Although it is much maligned in the West, communism was successful at modernizing the Soviet Union. It did not work as well as free market capitalism, but it did more to better the lives of the average person than the rule of the tsars had done. Nevertheless, the Soviet Union and the rest of the countries in the Soviet Bloc illustrated the problems associated with trying to plan an economy and why those problems are so hard to overcome.
In Western countries, it is the market that controls the economy and determines how resources and labor are allocated. If there is a sudden demand for a new product, producers will rush to reallocate their resources to meet that demand. In contrast, every aspect of an economy requires a decision by the central government in a planned economy. In theory, this is no problem. After all, central planning is no different from what the management of big corporations must do on a daily basis. The key difference is the frequency with which those decisions can be made.
When you have to manage not just the production of one product or even a whole industry of products, but you have to manage the production of all products in all industries, the task can become overwhelming. It is not impossible, because you can make estimates about how many of each type of product you need to make, but you can never know for sure what products people will want and which they will not. Even big companies make mistakes in the way they allocate resources all the time. They can react more quickly, however. When you have to coordinate a whole economy, the smallest change might disrupt other parts of your plan.
For example, if you discover that you need to produce more bicycles, you will need to obtain more materials for them and more labor. If you disregard the plan you have already established for production, you will run out of materials and labor for cars and military vehicles. Each country has a finite amount of materials and it has to plan how to use those resources. We make those decisions with price in the West, but Soviet countries made those decisions at a central office in Moscow. Thus, every economic decision came down to rationing resources in the Soviet Union.
You can make changes in a planned economy, but you have to do it after you finish your current plan. Therefore, demand may lag behind production by several years. At the same time, the bigger the economy gets, the more complicated the decision making process becomes. Eventually, it simply becomes too complicated for human beings to be able to process all the massive amounts of data required to plan an entire economy. Computers would make this process easier, but the communists were right to be worried about computers. They are a means whereby anyone cannot only obtain potentially dangerous information, but they can print it out and spread that information around to their fellows. While the Soviets did try to use some computers in their planning, they did not embrace them to the extent that the West did because they were seen as dangerous to the communist governments.
Without computers, decision became too complicated for human beings. Decisions were postponed which led to bottlenecks. These bottlenecks eventually destroyed the communist economies. If a factory must order a part from the central government and wait six months before it gets it, the factory will be shut down for six months. At the same time, other factories may rely on parts produced by that shut down factory, so they may have to shut down too. All the while, you still have to pay your workers even though they are not producing anything. Obviously, this is a recipe for disaster.
