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Introducing the Market in a Shortage Economy: The Vertical Integration Issue

Published online by Cambridge University Press:  17 August 2016

Gérard Roland
Gérard Roland*
Affiliation:
Université Libre de Bruxelles
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Summary

It is well known that in the traditional Soviet-type economies, there is a spontaneous tendency of enterprise and ministries to integrate vertically, as a response to the supply uncertainty typical of a chronic shortage economy.

The main purpose of the paper is to analyze the link between the vertical integration issue and economic reform. It is argued that, in an institutional context with fixed prices, when there is shortage of inputs, enterprises consuming these inputs will generally not be able to agree on a rationing scheme, in the absence of vertical integration. This decisional vacuum entails the functional necessity of a central planner who will decide on the rationing scheme. It is shown that this result may help to highlight some of the key theoretical and empirical issues of economic reform. One of its main implications is that, in an economy where vertical integration is weak, the abolition of imperative planning can hardly be successful if shortages are not suppressed at the same time. On the other hand, it is much easier to abolish imperative planning if the economy is highly vertically integrated but, because vertical integration destroys the competitive nature of markets, the main goals of economic reform cannot be fulfilled unless additional structural changes are introduced in order to create a competitive environment.

Résumé

Résumé

Depuis toujours, les économies de type soviétique connaissent une tendance spontanée à l'intégration verticale, en réponse à l'incertitude de l'approvisionnement dans une économie de pénuries chroniques.

Ce texte examine le lien entre intégration verticale et réforme. On montre que, dans un contexte institutionnel à prix fixes et pénurie d'inputs, en l'absence d'intégration verticale, les entreprises consommant ces inputs n'arriveront pas à se mettre d'accord sur un schéma de rationnement. Ce vide décisionnel implique la nécessité d'un planificateur central qui décide du schéma de rationnement. Ce résultat permet d'éclairer certaines des questions essentielles de la réforme économique. Une des implications principales est que, dans une économie faiblement verticalement intégrée, il est impossible de supprimer la planification impérative sans supprimer simultanément les pénuries. D'un autre côté, il est beaucoup plus facile d'abolir la planification impérative si l'économie est verticalement intégrée. Cependant, comme l'intégration verticale supprime la nature compétitive des marchés, les objectifs principaux de la réforme ne peuvent être réalisés si des changements de structures ne sont pas introduits afin de créer un environnement compétitif.

Keywords

052053610052053610
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 56 , Issue 2: Economic Change in the East , 1990 , pp. 221 - 238
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1990 

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Footnotes

*

I would like to thank Mathias Dewatripont, Francoise Forges, Janos Kornai, Peter Mihalyi, Khalid Sekkat, Ariane Szafarz and Jean Waelbroeck for their helpful remarks and suggestions.

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