A sharp divide between basic, subsidized, no-frills good and services and other ones didn’t work in the socialist German Democratic Republic (long story, reply if you need it).
I’m no economist, but as a former citizen of that former country, this is what I could see.
There was a divide of basic goods and services and luxury ones. Basic ones would get subsidies and be sold pretty much at cost, luxury ones would get taxed extra to finance those subsidies.
The (practically entirely state-owned) industries that provided the basic type of goods and services were making very little profit and had no real incentive to improve their products, except to produce them cheaper and more numerously. Nobody was doing comparison shopping on those, after all. (Products from imperalist countries were expected to be better in every way, but that would often be explained away by capitalist exploitation, not seen as evidence homemade ones could be better.) So for example, the country’s standard (and almost only) car did not see significant improvements for decades, although the manufacturer had many ideas for new models. The old model had been defined as sufficient, so to improve it was considered wasteful and all such plans were rejected by the economy planners.
The basic goods were of course popular, and due to their low price, demand was frequently not met. People would chance upon a shop that happened to have gotten a shipment of something rare and stand in line for hours to buy as much of that thing as they would be permitted to buy, to trade later. In the case of the (Trabant) car, you could register to buy one at a seriously discounted price if you went via an ever-growing waiting list that, near the end, might have you wait for more than 15 years. Of course many who got a car this way sold it afterwards, and pocketed a premium the buyer paid for not waiting.
Arguably more importantly, money was a lot better at getting you basic goods than luxury ones. So people tended to use money mostly for basic goods and services, and would naturally compare a luxury buy’s value with those. When you can buy a (luxury) color TV at ten times the price of a (basic) black-and-white TV, it feels like you’d pay nine basic TVs for adding color to the one you use. Empirically, people often simply saved their money and thus kept it out of circulation.
Housing was a mess, too. Any rent was decreed to have to be very small. So there was no profit in renting out apartments, which again created a shortage of supply. (Private landownership was considered bourgeouis and thus not subsidized.) It got so bad many young couples decided to have child as early as possible, because that’d help them in the application to receive a flat of their own, and move out from their parents. And of course most buildings fell into disrepair—after all, there was no incentive to invest in providing higher quality for renters. This demonstrates again that to be making a basic good or service meant you’d always have demand, but that demand wouldn’t benefit you much.
The production of luxury goods went better, partly because these were often exported for hard currency. The GDR had some industries that were fairly skilled at stealing capitalist innovations and producing products that had them, for sale at fairly competitive prices. Artificially low prices and subsidies for certain goods and products made pretty sure most of domestic consumption never benefitted from that skill.
I’d be interested in hearing about this.
I’m no economist, but as a former citizen of that former country, this is what I could see.
There was a divide of basic goods and services and luxury ones. Basic ones would get subsidies and be sold pretty much at cost, luxury ones would get taxed extra to finance those subsidies.
The (practically entirely state-owned) industries that provided the basic type of goods and services were making very little profit and had no real incentive to improve their products, except to produce them cheaper and more numerously. Nobody was doing comparison shopping on those, after all. (Products from imperalist countries were expected to be better in every way, but that would often be explained away by capitalist exploitation, not seen as evidence homemade ones could be better.) So for example, the country’s standard (and almost only) car did not see significant improvements for decades, although the manufacturer had many ideas for new models. The old model had been defined as sufficient, so to improve it was considered wasteful and all such plans were rejected by the economy planners.
The basic goods were of course popular, and due to their low price, demand was frequently not met. People would chance upon a shop that happened to have gotten a shipment of something rare and stand in line for hours to buy as much of that thing as they would be permitted to buy, to trade later. In the case of the (Trabant) car, you could register to buy one at a seriously discounted price if you went via an ever-growing waiting list that, near the end, might have you wait for more than 15 years. Of course many who got a car this way sold it afterwards, and pocketed a premium the buyer paid for not waiting.
Arguably more importantly, money was a lot better at getting you basic goods than luxury ones. So people tended to use money mostly for basic goods and services, and would naturally compare a luxury buy’s value with those. When you can buy a (luxury) color TV at ten times the price of a (basic) black-and-white TV, it feels like you’d pay nine basic TVs for adding color to the one you use. Empirically, people often simply saved their money and thus kept it out of circulation.
Housing was a mess, too. Any rent was decreed to have to be very small. So there was no profit in renting out apartments, which again created a shortage of supply. (Private landownership was considered bourgeouis and thus not subsidized.) It got so bad many young couples decided to have child as early as possible, because that’d help them in the application to receive a flat of their own, and move out from their parents. And of course most buildings fell into disrepair—after all, there was no incentive to invest in providing higher quality for renters. This demonstrates again that to be making a basic good or service meant you’d always have demand, but that demand wouldn’t benefit you much.
The production of luxury goods went better, partly because these were often exported for hard currency. The GDR had some industries that were fairly skilled at stealing capitalist innovations and producing products that had them, for sale at fairly competitive prices. Artificially low prices and subsidies for certain goods and products made pretty sure most of domestic consumption never benefitted from that skill.
Start by googling
"hard currency shop".