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Soviet Union


In the Soviet Union of the 1980s, the basic economic task of allocating scarce resources to competing objectives was accomplished primarily through a centrally directed planning apparatus rather than through the interplay of market forces. During the decades following the Bolshevik Revolution and especially under Stalin, a complex system of planning and control had developed, in which the state managed virtually all production activity. In the mid- and late 1980s, however, economic reforms sponsored by Gorbachev were introducing significant changes in the traditional system.

Planning Process

Economic planning, according to Marxist-Leninist doctrine, was a form of economic management by the state, indispensable both during the transition from capitalism to socialism (see Glossary) and in a socialist society. Soviet economic theorists maintained that planning was based on a profound knowledge and application of objective socialist economic laws and that it was independent of the personal will and desires of individuals. The most general of these laws, commonly referred to as the basic law of socialism, defined the aim of economic production as the fullest satisfaction of the constantly rising material and cultural requirements of the population, using advanced technology to achieve continued growth and improvement of production. Centralized planning was presented by its proponents as the conscious application of economic laws to benefit the people through effective use of all natural resources and productive forces.

The regime established production targets and prices and allocated resources, codifying these decisions in a comprehensive plan or set of plans. Using CPSU directives concerning major economic goals, planning authorities formulated short-term and long-term plans for meeting specific targets in virtually all spheres of economic activity. These production plans were supplemented by comprehensive plans for the supply of materials, equipment, labor, and finances to the producing sector; for the procurement of agricultural products by the government; and for the distribution of food and manufactured products to the population. Economic plans had the force of law. Traditionally, they had been worked out down to the level of the individual economic enterprise, where they were reflected in a set of output goals and performance indicators that management was expected to maintain.

Operationally, short-range planning was the most important aspect of the planning process for production and resource allocation. Annual plans underlay the basic operation of the system. They covered one calendar year and encompassed the entire economy. Targets were set at the central level for the overall rate of growth of the economy, the volume and structure of the domestic product, the use of raw materials and labor and their distribution by sector and region, and the volume and structure of exports and imports. Annual plans were broken down into quarterly and monthly plans, which served as commands and blueprints for the day-to-day operation of industrial and other economic enterprises and organizations.

The five-year plan provided continuity and direction by integrating the yearly plans into a longer time frame. Although the five-year plan was duly enacted into law, it contained a series of guidelines rather than a set of direct orders. Periods covered by the five-year plans coincided with those covered by the party congresses (see Party Congress , ch. 7; table 30, Appendix A). At each congress, the party leadership presented the targets for the next five-year plan. Thus each plan had the approval of the most authoritative body of the country's leading political institution.

Long-term planning covered fifteen years or more. It delineated principal directions of economic development and specified the way the economy could meet the desired goals.

As in other areas of leadership, so in economic policy matters it was the Central Committee of the CPSU and, more specifically, its Politburo that set basic guidelines for planning (see Central Committee; Politburo , ch. 7). The planning apparatus of the government was headed by the Council of Ministers and, under it, the State Planning Committee (Gosudarstvennyi planovyi komitet-- Gosplan). This agency, made up of a large number of councils, commissions, governmental officials, and specialists, was assisted by the State Committee for Statistics (Gosudarstvennyi komitet po statistikoi--Goskomstat). It took plans developed by the city councils, republic legislatures, and regional conferences and incorporated them into a master plan for the nation. It also supervised the operation of all the plans. Gosplan combined the broad economic goals set forth by the Council of Ministers with data supplied by lower administrative levels regarding the current state of the economy in order to work out, through trial and error, a set of control figures. The plan stipulated the major aspects of economic activity in each economic sector and in each republic or region of the country. Gosplan was also responsible for ensuring a correct balance among the different branches of the economy, speeding the growth of the national income, and raising the level of efficiency in production.

The method used by Gosplan to achieve internally consistent plans, both in a sectoral and in a regional context, was called the system of material balances. No clear exposition of this method had been published. The system essentially consisted of preparing balance sheets in which available material, labor, and financial resources were listed as assets and plan requirements as liabilities. The task of planners was to balance resources and requirements to ensure that the necessary inputs were provided for the planned output. To reduce this task to manageable proportions, central authorities specified detailed output goals, investment projects, and supply plans for only key branches of the economy. The rest of the plan was developed only to the extent needed to ensure achievement of the main goals.

Among operational organizations participating in the planning process, a major role belonged to the State Committee for Material and Technical Supply. This agency shared with Gosplan the controls over the allocation of essential materials and equipment. Other operational agencies included the State Committee for Construction, which played an important part in industrial investment planning and housing construction; the State Committee for Labor and Social Problems; and the State Committee for Science and Technology, which prepared proposals for the introduction of new technology. Finally, the Academy of Sciences (see Glossary) helped to develop a scientific basis for optimal planning and accounting methods.

When the control figures had been established by Gosplan, economic ministries drafted plans within their jurisdictions and directed the planning by subordinate enterprises. The control figures were sent in disaggregated form downward through the planning hierarchy to production and industrial associations (various groupings of related enterprises) or the territorial production complex (see Glossary) for progressively more detailed elaboration. Individual enterprises at the base of the planning pyramid were called upon to develop the most detailed plans covering all aspects of their operations. In agriculture, individual collective farms and state farms worked under the supervision of local party committees. The role of the farms in planning, however, was more circumscribed.

