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Consumption and Distribution

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Title: Consumption and Distribution


1
Consumptionand Distribution
2
Consumption Growth
  • Consumption growth slower than in comparable
    capitalist economies
  • Lag even greater than lag in total economic
    growth
  • reflects forced saving
  • sacrifice of consumption for investment

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Other Effects on Welfare
  • Shortage economy
  • forced substitutions
  • waiting in lines
  • having to search multiple stores
  • abandonment of buying intentions

8
  • Sellers market
  • rude treatment of customers
  • lack of services
  • lack of information
  • poor quality
  • no need to compete for buyers via quality
  • Planning errors and shortcuts caused by
    information problems
  • poor quality caused by substitution of inputs
  • refrigerator made with lower grade sheet metal
    than specified in plan

9
  • problems suffered by consumers due to output
    substitution
  • shirt labeled large is actually a smaller size
  • poor set of product choices
  • information load can be reduced by having fewer
    models
  • quality improvements harder to measure and
    incentivize
  • quantity drive at expense of quality

10
  • Priority economy
  • low priority of consumer goods and services
  • low priority of housing means long queues
  • ten to fifteen years in the Soviet Union
  • great loss of privacy and freedom of movement
  • low priority of housing means quality of housing
    stock is poor
  • low priority of housing means the housing stock
    is poorly maintained and common areas are left
    uncleaned

11
Political andEconomic Security
  • Political security
  • very poor
  • political repression
  • police state
  • people denied basic personal liberties
  • lack of protection from power of the state and
    Party
  • Cuba in 2003

12
  • Economic security
  • high for those who do not fall prey to political
    repression
  • full employment
  • state guarantees right to work
  • severe shortage guarantees jobs, as well
  • free public education
  • free health care
  • centralized, comprehensive pension
  • welfare net to care for the helpless

13
  • quality and level of provision highly variable
    between countries and periods
  • quality of care in orphanages and homes for the
    elderly ranged from decent to wretched
  • education in villages not usually as good as in
    cities
  • health care often extremely basic
  • pensions low

14
  • overall standard of living nevertheless often
    very low
  • many people living on the edge
  • nutritional deficiencies and other health
    consequences
  • Cuba today
  • periods of outright famine
  • Soviet Union during collectivization
  • China during Great Leap

15
  • crime rates low
  • bright side of totalitarian police state
  • less economic incentive to commit crimes
  • jobs easy to find
  • nothing to steal
  • nowhere to hide
  • everyone must register with police when visiting
  • internal passport system
  • police spies are everywhere
  • mass organizations maintain close surveillance
  • sanctions are extreme

16
  • Much of consumption is collective in nature
  • collective consumption financed out of the state
    budget rather than freely purchased by consumers
  • Central planning means state decides what
    consumer products are made available
  • Right to work coupled with duty to work

17
  • Free specialized education and training coupled
    with state assignment
  • Cradle-to-grave security coupled with
    cradle-to-grave surveillance
  • High level of economic security comes at expense
    of freedom to choose and political repression

18
Distribution ofMoney Income
  • Tends to be more equal under socialism
  • Greater equality of money income not an
    inevitable outcome of socialism
  • capitalist economies have tools to redistribute
    money income
  • Swedens distribution more equal than Soviet
    Unions

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Distribution ofMaterial Welfare
  • Distribution of money income a good proxy of the
    distribution of material welfare in capitalist
    economies but not in socialist
  • distribution of the command over goods and
    services

21
  • Turnover taxes and subsidies used to favor the
    poor
  • public transportation heavily subsidized while a
    high turnover tax applied to cars
  • idea is rich buy cars and poor use public
    transportation
  • crude form of redistribution
  • plenty of relatively well off use public
    transportation

22
  • subsidy of museums, ballet, symphony so as to
    make culture available to all
  • mostly the well off benefit from such subsidies
  • public housing subsidized while private not
  • plenty of less well off in private housing
  • predominant form in villages
  • housing tends to be less equally distributed than
    money income

