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Soviet Union

Reforming the Planning System

Soviet economists and planners have long been aware of the alleged strengths and weaknesses of the centralized planning system. Numerous changes in the structure, scope of responsibilities, and authority of the various planning and administrative organizations have been made over the years. Nevertheless, the fundamental planning process remained virtually unchanged after the inception of full-scale central planning in 1928 until the late 1980s, when some radical changes were discussed.

In the decades that followed its introduction, the planning process became increasingly complex and detailed. Planners specified not only quantitative production of goods but also their cost, how they would be distributed, and what resources in labor, materials, and energy they would require. The complexity of the apparatus administering the plans also increased. Ministries (called people's commissariats until 1946) proliferated, reaching fifty by 1957 and reflecting the increasing variety of industrial production. By 1982 the number of ministries, state committees, and other important committees at the all-union level approached 100. Planning had become immensely complex; in the 1980s planners had to contend with more than 20 million types, varieties, and sizes of products, which were produced by 45,000 industrial, 60,000 agricultural, and 33,000 construction enterprises.

Western analysts have viewed reform attempts of Soviet leaders prior to the late 1980s as mere tinkering. From 1957 to 1965, however, a radical change was made, when Nikita S. Khrushchev sponsored a shift from the predominantly sectoral approach to a regional system (see The Khrushchev Era , ch. 2). The reform abolished most industrial ministries and transferred planning and administrative authority to about 100 newly created regional economic councils. The regime hoped to end unsatisfactory coordination among the industrial ministries and ineffective regional planning. Khrushchev apparently hoped to end the traditional concentration of administrative power in Moscow, reduce departmentalism, and make more efficient use of specific economic resources of the various regions. Other changes under Khrushchev included extension of the usual five-year cycle to seven years, from 1959 to 1965, which was subsequently reduced to five years. When the regional system proved to be even less effective than the organizational structure it had replaced, and the weaknesses of the ministerial system reappeared in a regional context, Khrushchev sponsored an additional series of minor changes. But in 1965, after when Leonid I. Brezhnev and Aleksei N. Kosygin had replaced Khrushchev as head of party and head of government, respectively, the regime abolished the regional economic councils and reinstituted the industrial ministerial system, although with greater participation of regional bodies in the planning process, at least in theory.

Several reforms of the mid- and late 1960s represented efforts to decentralize decision-making processes, transferring some authority from central planning authorities and ministries to lower-level entities and enterprises. A series of minor reforms in 1965 modified the incentive system by shifting emphasis from gross output to sales and profits, a reform associated with the name of the eminent economist Evsei Liberman. The reforms attempted to provide a more precise measure of labor and materials productivity. They also granted enterprise managers slightly greater latitude in making operating decisions by reducing the number of plan indicators assigned by higher authorities. In addition, the reforms introduced charges for interest and rent. Attention focused particularly on experiments with khozraschet (see Glossary), which, the late 1980s, required enterprises to cover many expenses from their own revenues, thereby encouraging efficient use of resources. In the agricultural sector, state farms and collective farms received greater latitude in organizing their work activities and in establishing subsidiary industrial enterprises such as canning and food processing, timber and textile production, production of building materials, and actual construction projects.

In practice, the amount of decentralization involved in the reforms of the mid-1960s was minimal. For a variety of reasons, including uneasiness about the unrest associated with reforms in Czechoslovakia in 1967 and 1968, planning officials judged the reforms to be failures. By the early 1970s, efforts at further reforms had ceased, although the government never repealed the new regulations. As the only noteworthy, lasting change, the government began to use measures of net output rather than gross output as a success indicator for enterprises.

During the last years of Brezhnev's rule, the leadership remained relatively complacent about the system despite the economy's slowing growth rates. Increases in world oil and gold prices contributed to this attitude because they enhanced hard-currency (see Glossary) purchasing power in the early 1970s and made it possible to import increasing amounts of Western technology.

