The Soviet government, in accordance with the principles of state socialism, owned and controlled all industry in the country. The economy was managed by Gosplan, a central planning agency that set levels of production, wages, and prices. For Soviet ideologues, Gosplan would replace the free market, maximizing efficiency in production and allowing for the more equitable distribution of goods and services. To accomplish this task, Gosplan utilized a system of material balances.
The soft budget constraints that socialist state-owned enterprises used to enjoy turned out to be one of the main reasons why Soviet-bloc economies failed.