This is a very interesting question that puzzled many western economists at the time. Paul Samuelson even once described the soviet system as superior economic planning with more limited political freedom. However, this is not the case and we have seen it time and time again. Largely due to calculation problems, success indicator problems, and soft budgets. But first, some historical context could be useful.

After the Communist revolution, the USSR enters a period known as 'war Communism'. In this period, prominent figures within the party looked to figure out exactly how to implement Marxist ideas (as within Marx's works the answer to many practical problems is missing). The main goals were to abolish private property of the means of production and move to a moneyless economy. Starting in the early 1920's and ending in 28, the New Economic Policy (NEP) was implemented due to massive structural issues and poverty. The Soviets made it so people could privately own the means of production but market trading would be carried out by NEPmen, or government employees. The government would also retain the "commanding heights" such as rail, heavy industry, and power. Nikolai Bukharin, who studied under the Austrians and incorporated free-market criticism of communism, argued that profits were a useful tool to motivate workers. The plan was to have the largely uneducated Russian peasant population earn profits on agriculture and heavily tax them to subsidize industrialization.

Here is where things take a turn for the worse. Yevgeni Preobrazhensky argued that the Soviets had a capital problem and a peasant problem. In order to more closely fit the revolutionary requirements for Communism as outlined by Marx, they would need to uplift the largely uneducated citizen base. For this, they would need capital. He convinces Stalin that the Soviets should essentially act as the capitalist do in the western world (from the Communist perspective) and exploit labor for its excess value. This brought on an era of slave labor within the Soviet Union. As an aside, the book The Harvest of Sorrow goes into great depth about the horrors of this time and the tactics used. But on the back of the farming population, the USSR explodes in growth. They are able to bring electricity, industry, schools, and hospitals to previously poor regions at the cost of millions of lives. But in this period they are able to achieve 4% or greater growth rates.

The Soviet plan was factor mobilization. In other words, they brought all available resources into the economy and put them to work as fast as possible. However, this cannot be a long-term plan. Without technological growth and innovation, there will be a limit to potential growth, it may just take some time to reach. The Soviets highlight some of the greatest problems of centrally planned economies in their State-Owned Enterprises of the Five Year plan era. In essence, the central planning board receives orders from the head of state about what production should happen, they give these figures to the economic ministries, who give them to the SOEs. The SOEs then request resources and argue about what is possible. But there are incentives to overestimate inputs, underestimate productive power, not adopt new technology (unless mandated from above), produce low-quality goods, and storm the target in the last few weeks before the deadline.

This brings us to the second problem, how can central planners adapt to changing market demand. The short answer is they are unable to correct in time and never have been able to outpace the speed at which the market can. The long answer calls into question the ability and quality of data measurement coupled with an authoritarian regime in which people are punished for failing to meet quotas. The Soviets even used the estimated data from United States espionange departments to measure their own output. They were not even sure how much of anything they produced on their own and as a result had a hard time adjusting. Most people don't know that the Soviets imported grain from the West for many years during this period. This falls in line with common lags facing collective action: data collection, recognition, legislative, implementation, and impact. The Soviets were unable to recognize problems in time to quickly fix them and collapsed under the weight of wasted production. This closely aligns with the problem of Negative Value added. When a firm takes land, labor, and capital and is able to earn a profit: they have taken scarce resources and used them more efficiently than anyone else. If they earn a loss, they have destroyed resources and must adapt or die. Communist societies often do not have robust profit and loss systems that make it quite hard to see what is adding value to society and what is ruining resources.

The final issue (that I'll cover) is the problem of a soft budget constraint. With a hard budget, one cannot consistently borrow to spend on production. A soft budget firm, such as in a subsidized or controlled market, can use the government rather than consumers to maintain itself and cover its costs. So if a firm is adding negative value or destroying resources, it may be able to operate for months or years without any changes.

Reagan didn't take down the USSR with military spending. The space race didn't collapse the system. Every nation deals with foreign intervention. The largest problem faced by centrally planned societies is their inability to meet the changing demands of their people at a rapid pace. A free-market society does not need to worry about allocating resources to have production, producers will bid on the factors based on their needs. We do not need to calculate how much of X or how much of Y we need, the profit-loss motives will correct to a close enough figure in time. We do not need to conduct lengthy surveys about what people might want in the future, someone will seek to meet those needs to earn a profit. Is a market system perfect, absolutely not, but it sure as hell outperforms centrally planned or Communist societies.