23
  • Free goods and services
  • would flatten distribution of material welfare if
    distribution of such goods equal, but it is not
  • education and health care far superior in cities
    than in villages
  • workers in SOEs get free vacations more
    frequently than workers in cooperatives
  • powerful SOEs have much nicer vacation
    facilities, health care, and educational
    facilities
  • members of nomenklatura have access to much
    superior facilities and housing

24
  • Access to goods in short supply
  • nomenklatura shop in special stores, send their
    kids to special schools, get treatment in special
    hospitals
  • enterprises distribute goods to workers
  • powerful SOEs in priority sectors can get access
    to Western goods not available in state stores
  • in bad times enterprise distribution of even
    basic necessities becomes very important
  • distribution highly uneven, depending on priority
    of industry, connections, etc.

25
  • powerful people can make favorable arrangements
  • have a good set aside for them
  • move them up in the queue
  • let them know when a good in short supply will
    arrive
  • In summary, the distribution of material welfare
    much less equal than distribution of money income

26
Socialist Principlesof Income Distribution
  • To each according to his work
  • Socialist ideology is not egalitarian
  • one can discern an inclination toward leveling as
    the communist goal is a distribution according to
    need rather than work

27
  • actual distribution of wage income typically
    flatter than in capitalist economies because of
    bureaucratic setting of wages
  • SOE managers do not have to be recruited with
    high pay because there is only one employer
  • being a director of an SOE is not the zenith of
    ones career
  • many steps beyond within state-party apparatus

28
  • Political merits and positions of power
  • rewards for political merit (as opposed to
    economic, noted above)
  • political reliability and loyal service
  • promotions to positions of power
  • a major factor in Cuba
  • material rewards
  • money bonus
  • plot of land

29
  • Preferential treatment according to class or
    region
  • preference in favor of cities over villages
  • preference in favor of capital
  • preference in favor of industry over agriculture
  • preference in favor of priority industries

30
  • interest groups representing regions,
    occupations, industries, while relatively weak,
    can sometimes lobby for advantages
  • conflicts with first principle of reward
    according to work
  • workers in differently advantaged situations
    doing the same work get rewarded differently

31
  • Distribution according to need
  • conflicts with distribution according to work
  • reality is that there are many who are unable to
    support themselves, as in any society
  • official ideology speaks to solidarity and
    compassion for the weak
  • takes back seat to principle of distribution
    according to work

32
  • public spending in favor of disadvantaged tends
    to be low
  • welfare spending conflicts with primary goal to
    achieve rapid economic growth
  • welfare of individuals counts for much less than
    goals of the state
  • spending rises in good times but is the first to
    be curtailed in bad
  • poverty, even extreme poverty, continues to exist
    in classical socialism

33
  • Private property and market success
  • many receive income from savings accounts at the
    state bank
  • very meager
  • there are incomes from self-employment activities
  • sometimes self employment legal in certain
    countries, sometimes not
  • always heavily restricted
  • black-market activities

34
  • Inheritance and gifts
  • families do help out their children with material
    support
  • limited bequeaths are possible
  • a child can inherit a private house from his
    parents
  • possibilities accumulate great family wealth
    severely limited, however

35
  • offspring tend to inherit intellectual and social
    attitudes and advantages just as happens anywhere
  • well-educated parents tend to have well-educated
    offspring
  • a persons life is also influenced by his
    parents positions of power
  • mobility between social and occupational strata
    similar to situation elsewhere

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38
Equalizing Tendencies
  • Social ownership of the non-labor means of
    production
  • all the income from land, capital, natural
    resources, and entrepreneurship earned by
    households in capitalist economies goes to the
    state in socialist economies
  • distribution of non-labor factors in capitalist
    economies highly unequal

39
  • Deep suspicion of high incomes
  • especially of so-called unearned income
  • income from non-labor means of production
  • profiteering
  • speculation
  • trafficking
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