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The Centrally Planned Economy

Proponents of centrally planned economies (CPEs) maintained that the advantages of such systems far outweighed the disadvantages. They believed that in many respects economic competition wasted society's resources. In other words, what Marx called the "anarchy of the market" led producers and consumers to expend resources in activities that became unnecessary when they worked in harmony rather than in competition. Planning could give priority to social goals over economic ones. Should the government decide that the development of health professionals was important to society, for example, it could earmark funds for that purpose. Proponents of CPEs also claimed that they could insulate their economies from the ups and downs of the business cycle, a phenomenon which Western economies never have been able to avoid. Theoretically, CPEs were designed to be immune to economic (and social) losses such as reduced output and unemployment associated with economic downturns. (As their national economies became more interrelated with international markets, however, CPE proponents admitted the difficulty of isolating themselves from swings in world economic conditions.) Another theoretical advantage was that economic decisions could be based on long-range goals because the financial losses of any individual enterprise or industry could be offset by profits in other areas of the economy. And, since the organization of the entire industrial and agricultural base was determined administratively, economies of scale could easily be incorporated into the planning process.

Western economists were generally critical of the CPE, however. Their criticisms had two essential components. First, central economic planners often were unable to plan an economy efficiently; and second, even when they could plan well, they were unable to achieve the goals they planned. These general assertions proved true regarding specific aspects of Bulgaria's command economy, and they had ramifications for efforts to reorganize that economy in the 1990s.

The CPE induced enterprises to seek low production targets, concealing productive capacity and never overfulfilling the plan by too much, lest higher targets be set in the next plan. The result was underutilized resources. Plans tended to stress quantity over quality. Simply requiring a particular level of output was insufficient if that output were of such poor quality that no one bought it, or if there were no need for such a product in the beginning. The consumer had no effective control over the producer when quality was low, and the artificial price structure prevented price signals from alerting producers to consumer preferences. Also, because enterprises were judged on their fulfillment of the plan, producers geared production levels for satisfying the plan, not consumers.

The CPE could induce technical progress from above, but it could not stimulate it from below. The plan discouraged enterprise innovation, because innovation meant interrupting current production, hence jeopardizing plan fulfillment. The system also encouraged waste and hoarding of fixed and working capital, and the wage system failed to encourage workers to work harder or managers to economize on labor. Under Zhivkov Bulgaria attempted to deal with these problems by a series of reforms in both industry and agriculture. These reforms included alternately centralizing and decentralizing economic management; adding and deleting economic ministries and committees; revising the economic indicators for plan fulfillment; and encouraging or discouraging elements of private enterprise. Despite such experimentation, however, Bulgaria remained faithful to the general Soviet model for over four decades. In the years after the end of communist rule, the CPE remained the predominant structural element in the Bulgarian economy, especially in large enterprise management.

Data as of June 1992