Photo: Juraj Bartoš

The socialist economy in Czechoslovakia was developed, met real needs of people, and functioned more efficiently than the “chaotic” market system

“All citizens benefited from state-owned enterprises that were able to meet people´s demand efficiently”

according to 62% of respondents within the April 2018 poll carried out by the FOCUS agency. 

Facts and disproval of the myth ↓

The economy controlled by the communist party without any competition, the feedback provided through consumer choices, market prices, ownership responsibility, economic profit and possibility to go bankrupt was gradually degenerating and led to increasingly negative consequences for people. It focused on satisfying the requirements of the communist party (or those of the Soviet Union), quantitative fulfilment of plans, and maintenance of its own running instead of satisfying people´s demand while focusing on long-term aspects of investments and innovations. 

This situation manifested itself also through the deformed industry structure due to, in particular, a big share of armament production (military expenditures amounted to 6% of the GDP and 11% of state budget expenditures on average and even more in the eighties, serving to supply arms to developing countries in military conflicts either for non-market prices or for free. The decision on cancellation of the unsustainable armament production was made by the socialist government in the years 1988 and 1989. 

The typical consequences of the central economy control included also shortages of many goods along with unsaleable stock of some other goods and low quality of not only production (oriented towards quantity) but also of goods and services. Apart from the non-functioning official economy, a number of people carried out their economic activities within a shadow economy. Administratively determined and artificially maintained prices did not fulfil the coordination function, did not provide any economic information about, for instance, relative rareness, could not serve as a criterion for rational use of resources, and supported wasting and production demanding as to inputs. 

The socialist planning and absence of economic motives resulted in inefficiency, overemployment, and the waste of resources. Without the ownership responsibility, profit, and competitive environment pressure, socialist enterprises were not motivated to innovate or invest into the capital. For instance, the USA had six times more computer-automated technology process control systems per capita than the CSSR, and 72 times more when compared to the USSR (see Table 2). Enterprises controlled by the communist party did not invest into research development and did not innovate capital goods. 

The socialist agricultural sector in Czechoslovakia is an example of economic inefficiency. It was maintained through large tax-based subsidies and massive increases in the use of artificial fertilizers, particularly from the sixties of the 20th century. 

Their use was significantly higher than in Western countries. On the contrary, the yields of cereals, potatoes, and milk, for instance, were significantly lower in our country. While in 1970, the milk yield per one milk cow amounted to 2 600 litres in the CSSR, it was 3 100 litres in Austria, 3 800 litres in the Federal Republic of Germany, and 4 300 litres in the Netherlands. 

The economic inefficiency of socialism was evidenced by the development following November 1989, accompanied by bankruptcy of a number of state-owned enterprises and cooperatives that were unable to compete with private companies. 

The economic and technological falling behind of Czechoslovakia resulted from the fact that the institutional characteristics of the country´s economy contradicted economic principles and realistic economy functioning. Official economic activities were subject to political decision-making by the communist party and people were prohibited from owning any property that could serve to carry out business activities. The market, capital ownership, business, competition, profit motive, and free consumer choices were replaced by the interest of the communist party, its central plans, propaganda, and institutional aggression. The communist party determined “from an ivory tower” what and how much factories and cooperatives are to manufacture, grow, and export as well as retail prices. The party determined flat nationwide prices and regulated them. Without the capital ownership and with the centrally controlled economy it was not possible to make any rational economic calculations and in the absence of any competition, no relevant economic information and knowledge could have been generated (more in chapter 2.2 Centrally controlled economy without private ownership).