The economy of the Mongolian People's Republic (Mongolia; MPR) was a command economy, modeled after the Soviet Union, based on the principles of Marxism-Leninism. Unlike the economies of other Eastern Bloc countries, Mongolia's economy had never undergone a capitalist period before its socialist phase. Thereby, an entirely new path of "non-capitalist way of development" had been implemented in the MPR and the Central Asian Soviet Republics.
The economy of Mongolia was highly dependent on the Soviet Union in the wake of the Sino-Soviet split and Mongolia forming close ties to the Soviet Union. In the 1980s, 80% of Mongolia's trade was with the Soviet Union (15% was with other countries of Comecon), and in the late 1970s, more than 10% of Mongolia's GNP was soviet aid. The MPR depended upon the Soviet Union for fuel, medicine, and spare parts for its factories and power plants. The USSR served as the primary market for Mongolian industry. In the 1980s, Mongolia's industrial sector became increasingly important. By 1989, it accounted for an estimated 34% of material products, compared to 18% from agriculture. However, minerals, animals, and animal-derived products still constituted a large proportion of the country's exports. Principal imports included machinery, petroleum, cloth, and building materials.
The political changes of the late 1980s and the democratic revolution in 1990 marked the beginning of Mongolia's efforts to transition to a market economy; however, these efforts have been complicated and disrupted by the dissolution and subsequent deterioration of the Soviet economy.
Background Following the collapse of the Mongol Empire, Mongolia was largely incorporated into Qing China under a feudal system. The Mongolian upper class paid taxes to the Qing emperor, although the Buddhist monasteries and temples, as well as their lamas, did not pay taxes. These temples were centres of education and health care, although the majority of economic activity was in the form of nomadic herding. Mongolia, which has roughly 2% arable land, had little crop cultivation.
Although trade was typically in the form of a physical medium (sheep or bricks of tea), by the mid-1800s, foreign currency, such as silver taels, had begun to circulate. Mongol nobles also issued limited numbers of banknotes for use within their own territories.
On the eve of the People's Revolution of 1921, Mongolia had an underdeveloped, stagnant economy based on nomadic animal husbandry. Farming and industry were almost nonexistent; transportation and communications were primitive; banking, services, and trade were almost exclusively in the hands of Chinese or other foreigners. Most of the people were illiterate nomadic herders, and a large part of the male labour force lived in the monasteries, contributing little to the economy. Property in the form of livestock was owned primarily by aristocrats and monasteries; ownership of the remaining sectors of the economy was dominated by the Chinese or other foreigners.
Between 1900 and 1920, both taxation and interest rates rose significantly. Individuals outside of monasteries owed a great deal to temples to cover their debts, with loans carrying interest rates of 40 to 60%.
Periods 1921–1939 Mongolia's economic development under communist control can be divided into three periods: 1921–1939; 1940–1960; and 1961 to the present. During the first period, which the Mongolian government called the stage of "general democratic transformation," the economy remained primarily agrarian and underdeveloped. After an abortive attempt to collectivize herders, livestock remained in private hands. The state began to develop industry based on the processing of animal husbandry products and crop raising on state farms. Transportation, communications, domestic and foreign trade, and banking and finance were nationalized with Soviet assistance; they were placed under the control of the Mongolian state and cooperative organizations or Mongolian-Soviet joint-stock companies. Ulaanbaatar became the nation's industrial center.
1940–1960 During the second period, called the "construction of the foundations of socialism," agriculture was collectivized, and industry was diversified into mining, timber processing, and consumer goods production. Central planning of the economy began in 1931 with an abortive five-year plan and with annual plans in 1941; five-year plans began anew with the First Five-Year Plan (1948–52). Soviet aid increased, allowing the construction of the Trans-Mongolian Railway (the Ulaanbaatar Railroad), and various industrial projects. Although industrial development was still concentrated in Ulaanbaatar, economic decentralization began with the completion of the Ulaanbaatar Railway and the establishment of food processing plants in Aimag centers.
1960–1992
The third stage, which the government called the "completion of the construction of the material and technical basis of socialism," saw further industrialization and agricultural growth, aided largely by Mongolia's joining the Council for Mutual Economic Assistance (Comecon) in 1962. After the Sino-Soviet split, Chinese aid ceased, but continued with Soviet and Eastern European financial and technical assistance in the forms of credits, advisers, and joint ventures, enabling Mongolia to modernize and to diversify industry, particularly in the mining sector. New industrial centers were built in Baganuur, Choibalsan, Darkhan, and Erdenet, and industrial output rose significantly. Although animal husbandry was stagnant, crop production increased dramatically with the development of virgin lands by state farms. Foreign trade with Comecon nations grew substantially. Transportation and communications systems were improved, linking population and industrial centers and extending to more remote rural areas. By the late 1980s, Mongolia had developed into an agricultural-industrial economy, due to the efficiencies of a centrally planned and managed economy and communist foreign aid. Yet, Mongolian leaders decided to undertake a reform program modeled after the example of perestroika in the Soviet Union.
