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BACKGROUND
"The Soviet Union is engulfed in a crisis. One of its manifestations is the breakdown of retail distribution"[1]. Although this statement was made prior to the disintegration of the Soviet Union into sovereign republics, it is no less true for the Russian economy today. In January 1992, prices on all but the most basic of commodities were lifted by most of the commonwealth republics, causing prices of all available goods to double, triple or quadruple. Currently, this initiative is causing great unrest among the citizens who must scramble continually to find the necessities of life. The current political and economic situation will serve as a catalyst to change the production and distribution of goods.
Several factors have contributed to the breakdown of the retail distribution network. The former Soviet Union operated as a centrally planned economy under which the Communist Party of the Soviet Union (CPSU) devised economic policy including resource allocation and production of goods. Rather than market forces determining production quantities and assortments, under this system, GOSPLAN (State Planning Committee) dictated this and what resources would be made available to the various ministries to produce goods. One goal of central planning was to achieve a balance between goods and services offered to the consumers and the demand for these goods. Demand for goods under the centrally planned economy was measured by the personal disposable income of consumers rather than consumer preferences[2].
Central planning contributed to the persistent and pervasive shortages of consumer products. According to Gregory and Stuart[2, p. 179]:
Over time the consumer sector has tended to be neglected for the sake of achieving balances, so much so that it has at times been called the "buffer" sector to the Soviet economy.
This system failed to match demand for products with supply because it limited competition and innovation. Under the command system, there were no incentives for individual enterprises to be more productive. Production fell short of demand because raw materials were funnelled to illegal distribution channels through theft or illegal barter trade. Additionally, military production took precedence over consumer goods production in planning for allocation of raw materials and labour. It has been estimated that in the late 1980s 15 per cent of the Soviet GNP was spent on defence[3].