David R. Henderson  

Soviet Shoes

Taking Bryan's Counterintuitiv... How Growth Happens: CostCo Edi...

I mentioned in Tuesday's post that one of my favorite passages from Scott Shane's Dismantling Utopia is the passage about shoes. Commenter Bill asked me for the passage. Here it is:

My informal survey suggested that some of the longest lines in Moscow were for shoes. At first I assumed that the inefficient Soviet economy did not produce enough shoes, and for that reason, even in the capital, people were forced to line up for hours to buy them. . . . Then I looked up the statistics.

I was wrong. The Soviet Union was the largest producer of shoes in the world. It was turning out 800 million pairs of shoes a year--twice as many as Italy, three times as many as the United States, four times as many as China. Production amounted to more than three pairs of shoes per year for every Soviet man, woman, and child.

The problem with shoes, it turned out, was not an absolute shortage. It was a far more subtle malfunction. The comfort, the fit, the design, and the size mix of Soviet shoes were so out of sync with what people needed and wanted that they were willing to stand in line for hours to buy the occasional pair, usually imported, that they liked.

And now the "money" paragraph:

At the root of the dysfunction was the state's control of information. Prices are information--the information producers need in order to know what and how much to produce. In a market for a product as varied in material and design as footwear, shifting prices are like sensors taped to the skin of a patient in a medical experiment; they provide a constant flow of information about consumer needs and preferences. When the state controlled prices, it deprived producers of information about demand.

Later, Shane writes, "Indeed, the factory's real consumer was the state, not the consumer." He goes on to say, "The shoes Soviet industry produced might end up in a landfill, but comrade, it could produce shoes."

Incidentally, he begins the chapter, "What Price Socialism? An Economy Without Information," with the following Soviet joke from 1988:

Customer in Meat Store: Miss, can you slice 100 grams of ham for me? Saleswoman: Certainly, citizen, if you bring me the ham.

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COMMENTS (12 to date)
Gary Rogers writes:

Does this remind anyone of the information that is hidden by our current healthcare system? The fact that the real customer is the insurance company while the true price is hidden from the consumer creates imbalances that cannot be resolved by any of the reforms currently under discussion.

So why do we act so irrationally? A few seemingly innocent decisions put the system out of balance. First, a wage and price freeze during world war II made it beneficial for companies to start offering healthcare. This was compounded when the government made employer based healthcare plans tax deductible. As taxes and healthcare costs rose, it became more and more reasonable to pay for as much with pretax dollars as possible, where market forces would have led them to a different decision.

We do not have central planning in healthcare yet, but I have heard enough to worry that it might be coming. I can just see our healthcare system run like the Russian shoe industry.

Patrick writes:

The left, and probably most of the center, sees incentives as the problem in health care. Incentives come in two flavors: reward and punishment. They find it unconscionable to punish the entitled, and reward can be construed as punishment of those who don't get it.

Liam writes:

This reminds me of another Soviet joke on this topic.

A Russian goes to buy a new car and pays all the money up front (as was the norm) and then is told by the sales person to come back in exactly 5 years to pick up his new car. So he asks, "In the morning or the afternoon?" and the sales person says, "What difference does that make?" and the the man replies, "In the morning the plumber will be coming to fix the toilet."

Kurbla writes:

I've spent my youth in communist country. My impression was always that planning was not the problem, but lack of incentives was. If everyone has seen that people do not want brown shoes, do you think that planners didn't seen that? They did, but economy was always abused to serve some other purpose, mostly ideological. Brown Shoes factory was pride of Irkutsk and politicians didn't allowed closing it. Such abuses happened on all levels of the society. However, Soviet economy in Stalin's period was actually very efficient.

Bill writes:

Thanks very much, David. Really good stuff!

I had the opportunity to go to Russia in 1990. While there, I was told of experiences involving state window factories. Initially, planning quotas were based on tonnage weight. This resulted in very think glass windows that distorted images as people tried to peer through them. Then the planning goal shifted to square feet of glass. The result was very thin glass windows, so brittle that many cracked/broke while in transit to construction sites. The lesson to be gleaned from all this is the same as with the shoes. Absent markets/prices, the value/usefulness of a product to the user is not the primary concern, and outputs of production plans, even if significant in terms of volume, involve a tremendous waste.

Bill writes:

oooops - "thick", not "think."

mark writes:

Really good post, thanks.

Joey Donuts writes:

A polish economics student visiting the US in the late 1960's told me about a cartoon he had seen.

A giant nail riding on a flatbed rail car.

jake writes:

not to mention that the numbers were crooked and cant be relied upon.

Jim Glass writes:

Central planning? Shoes?

Say: "Trabant."

Much of the housing crisis comes from this confusion that objects have value in themselves. Barney Frank and friends thought that it didn't matter if houses were built for people who could not pay for them. Houses were objects of value. How could one have too many of them? Production was valuable in itself. A Marxian theory of value: it takes much labor to build a house, so it must be valuable, no matter what.

I read this story about Russian planned production in the 1970's. Russian furniture production was of course state-run, and they carefully measured production in tons shipped. The factories met their quotas by building large, heavy furniture. This didn't work out well in a country with tiny, walk-up apartments.

A commenter at CafeHayek wrote: Over 20 years ago, while in grad school, I had an Econ Professor who while visiting the Soviet Unioin, saw a nail plant manager being awarded the Order of Lenin, due to his high nail production. The plant manager achieved his goal by manufacturing thousand pound nails!

There are a million ways to go wrong. Only a free market of self-interested, independent agents is going to find the few ways of doing things right.

The corollary is that no amount of government regulation will keep people from gaming the rules to extract a profit from the government. Producing useful products and services is not a requirement in that game.

Jim Glass writes:

"Thousand poud nails" seems a joke along the lines of the famous, "Comrade, we have succeeded in building the world's biggest microchip!" ... though with the Soviets one never could be sure.

I do know that back in the days when I was studying things Soviet, thay actually did have a bus factory that operated by taking, for each bus, two small trucks from a nearby truck factory, destroying the trucks and welding the frames together to make the frame of the bus. Their national production stats then counted that as two trucks and one bus produced.

They had production accounting, but not cost accounting -- and reviews of national statistics "after the fall" found the Soviet economy may have been operating on a "net value destroyed" basis ... especially when considering their awesome destruction of natural resources.

BTW, for any who didn't follow my "Trabant" link...

"Designed as a three-wheeled motorcycle, the decision to build a four-wheeled car came late in the planning process"

... is no joke, and it became the national car of East Germany. I rode in them back then. The natives called it, "riding inside the washing machine.".

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