How did a 20th century Marxist-Leninist (ML) economy work? If you’re here, thats probably on your mind. You’ve probably got the memes in your back pocket all ready: they didn’t get as far as the West. Of course, this ignores that ML countries started decades, even centuries, behind the West in terms of industrial development. All Third World countries started off much the same in this regard, and all shared basic elements in their approach to development. To gauge the ways they succeeded and failed then requires contextualizing each with each other. We’ll look at four paradigmatic cases here: the USSR and China, South Korea, and India.
Say cost of living in your country is set at 500 coin - that is, this is enough money to get food and sundry items from the store (housing and medicine are covered, but we'll get there), with enough left over for some creature comfort (ie not living right on the poverty line).
Some things the socialist country will import - let's say 10% of the budget. Let's set that aside for now.
You, the planning commission, allocate 130m coins to industry X, 100m to industry Y, and so on. Further, say you plan for 180,000 workers in industry X. That means industry X will pay out an annual wage of 90m coins. There's 10m left over.
This 10m is some slush money. In a perfectly planned economy, you could just go on from there.
There's a planning problem though - if you don't produce enough from industry Y, the black market price of its output will increase relative to the official price. If it's something like food, that could mean your workers won't be eating as much as you want. Or if sector V is input for sector U, and sector V isnt able to meet plan targets, that will impact production down the chain. Or if there are supply chain problems (the trains are overworked and can't transport everything where it needs to be in a timely fashion).
So you don't want to over-plan: you set some slush funds aside for food imports, machine imports, and technical experts.
What do you do if there's an issue? You send more workers to help with the shortfall. Need more such-and-such trades worker? More budget to the teaching department, more teachers (perhaps pulling workers with the correct expertise). Since the cost of expanding or contracting an industry is an expression of the annual wage of the workforce, well, that's how you address dealing with shortfalls and gluts.
In capitalism, the motive for investment in a sector is profit potential. In socialism, the motive is social need.
The big limiting factors historically are (A) not enough machinery in your country (so it takes awhile to industrialize, or costly to import), (B) local food production being insufficient (although this is a problem faced by most all third world countries in the 20th century; which i can get into if ppl want), and (C) industrialization means movement from farm to factory (which any industrialization entails), but that means less food output.
Turns out, these were limiting factors faced by nearly every third world country. Often food imports became a necessity, but if you bought from America, that meant using up precious USD that you wanted to use on machine imports.
If you do something like India, where you try to do state industrialization on top of an agrarian market system, you run into a problem (this isn't "socialism", but what is called dirigisme - almost every govt at the time was doing it, especially the Tigers, w varying degrees of ambition). Instead of owning everything (and thus being able to set the price of all goods), you have to raise funds by (A) taxing landlords and (B) dealing w them nudging food prices upwards (or just hoarding food). Combined w enterprising industrialists who want to import machinery for their own purposes, this could mean difficulty with both food prices, and getting enough machinery to initialize your industrialization, as well as get functioning supply chains operational.
The really basic problem here is it's expensive to pay for your industrial labor force (bc food prices are high, and the profits being made are accruing to a landlord class that you aren't able to tax - landlords are a powerful force if left to themselves). Thus you often can't meet planned budgets (not getting the tax) and raises labor costs (food). And thus you have even less money lying around to import the machinery you need (with a slightly less concerning problem that your country's USD is flowing out by industrialist imports). There's a lot going on here, but really the core issue is the landlords are making labor costs high, and are weakening your tax revenue (this is a big reason many non-Communist countries even went for land reform).
The Tigers had a really special recipe - let's look at South Korea. In Korea, north Korean forces had actually conducted the land reform in the first wave of invasion, which was quite popular w the peasants. The South Korean govt didn't reverse this - instead they institutionalized it, ultimately Park Chung Hee turned this into the "cooperative" system (another example of this was in Nasser's Egypt). This allowed South Korea control over the agricultural sector, allowing them to set artificially lower prices for food - and thus keeping necessary labor costs down. (Iirc, Chiang Kai Shek also imposed a kind of land reform in Taiwan, but Taiwan was quite different).
