The planned economy went nowhere: How the global economy has remained in control since the fall of communism

Herbert Simon, winner of the 1978 Nobel Prize in Economics, was a pioneer in the study of economic organizations and expressed this view succinctly in one of his later works, Organizations and Markets, published in 1991. He reasoned that if a Martian with no bias came to Earth and looked at our economy, he would conclude that we do not live in a market economy. “No,” Simon would reply, ”a Martian would notice that Earthlings exist in an organizational economy.” 

This means that most economic activity on the planet is managed within firms rather than through market transactions between them. “A Martian would see not a network of market lines connecting small green areas,” Simon noted, ”but the opposite: large green areas connected by thin red lines of markets.” And yet we continue to think that centralized planning has disappeared.

 

The impact of the collapse of the USSR on the world economic paradigm

 

Liberal and especially right-liberal economists hate to admit it, but even though communism collapsed decades ago, the global economy remains inherently planned, albeit in a different form than Marxist theorists had envisioned. The fall of communist regimes in Eastern Europe and the Soviet Union in the late 20th century led to the widespread adoption of the market economy as the preferred model of development. However, looking deeper, the modern economy is still largely coordinated by planning, although this is no longer done by the state but by the largest corporations.

Modern transnational companies, with their enormous influence over markets, play the role of planners of sorts, directing significant flows of resources, labor, and capital. Like the state plans of economies of the past, they base their strategies on long-term forecasts, managing entire production chains and determining what should be produced, where and when. Giants like Amazon, Apple or Tesla are not just adapting to the market, but actively shaping it by setting new rules of the game.

 

In what ways do states continue to implement a planned economy?

 

Planning in the modern world is also realized through financial and governmental structures that guide the development of the economy in certain directions. For example, large central banks, such as the U.S. Federal Reserve or the European Central Bank, set monetary policy that influences global economic conditions. They largely control money flows, interest rates and exchange rates, with an impact on the economy no less significant than the plans of the Soviet Five Years.

National governments continue to play a significant role in economic planning. Government subsidies, infrastructure projects, and regulation of industries such as energy, medicine, and technology create conditions in which market mechanisms give way to managed solutions. In times of economic crises, states often intervene directly in the market to prevent chaos. During the COVID-19 pandemic, the massive intervention of governments around the world, whether through financial support to the public or to businesses, again highlighted that at key moments it is state planning that proves essential to stabilize the system.

Technology giants have also greatly increased their planning influence on the economy, developing ecosystems in which competition is either suppressed or virtually eliminated. Their control over data, logistics, and consumer demand creates the illusion of a market, but in practice many decisions are already made in advance and detailed by corporations.

 

Why does the planned economy remain relevant?

 

A partially planned economy can be highly efficient because of its ability to focus, manage and prioritize resources in a constrained environment. This model combines elements of a market economy with planning, allowing the state to actively participate in economic processes. As a result, this approach contributes to more balanced and sustainable development, especially in times of economic instability.

One example of a modern developed country with strong planning is South Korea. Following the Korean War in the 1950s, its government introduced a series of five-year plans that aimed to rebuild and modernize the economy. These plans included aggressive government investment in key industries such as electronics, automobiles, and machinery. The government supported local companies to help them grow and compete on the international stage. As a result, South Korea has achieved impressive economic growth rates, becoming one of the world's leading economies. This success is largely due to a combination of market mechanisms and sound government planning.

An example of an effective economic program in the Soviet Union is the “Seven-Year Plan” of 1959-1965, which surprised Western economists with its growth rates. This plan emphasized the development of heavy industry, agriculture, and science. Investments in machine building and the chemical industry led to a significant increase in production capacity. 

 

 

According to some estimates, significant increases in steel, coal and electricity production were achieved during the period of the plan. This confirms that it is possible to achieve high growth rates even within a planned economy, provided that resources are allocated efficiently and government support for key industries is provided.

 

Conclusion

 

Despite the collapse of communism, the world economy continues to be partially planned. State intervention, global corporations and financial institutions play a significant role in managing economic processes, creating conditions for stability and growth. The Soviet Union's striking successes in economic planning, such as the rapid pace of industrialization, have left their mark, showing that centralized management can be effective. This emphasizes that while market mechanisms are important, planning remains a key tool in the global economy.