Role of the government
In the late 1980s, Mongolia had a planned economy based on socialist ownership of the means of production. According to the Constitution of the Mongolian People's Republic, socialist ownership has two forms: state ownership (of land and natural resources, economic facilities and infrastructure; and the property of all state organizations, enterprises, and institutions) and cooperative ownership (property of agricultural associations and other types of cooperatives). Private ownership was negligible in all sectors of the economy, except animal husbandry, but economic reforms adopted since 1986 gave greater leeway for individual and cooperative enterprises.
The economy was directed by a single state national economic plan, which, when confirmed by the legislature, the People's Great Khural, had the force of law. In accordance with the plan, the state annually drew up a state budget, which was confirmed and published in the form of a law. The Council of Ministers constitutionally was charged with planning the national economy; implementing the national economic plan and the state and local budgets; directing financial and credit policy; exercising a foreign trade monopoly; establishing and directing the activities of ministries and other state institutions concerned with economic construction; defending socialist production; and strengthening socialist ownership.
In December 1987 and January 1988, the top-level state economic organizations under the Council of Ministers were reorganized. The State Planning and Economic Committee was formed out of the former State Planning Commission, the State Labor and Social Welfare Committee, the State Prices and Standards Committee, and the Central Statistical Board. New economic entities were the Ministry of Agriculture and Food Industry; the Ministry of Environmental Protection; the Ministry of Foreign Economic Relations and Supply; the Ministry of Light Industry; and the Ministry of Power, Mining Industry, and Geology. Unaffected by the reorganization were the Ministry of Social Economy and Services, the Ministry of Communications, the Ministry of Finance, the Ministry of Transport, the State Construction Committee, and the State Bank of the Mongolian People's Republic. Local government organizations—the executive committees of khurals—implemented economic plans and budgets, directed economic construction, and supervised the work of economic and cooperative organizations at their level.
Planning
Planning in the Mongolian People's Republic had an inauspicious start with the Five-Year Plan for 1931–35, which set unrealistically high targets for production and called for the collectivization of agricultural production. This plan was abandoned in 1932 in the face of widespread resistance to collectivization and the failure to meet production goals. Annual planning was introduced in 1941 in an effort to deal with wartime shortages during the Second World War. Five-year plans were reintroduced in 1948 with the First Plan. The Second Five-Year Plan (1953–57) was followed by the Three-Year Plan (1958–60). Regular five-year plans were resumed with the Third Five-Year Plan (1961–65), and they continued to be used afterward.
In the late 1980s, economic planning in Mongolia included long-term, five-year, and annual plans that operated on multiple levels. Planning originated with the sole legal Mongolian People's Revolutionary Party, which produced the guidelines for economic and social development for the five-year period corresponding to the party's congress. Based on these guidelines, the Standing Commission on Economic-Budget Affairs of the People's Great Khural drafted the five-year national and annual economic plans, which were approved by the legislature and became law. The Council of Ministers directed and implemented national planning through the State Planning and Economic Committee and through the Ministry of Finance. Planning for different sectors of the economy was conducted by relevant ministries and state committees; local plans were drawn up by local governmental organizations.
Mongolia's five-year plans were coordinated with those of the Soviet Union beginning in 1961 and with Comecon multilateral five-year plans beginning in 1976. Annual plan coordination with the Soviet Union, which was made official in signed protocols, began in 1971. Mongolian planners were trained by Soviet planners and cooperated with them in drafting long-term plans, such as the General Scheme for the Development and Location of the Mongolian People's Republic Productive Forces up to 1990, produced in the late 1970s; and the Longterm Program for the Development of Economic, Scientific, and Technical Cooperation Between the Mongolian People' Republic and the USSR for the Period up to 2000, signed in 1985.
National economic plans included general development goals as well as specific targets and quotas for agriculture, capital construction and investment, domestic and foreign trade, industry, labor resources and wages, retail sales and services, telecommunications, and transportation. The plans also focused on such social development goals and targets as improved living standards, population increase, cultural development, and scientific and technical development.
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