A CENTRALLY PLANNED ECONOMY of the kind set up under the five-year plans of the 1920s and 1930s which was adopted by most East European economies after 1948 and increasingly abandoned after 1989. This economy was based on a one-party state, largely organized in state-owned enterprises reporting in vertical hierarchies to industrial ministries which handed down detailed orders on every aspect of production within the framework of five-year and annual operational plans. TRADE UNIONS, also organs of the state, were given the tasks of overseeing the welfare of workers and contributing to the audit of individual enterprises.
When the system failed to be efficient and supply the needs of consumers, reforms were attempted. These included devolving more decision making to individual enterprises, allowing them to trade directly with each other and with foreign enterprises, allowing more incentives to managers and workers to encourage better use of resources, and more flexible pricing including MARGINAL COST PRICING.
References
Ellman, M. (1979) Socialist Planning, Cambridge and New York: Cambridge University Press.
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