Chapter 32: Problem 1048

In what major ways do the institutions of the Soviet economy differ from the American and other Western economies?

Short Answer

Expert verified

The major ways in which the institutions of the Soviet economy differ from the American and other Western economies are in their approach to economic choices, resource allocation and management, the role of government, and economic freedom and competition. The Soviet economy was centrally planned, meaning the government made economic decisions, controlled resource distribution, and actively dominated every aspect of economic life. On the contrary, the American and Western economies are market-based, where supply and demand dictate decision-making, resource allocation, and encourage competition. In these market economies, the government primarily acts as a regulator, intervening only when necessary.

Step by step solution

Understand the nature of Economic systems

Economic systems refer to the manner in which a society organizes its resources to address and meet its people's wants and needs. The economic systems to discuss here include the centrally planned economy (implemented in the Soviet Union) and the market economy (as observed in America and other Western countries).

Discuss the nature of Centrally Planned Economies

Centrally Planned Economies, also known as command economies, are characterized by a central authority or government making all major economic decisions. The government decides which goods and services to produce, their quantities, and the prices at which they would be sold. This system, as implemented by the Soviet Union, aimed at minimizing social inequalities.

Discuss the nature of Market Economies

Market Economies, epitomized by the United States and other Western countries, are characterized by supply and demand driving economic decisions. Prices of goods and services, production, investments are generally determined by market forces. This type of economy often encourages competition and innovation, with the government primarily playing a regulatory role to maintain fair trade practices and ensure consumer protection.

Address Specific Differences - Economic Choices

In the Soviet economy, decisions about what to produce, how to produce, and for whom to produce were centrally made by the government. Conversely, in the American and Western economies, these decisions are largely decided by market forces, including private individuals and businesses.

Address Specific Differences - Resource Allocation and Management

In the Soviet Union, the government directly controlled distribution and allocation of resources, aiming for equitable distribution. In American and Western economies, resource allocation and management are guided by the forces of supply and demand, with the idea that resources will move to where they are most valued and can fetch the highest price.

Address Specific Differences - Role of Government

The government in the Soviet Union played a central, proactive role in the economy, deciding on nearly every aspect of economic life. On the other hand, the role of government in the American and Western economies is more of a regulator and referee- setting the rules, maintaining fair competition, protecting consumers, and intervening only when market failures occur.

Address Specific Differences - Economic Freedom and Competition

The centrally planned Soviet economy did not encourage or accommodate competition, with economic sectors generally being monopolized by state-owned enterprises. Conversely, the American and Western economies thrive on competition and entrepreneurship, which often leads to innovation, efficiency, and consumer choice. This comparison helps to understand not only the economic mechanisms of different societies, but also their social, political, and cultural nuances, as economic systems are deeply intertwined with these aspects.

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