops but vinegar. Can you imagine a supermarket with all shelves empty but a few with hundreds of bottles of vinegar? If not here is the picture of the result of central planning:
Click image for original size
Many were wondering why everything was sold out but vinegar. In my opinion it was simply a mistake in planning – somebody took thousands for millions and there were 1000 times more bottles produced than needed…
Central planners of course didn’t give up and after announcing that the shortages were the result of excessive speculation they introduced ration stamps for almost everything. First meat, then sugar, butter, rice, soap, alcohol, cigarettes – you name it. The shops were again full of products at affordable prices but nobody could buy as much as they were willing to. So another underground market developed – this time a market for ration stamps. I don’t need so much alcohol but would like to have more chocolate for my kids than one bar a month so why not find somebody with exactly opposite needs? And so on and so on …
All this stupidity ended only after introducing the free market by first non-communist government in early 90s. It took a lot of sacrifices and hard work along the way but 20 years later our economy is the only one in EU zone that is not contracting this year and we are considered to be the new European tiger...
What are the morals of this story?
Lesson 1
Regardless of how clever and how smart those in power are, central planning always creates imbalances which later need to be corrected by free market.
Lesson 2
Regardless of how incompetent those in power are if People are willing to sacrifice and work hard they can find the way out from no matter how big hole.
