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On one of the problems of our economic doctrine

8 June 2021

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Anuar Buranbayev

CRC Partner

Another problem of our country's economic doctrine is the fundamental contradiction between the market economy that we declare to achieve and the "rational distribution of productive forces" policy that we actually pursue, that is brought by the management whose upbringing was dominated by the Marxist-Leninist ideology.
 F. Engels was the first to formulate this idea in his work "Anti-Dühring": "Only a society that is able to establish a harmonious combination of its productive forces according to a single general plan can allow industry to be located throughout the country in the most convenient way for its development and preservation, as well as for the development of other elements of production. In the plainest form, the basic economic laws governing the rational distribution of productive forces under socialism were formulated by Lenin in the Outline of a Plan for Scientific and Technical Work. Lenin emphasized that in the future it is necessary to provide for "... a rational distribution of industry in Russia from the point of view of the proximity of raw materials and the possibility of the least loss of labor during the transition from processing raw materials to all successive stages of processing semi-finished products, up to obtaining a finished product."
Instead of accepting the idea that free market allocation produced the most efficient result, command system management believed that they knew better where to place industrial plants. As a result, we observe different outcomes for real-life cases. An error in market allocation will lead to losses and curtailment of production by the entrepreneur. This completes the resource investment, with the losses recognized and written off. In contrast to this, in the command system, if some sort of errors arise, none of the bureaucrats will take the risk of closing the incorrectly placed plant. In this case, investments will continue to flow into the facility, losses will grow, and as a result, overall inefficiency will grow.
So far, the public authorities seem not to understand that free market is better than command system in terms of optimal resource and production force allocation. As a consequence, we still see decrees for the executive branch to create anchor projects in single-industry towns, inability to accept that sustainable development projects cannot be accomplished in many targeted settlements. The most prominent example of this is the city of Zhanaozen.

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