Priority, duality, and penetration in the Soviet command economy

This Note analyzes characteristics of the Soviet economy that are underemphasized in existing macroeconomic models of the Soviet Union. The characteristics include the existence of clear priority and nonpriority sectors, the nonmarginalist nature of decisionmaking, the distinct advantages of priority sectors during both planning and plan implementation, and the rigidities of administrative allocation in the face of random shocks to both needs and capabilities. The analysis is carried out in a series of simple two-sector macromodels of plan implementation in a priority-driven command economy. The structure of the models reflects, albeit in highly simplified form, the planned dual nature of the Soviet economy in terms of priority and nonpriority sectors, allocational and technological rigidities, and the effect of priority in determining the response to shocks during plan implementation. A number of empirically verifiable implications that do not arise naturally in standard macroeconomic models stem from this analysis. In particular, the analysis shows that 1) the variance of output (plan fulfillment) is greater in nonpriority than in priority sectors; 2) there is more excess capacity in priority sectors; 3) priority factor/input use proportions are unrelated to economy-wide tradeoffs; 4) inputs into priority sectors are protected from fluctuations in economic activity; and 5) factor productivity is lower in priority sectors, perhaps because of flexibility considerations. (jhd).