At this point, as the individual enterprise formulated its detailed draft production plans, the flow of information was reversed. Rank-and-file workers as well as managers could participate in the planning process on the enterprise level; according to Soviet reports, approximately 110 million citizens took part in discussions of the draft guidelines for the 1986-90 period and long-term planning for the 1986-2000 period. The draft plans of the enterprises were sent back up through the planning hierarchy for review, adjustment, and integration. This process entailed intensive bargaining, with top authorities pressing for maximum and, at times, unrealizable targets and enterprises seeking assignments that they could reasonably expect to fulfill or even overfulfill. Ultimate review and revision of the draft plans by Gosplan and approval of a final all-union plan by the Council of Ministers, the CPSU, and the Supreme Soviet were followed by another downward flow of information, this time with amended and approved plans containing specific targets for each economic entity to the level of the enterprise.

A parallel system for planning existed in each union republic and each autonomous republic (see Glossary). The state planning committees in the union republics were subject to the jurisdiction of both the councils of ministers in the union republics and Gosplan. They drafted plans for all enterprises under the jurisdiction of the union republics and recommended plans for enterprises subordinated to union-republic ministries (see Glossary) and located on their territory. The regional system also included planning agencies created for several major economic regions, which were responsible either to Gosplan or to a state planning committee in a union republic.

Autonomous republics had planning systems similar to those of union republics. Advocates of the centrally planned economy (CPE) argued that it had four important advantages. First, the regime could harness the economy to serve its political and economic objectives. Satisfaction of consumer demand, for example, could be limited in favor of greater investment in basic industry or channeled into desired patterns, e.g., reliance on public transportation rather than on private automobiles. Centralized management could take into account long-term needs for development and disregard consumer desires for items that it considered frivolous. With a centralized system, it was possible to implement programs for the common good, such as pollution controls, construction of industrial infrastructure, and preservation of parkland. Second, in theory CPEs could make continuous, optimal use of all available resources, both human and material. Neither unemployment nor idle plant capacity would exist beyond minimal levels, and the economy would develop in a stable manner, unimpeded by inflation or recession. Industry would benefit from economies of scale and avoid duplication of capacity. Third, CPEs could serve social rather than individual ends; under such a system, the leadership could distribute rewards, whether wages or perquisites, according to the social value of the service performed, not according to the vagaries of supply and demand on an open market. Finally, proponents argued that abolition of most forms of property income, coupled with public ownership of the means of production, promoted work attitudes that enhanced team effort and conscientious attention to tasks at hand; laborers could feel that they were working for their own benefit and would not need strict disciplinary supervision.

Critics of CPEs identified several characteristic problems. First, because economic processes were so complex, the plan had to be a simplification of reality. Individuals and producing units could be given directives or targets, but in executing the plan they might select courses of action that conflicted with the overall interests of society as determined by the planners. Such courses of action might include, for example, ignoring quality standards, producing an improper product mix, or using resources wastefully.

Second, critics contended that CPEs had built-in obstacles to innovation and efficiency in production. No appropriate mechanism existed to ensure the prompt, effective transfer of new technical advances to actual practice in enterprises. Managers of producing units, frequently having limited discretionary authority, saw as their first priority a strict fulfillment of the plan targets rather than the application of the insights gained through research and development or the diversification of products. Plant managers might be reluctant to shut down their production lines for modernization because the attendant delays could jeopardize the fulfillment of targets.

Third, CPEs were said to lack a system of appropriate incentives to encourage higher productivity by managers and workers. Future mandatory targets were frequently based on past performance. Planners often established targets for the next plan period by adding a certain percentage to the achieved output while reducing authorized inputs to force greater productivity (sometimes called the "ratchet" system by Western analysts). The ratchet system discouraged enterprises from revealing their full potential. Managers actually might be reluctant to report exceptional levels of output.

Fourth, the system of allocating goods and services in CPEs was inefficient. Most of the total mix of products was distributed according to the plan, with the aid of the system of material balances. But because no one could predict perfectly the actual needs of each production unit, some units received too many goods and others too few. The managers with surpluses, either in materials or in human resources, were hesitant to admit they had them, for CPEs were typically "taut." Managers preferred to hoard whatever they had and then to make informal trades for materials they needed. The scarcity of supplies resulting from a taut economy and the unpredictability of their availability were persistent problems for enterprises, forcing them to adopt erratic work schedules such as "storming." This was a phenomenon whereby many enterprises fulfilled a major portion of their monthly plan through frenzied activity during the final third of the month, by which time they had mustered the necessary supplies. The uncertainty of supply was also responsible for a general tendency among industrial ministries to become self-sufficient by developing their own internal supply bases and to give priority to the needs of enterprises under their own jurisdiction over the requirements, even though more urgent, of enterprises in other ministries (a practice sometimes referred to as "departmentalism").

Finally, detractors argued that in CPEs prices did not reflect the value of available resources, goods, or services. In market economies, prices, which are based on cost and utility considerations, permit the determination of value, even if imperfectly. In CPEs, prices were determined administratively, and the criteria the government used to establish them sometimes bore little relation to costs. The influence of consumers was weak (the exception being the Ministry of Defense, which was in a position to make explicit demands of its suppliers). Prices often varied significantly from the actual social or economic value of the products for which they had been set and were not a valid basis for comparing the relative value of two or more products. The system's almost total insulation from foreign trade competition exacerbated this problem (see Development of the State Monopoly on Foreign Trade , ch. 15).

Data as of May 1989

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