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An analysis of a centrally planned economy (CPE) in an attempt to isolate those "legacies" that ultimately impede transition to a freer, more productive economy capable of participating in an international division of labor. In a CPE, centralization is both an important policy objective and a modus operandi and has certain positive consequences, such as freedom from market instabilities, a more equitable distribution of income, higher education and skill levels, and the ability to channel capital investment. Some of these may be imperfectly realized, however, and there are some inherent negative consequences as well: for example, administrative rigidity and inefficiences, irrational pricing, arbitrary exchange rates, and production and quality control problems. In spite of growing dissatisfaction in many areas, the problems in foreign trade are the ones that finally force a change in the system. The difficulties experienced by Yugoslavia in the area of foreign trade, after 15 years of attempting to move toward a "visible hand" regime with worker self-management, are an indication of the strength of some of these negative legacies. 71 pp.

This report is part of the RAND Corporation research memorandum series. The Research Memorandum was a product of the RAND Corporation from 1948 to 1973 that represented working papers meant to report current results of RAND research to appropriate audiences.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.