Answer to Question #81591 in Macroeconomics for francisco encinia

Question

A true market economy would allow its citizens to buy from the company that sells the good at the lowest price, regardless of where that company is located. How would a communist country deal with the problem of its consumers demanding foreign imports? Does this result in a better situation for the consumers than a scenario with free trade based on comparative advantage, why or why not?

Answer 1

To meet the population’s demand for imported goods, the government of the communist state would take the following steps. First, they tried to establish their own production of substitute goods in their own country (for example, instead of Coca-Cola in the USSR, it was Baikal, and the Italian car FIAT became the ancestor of Soviet VAZ cars). Secondly, the import of goods from the countries of the "enemy camp" is replaced by similar goods from the "friendly camp" countries. In both cases, there are both positive and negative points. Positive: closed communist economics mastering new types of production allows you to save jobs and TM the most to maintain the level of well-being. In addition, self-sufficiency (autarky) is increasing, which is one of the necessary ideological and socio-economic conditions for the existence of the communist system. From the negative aspects, we can highlight the fact that imaginary self-sufficiency will be achieved to the detriment of the efficiency of production organization and inadequate satisfaction of consumer needs.
In addition, self-sufficiency (autarky), which is one of the necessary ideological and socio-economic conditions for the existence of the communist system, is increasing. Among the negative aspects, we can highlight the fact that imaginary self-sufficiency will be achieved to the detriment of the efficiency of production organization and inadequate satisfaction of consumer needs. Here we explain in more detail. The theory of comparative advantage is based on the value of a commodity (the labor time required to produce a unit of one commodity, expressed in terms of the labor time required to produce a unit of another commodity). In this model, there are important limitations - foreign trade should be carried out on the principle of "laissez-faire" and the cost of labor must be the same, which is not possible in a communist state. Since the communist states, as history has shown, are characterized by more labor-intensive industries with low productivity, which makes their consumer goods uncompetitive with goods produced in a market economy. Consequently, it is also logically justified that there is a conclusion that the theory of comparative advantage for the communist countries is inapplicable, since this will adversely affect their entire economy (there will be a contradiction in the line of economics-ideology). The fall of the Soviet Union showed just what the ill-conceived policy in the sphere of consumer goods led to. When goods poured from the capitalist West actually displaced Soviet consumer goods (clothes, food, hygiene products, photo and video products, and TV-products, as well as cars and household appliances) from the domestic market. Quite different is the situation in communist China, the absolute and comparative advantage in all spheres is proclaimed as a state policy. That allows him to successfully compete with the global hegemon of the United States and the EU But this is another story