Monday, 27 June 2016

Socialist Countries

In socialist countries the method of raising the purchasing power of the masses, and thereby rapidly expanding the economy and consequently abolishing unemployment, was broadly this :

1. Prices of commodities were fixed by the government.
2. These prices were reduced by 5-10% every 2 years or so
3. This resulted in steadily increasing the purchasing power of the masses, because with the same income people could buy more goods. In other words, the real income of the masses went up even if nominally it remained the same ( since real wage is relative to the price index ).
4. Simultaneously, production was stepped up, and this increased production could be sold in the domestic market, as the purchasing power of people was steadily rising.
5. This led to rapid expansion of the economy, leading to creation of millions of jobs and thereby abolition of unemployment.
During the Great Depression which hit the Western economies in 1929 ( it continued till the breakout of the Second World War in 1939 ) when about one third or more people in Western countries were unemployed and factories were shutting down, the Soviet economy was rapidly expanding and unemployed abolished by following the above methodology.
 Of course this was only possible in a socialist economy, where the problem was solved by state action.
 I am not saying that we must necessarily follow the method adopted by socialist countries. We can adopt any other method if thereby we can raise the purchasing power of the Indian masses and thereby rapidly expand the Indian economy, which is the only way of abolishing unemployment in India.. The central point, and therefore the main problem before India, is how to raise the purchasing power of the masses ? Do we follow the method of socialist countries, or some other method ? 

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