In response to the stagnation of the late Brezhnev era, a new reform attempt began under Iurii V. Andropov, who succeeded Brezhnev as general secretary in 1982. On an experimental basis, the government gave a number of enterprises greater flexibility in the use of their profits either for investment purposes or for worker incentives. The experiment was formally expanded to include all of the industrial sector on January 1, 1987, although by that time its limited nature and modest prospects for success had been widely recognized.

In the meantime, however, Gorbachev, a leading proponent of both these reforms and more extensive changes, was making his influence felt, first as adviser on economic policy under Andropov and his successor, Konstantin U. Chernenko, and then as general secretary beginning in 1985. Some of Gorbachev's early initiatives involved mere reorganization, similar to previous reform efforts. For example, from 1985 to 1987 seven industrial complexes--organs that were responsible directly to the Council of Ministers and that monitored groups of related activities--were established: agro- industrial, chemicals and timber, construction, fuel and energy, machine building, light industry, and metallurgy (see The Complexes and the Ministries , ch. 12). The ministries remained reluctant to undertake more extensive reforms that would reduce their centralized power and give greater initiative to lower-level economic units. But the conviction was growing that the centralized planning mechanism needed major changes and that simply fine-tuning the economy with minor reforms would not be sufficient.

At Gorbachev's urging, on June 30, 1987, the Supreme Soviet approved a set of measures contained in the Basic Provisions for Fundamentally Reorganizing Economic Management. The Supreme Soviet subsequently adopted an additional ten decrees, as well as the Law on State Enterprises (Associations). Taken as a whole, the actions of the Supreme Soviet signaled a substantial change in the system of centralized planning, with significant amounts of authority devolving upon middle and lower levels of the administrative hierarchy. Gorbachev named the economic restructuring program perestroika (see Glossary).

The Basic Provisions clearly stated that the economy would continue to function as "a unified national economic complex," carrying out the policies of the party. The regime obviously intended to retain great influence in the management and development of enterprises. The new measures also called for a redefinition and curtailment of the role of Gosplan. Beginning in 1991, Gosplan would no longer draw up annual plans. It would continue to develop five- and fifteen-year plans, specify state orders (involving about 25 percent of total output), and determine material balances for products considered to be critically important to the economy and national defense. Gosplan's development of "non-binding control figures" would suggest overall output, profit targets, and various indicators of technical and social progress. Long-term norms would regulate ongoing development, such as total wage payments and payments to various state-sponsored funds, for example, bonus funds, resources for social services, and research and development resources. Once enterprises had filled the designated state orders, however, they would have considerable freedom in deciding what to produce with the remainder of their resources and how to dispose of the products.

The new Law on State Enterprises (Associations) called for khozraschet. By the end of 1989, all enterprises in the economy were to make the transition to self-financing ( samofin-ansirovanie--see Glossary), taking full responsibility for the financial outcome of their actions. The state budget would pay only for major investment projects. A principal criterion for judging enterprise and management performance would be the fulfillment of contracts. Enterprises would be free to reduce the size of their work force or to dismiss workers for poor performance. The law also provided for the bankruptcy and dissolution of enterprises that consistently operated at a loss. Their workers would receive severance pay and assistance in job placement from the state. In addition, the law called for the election of management personnel in enterprises, subject to approval by the next-higher authority. Finally, the law called for the election of labor councils to resolve matters of pay, discipline, training, and use of incentive funds. Only one-fourth of the membership could represent the interests of management, and the councils' decisions would be binding on the entire work force of the enterprise.

The reforms attempted to decentralize distribution. The law enabled enterprises to deal with the suppliers of their choice, either producers or wholesale outlets. Rationing would continue for only the scarcest producer goods, less than 4 percent of total industrial output in 1988. For the remainder, producers would be free to sell directly to users. Finally, the law permitted some enterprises to engage in foreign trade directly, on their own account, and to retain some of the foreign currency gains.

Data as of May 1989

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