South Korea got a 2nd perk - the USA. The US wanted to bolster this "containment fortress", so the US gave South Korea special trading privileges. This basically opened the US domestic market to South Korea, and meant that Korean industrialists could produce for a large profitable market. Low wages in Korean agriculture, and new job opportunities in industrial "parks" would then lead to a large movement of workers from farm to factory, where they would work horrendously long hours in company dorm-factory complexes (the "parks"), 12-16h not being unusual (busy seasons could even see all nighters). This industry was privately owned, but South Korean five year plans - along w close connection w the industrialists - meant the govt could set industrial policy by the way they set the financial structure in their five year plans (ie making investment in certain industries more attractive). This was the basis of South Koreas industrial era in 1960s-1980s.
Korea would also face huge domestic shortfalls in agrarian output (cause so many had left the farm), which they compensated by imports w their rich chest of USD. Because the Tigers were exporting to the US, they in return got lots of USD, and thus avoiding a lot of the currency issues which kept other third world countries in an industrializing catch 22.
Note that the Tigers (and Germany) (hence Kia, Toyota, Volkswagens in USA... But no Renault) had a special geopolitical role as "containment fortresses", so the US gave them special access to their domestic market. Most countries didn't have this, so they couldn't turn to export oriented industrialization, but instead "import substitution industrialization" (ISI) (trying to have all the industry in your country necessary to supply a domestic market). The problem is, these third world countries (South Korea included) were poor. They weren't big meaty markets (we run back into the old problem: the money seems to be sinking into the landlords). So industrialization was much patchier. Even South Korea pursued ISI in the 1950s - not until US trade privileges opened up was export-oriented industrialization feasible.
Our socialist countries, on the other hand, didn't have these issues so much. With the landlord class broken, the corresponding social cost (embodied in money) could be directed elsewhere, more rationally. This didn't just mean industrialization - it meant access to education, food, medicine, and a basic logistics framework (see the Sen-Dreze comparison).
The USSR fell behind largely because they were over-invested in military production (which, among other things, ate even into the public health budget). When the Soviet Union dissolved, it's often noted that the machinery was obsolete compared to the West. More problematically is the logistic network the USSR had developed was busted by dissolution: no longer could cotton output in Uzbek SSR be transferred to a textile mill in another SSR. Now they were whole different countries, w privately owned mills that had to all coordinate. Further, a lot of the machinery was being scrapped and sold at fire sale prices.
In China, reform wasnt accompanied by a breakdown in the political economy. Hence the modernization efforts could be re-oriented towards the liberalized SEZs. Liberalization meant many things here, but a big one was the inflow of Western capital and technology, which could be accommodated.
Something like this couldn't work in India though (as is evident today), and that's bc they hadn't broken from the agrarian pattern. No significant steps towards land reform, except to address some extreme cases in the 1950s, had been undertaken. As a result, there wasn't an industrial infrastructure to welcome Western capital when they "liberalized" in the 1990s. What liberalization did do is reduce the export-import controls intended for industrialization. That's nice for some industrialists, but isn't sufficient for an industrial take off.
Why does anyone want to industrialize anyways? Can't they just specialize in primary goods exports? This is the optimum enshrined by so-called 'comparative advantage'. Yet there’s a problem: a lot more labor goes into machinery than a harvest, so if you're exporting primary goods and importing finished goods, you're always going to have currency difficulties. To boot, in India, because it's difficult to find employment in the city (relatively speaking), lots of people ended up going back to doing caste labor (many Indian castes are associated w a specific job, ie street cleaners, barbers, etc). This ofc reinforces casteism (see Mody).
One way you could go about this is land reform - abolishing the landlord relationship that keeps the masses in the countryside subordinated. You still have the basic currency problem though, and an employment problem (we’ll get to these). Further, you might not be well-liked by the industrial countries, like the USSR in the interwar period. Soviet leadership originally hoped that there would be revolution in Europe, and thus they could be the breadbasket and not worry about industry. Ideally, Europe here would provide finished goods to the USSR not by labor cost, but as reciprocal exchange. But Europe didn't have the revolution after WWI, and the USSR had to figure something else out).
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