Why did socialist economies fail? The role of factor inputs reconsidered

Abstract

This article presents new estimates for investment and new growth accounts for three socialist economies between 1950 and 1989. Government statistics reported distorted measures for both the rate and the trajectory of productivity growth in Czechoslovakia, Hungary, and Poland. Researchers have benefited from revised output data, but have continued to use official statistics on capital input, or estimated capital stock from official investment data. Investment levels and rates of capital accumulation were much lower than officially claimed and over-reporting worsened over time. A setback in factor accumulation-both investment in equipment and labour inputcontributed very significantly to the socialist growth failure of the 1980s.

Does socialism really lead to economic failure? The USSR and COMECON Eastern Europe before 1989

“…They use this to construct a post‐1965 investment index. The Research Project links this index to pre‐1965 figures they calculate for production of investment goods and construction (Vonyo & Klein, , pp. 325–326).…”

“…325–326). They admit their approach may contain hidden inflation and thus overestimate investment (Vonyo & Klein, , p. 326). However, they think it eliminates the other causes of investment overestimation.…”

“…However, they think it eliminates the other causes of investment overestimation. The authors argue that official figures contained more or less deliberate distortions of investment levels such as adding invented figures for research and development (R&D) to the investment total (Vonyo & Klein, , p. 322).…”

“…Actual investment as a proportion of GDP was rarely above 25% (except for a few years in Poland in the 1970s) and started to fall in these countries, from the late 1970s. For most of the period, these rates were significantly below investment rates in Southern Europe (Vonyo & Klein, , pp. 330–331).…”

“…They find it was positive in all three countries in the 1970s and 1980s. TFP growth was higher in all countries in the 1950s and 1960s than afterwards but looked at together the three countries do not show a clear pattern of linear decline (Vonyo & Klein, , p. 335).…”