Broadly, it may be said that the economic problems faced by the Soviet economy are similar to those of the capitalist economies. Resources are scarce. These scarce resource, have to be optimally utilized. “Like Britain, America, France & West Germany, the Soviet Union is a massive, nationally integrated, industrial economy. Its use of machine technology and applied science also required a factory system and a system of national transactions. The Soviet system also provides welfare state services, free or subsidized education, health and housing.
Trade unions, money, pricing, foreign trade and banks exist, but are organized differently to serve different purposes, from their counterparts in the capitalist system. There are fundamental differences with regard to the organization of production of distribution. Besides, the Soviet Union endeavours to achieve efficiency and economy in the use of scarce resources in a different way. So by analyzing the basic characteristics of the Russian economic organization, term of national transactions. The Soviet Union endeavours to achieve efficiency and economy in the use of scarce resources in a different way. So by analyzing the basic characteristics of the Russian economic organisation, we may gain a better idea about its nature and manner of its operation.
1. Economic predominance of the state :
The Soviet constitution entails that all the means of production such as land, mines, factories, forests, waters as well as output belong to the state. State ownership is the main form of socialist ownership. The state owns the basic means of production in industry, construction and agriculture; means of transport and communication, the banks, the property of state-run undertakings. Here public ownership may cither refer to state property or co-operative property. The Government only can decide how these things are to be used. No private individual can buy, sell or own these means of production.
2. Absence of private profit motive :
The Soviet laws strictly prohibit private profiteering. Resale of commodities for profit constitutes the crime of “speculation” and is punishable. Hence no Soviet citizen can own and operate any profit-making private enterprise. However, the institution of private property is not abolished, nor there is any compulsion to have all things in common. The personal property of citizens may include articles of everyday use, personal consumption and convenience, the implements and other objects of a small holding, a house and earned savings. People can own as many consumer goods as they wish. Such goods are meant for personal use. These personal possessions can be inherited and also passed from hand to hand by way of exchange, provided no excess price is charged.
3. Different role of managers :
The managers in the Government owned industries are just state employees. They work for salary and bonus and not for profit motive. The managers and directors of an enterprise do not appropriate the profit. In no way can they be compared with the owners of private enterprise. In a capitalist economy, the private owners always strive for maximizing profit, but in the Soviet Union it is not the driving force of production. In the Soviet Union, the mangers re rewarded for fulfilling the planned targets no doubt, but the profit does not belong to the enterprise. Since the mid-sixties the importance of profit has been realized in the Soviet Union. This Soviet enterprises are encouraged to make profit. But the nature of such socialist profit is different from capitalist profit.
4. Economic decisions through planning :
The detailed productive decisions are not made by the enterprises. Such economic decisions are made in the U.S S.R. by the state planning agencies. These decisions then are communicated to the individual enterprises for being executed. There is no freedom of enterprise as we understand under capitalism. It is the Government which performs all allocative functions in accordance with a gigantic plan. In fact 90 per cent of the economic life comes under the planned sector. As the Soviet constitution proclaims : “The economic life of the U.S.S.R. is determined and directed by the state economic plan.”
The Russian economy is a system of highly detailed and obligatory economic planning. Today economic planning has been adopted in many other non-socialist countries as well, but “what is however unique about the Soviet Union is the enormous detail of its plans, the rigour of the measures taken to piece together and to realize their goals, the extent to which they take precedence over and dominate all economic decisions of individuals and the degree to which they are a legal obligation for every economic unit in the country.”
5. Absence of competition :
Competition in the capitalist sense is absent in the U.S.S.R. The Soviet economic system functions as a total state monopoly. Here there is no scope for individual firms to compete with each other. Sometimes there may be competition among plants for the timely fulfillment of targets or for the introduction of a better product or technique. Then the losers are directed to learn from the more efficient plant. Competition against government interest is prohibited by law.
6. Income from work only :
People in the Soviet Union earn their livelihood by obtaining an income. All able-bodied citizens of the Soviet Union are required to work. The principle is “He who does not work neither shall he eat.” Nobody can engage others for making a profit even at high wages. It will constitute the crime of exploitation. No income arises from the ownership of the means of production or resale of goods. The major source of work is work in state industrial and agricultural undertakings and state institutions and collective farms. According to the 1971 census, about four-fifths of the total working population is employed in state undertakings and institutions. The remaining one-fifth in state undertaking and institutions. The remaining one-fifth is working on collective farms. Very few people engaged in self-employment.
7. Limited economic freedom :
Soviet people are free to spend their incomes on immediate consumption of available goods and services. Here the choice, however, is very much limited. People can also save their incomes for future consumption. But the saving cannot be invested to earn profit.