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Soviet economic reforms : 1950-1970 ; an examination and assessment of the economic reforms undertaken… Tha, David Lawrence 1972

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SOVIET ECONOMIC REFORMS: An  E x a m i n a t i o n and A s s e s s m e n t Undertaken  i n the Soviet Agriculture  19 50-19 70  o f the Economic Union  Reforms  i n Industry,  and T r a d e :  1950-1970 by DAVID LAWRENCE THA B. Comm., U n i v e r s i t y  of British  Columbia,  1970  A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS MASTER  FOR THE DEGREE OF  OF BUSINESS ADMINISTRATION in  the Faculty of  Commerce We  and B u s i n e s s  accept this  required  thesis  Administration  as c o n f o r m i n g t o t h e  standard  THE UNIVERSITY OF B R I T I S H COLUMBIA April,  1972  In p r e s e n t i n g  t h i s t h e s i s i n p a r t i a l f u l f i l m e n t of the requirements f o r  an advanced degree at the U n i v e r s i t y of B r i t i s h Columbia, I agree t h a t the  L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e  and  study.  I f u r t h e r agree t h a t p e r m i s s i o n f o r e x t e n s i v e copying of t h i s t h e s i s f o r s c h o l a r l y purposes may by h i s r e p r e s e n t a t i v e s .  be granted by  the Head of my  I t i s understood t h a t copying or  of t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l not be written  Business  The U n i v e r s i t y o f B r i t i s h Columbia Vancouver 8, Canada  April  13th,  1972.  publication  allowed without  permission.  Department o f Commerce and  Date  Department or  Administration.  my  ABSTRACT  The tions  made i n t h e  Union,  since  trade. they the  purpose of  the  These  Soviet  by  the  of  their  original  and  by  bination trols, tives  the  results.  relative resources,  activity  economic p l a n  to d i r e c t the of  the  c a r r i e d out  material  incentives  c e n t r a l l y defined trade,  d i r e c t i v e e f f e c t s of  I will  targets the  i n forming dominance during  a  examine the  'coherent'  in determining  the  prices  Stalinist  the  economic  macro-  through  the  period,  to  encourage  or  goals.  com-  financial  con-  material about the  then  incendesired  these  s y s t e m , and  will  the  the  a l l o c a t i o n of and  a com-  financial  i n t e g r a t i o n of  guidance  formu-  mechanics of  and  i n v a r i e d ways t o b r i n g first  in  a l l o c a t i o n mechanics  c e n t r a l i z e d d i r e c t i v e s , p h y s i c a l and  were i n t e g r a t e d  variables  Stalinist  imperative  a g r i c u l t u r e , and  because  s y s t e m were somewhat d i f f e r e n t i a t e d i n t h a t  of  and  the  and  forms o f a l l o c a t i o n .  l e v e l was  a system of of  industry,  allocation  agriculture,  c e n t r a l i z e d p h y s i c a l d i r e c t i v e s and  fulfillment  Within  micro  The  Soviet  have u n d e r g o n e  implementation  system of  controls,  sectors  the  a t the  i n the  productive  apparatus  economic p l a n plex  an  of  central planning nation.  modifica-  economy have b e e n c h o s e n  because these  changes o f  examine t h e  in industry,  predominant p o r t i o n  crux of  the  processes  end  the  i s to  allocation utilized  Stalin,  quantitative planning:  lated  the  of  U n i o n , and  The was  death of  the  most s i g n i f i c a n t  study  mechanics of  sectors  comprise  this  their  the  nation's  consider  the  m o d i f i c a t i o n s made i n t h e i r  present  first  concentrates  on  financial  economic  planning and  thus  two  these the  order and  the  and  the  refers  role  incentives.  up  to  the  industry.  Soviet  The  and  the  background  financial  annual  industry.  information  and  to the  a general  with  an  and  procedures  used  Similarly,  prices,  the  and  the  allocative  centralized The a similar farms, but  i n t e g r a t i o n of  the  the  role  a whole.  The  relative  in  and  places  and  the  of  level  in  currency  chapter  c o n t r o l s at the  con-  of micro  m a t e r i a l i n c e n t i v e scheme i n  deals with  format  adherence to  agriculture.  f o r both  collective  collective  f o r two  agricultural  these  the  controls.  e m p h a s i s on  of outputs,  in  relationship  dominance  system to encourage b e h a v i o u r a l  investigative  plot  of the  directives  second chapter  distribution 'private'  comprehension of  investigation  directives  as  industry is intensively investigated  S o v i e t economy as  financial  macro  more  d i s c u s s i o n i s e x p a n d e d t o a more e n c o m p a s s i n g  to give  planning  consumer goods i n d u s t r y  planning  planning  indus-  micro-  i s g e n e r a l l y a p p l i c a b l e to the  a g r i c u l t u r e and  It  production-supply  to heavy  s e c t o r s of economic a c t i v i t y . of  the  of p r i c e s ;  specifically  v a r i a b l e s t o heavy  physical level,  planning  provides  p r i c e s i n the  cludes  parts of  formulation of  d i s c u s s i o n s of the  discussions  but  component  deals with  the  procedure  i n both  abbreviated  of  three  study  system:  described  However, t h i s  latter  of t h i s  t a r g e t s , c o n t r o l s and  procedure  well,  chapter  the  allocation  plans;  importance  time. The  trial  relative  reasons:  activities  It  follows  and  state  farm p r o d u c t i o n , collective  provide  the  farm  bulk  of  and and the  iv nutritional and  the  to that  requirements of both the  guidance used The  system used  i n the third  d o m e s t i c and  procedure  sector  deals  foreign trade.  macro p l a n n i n g  for state  industrial  chapter  with  With  and  controls  from those used i n the cussion the  on  and  finance  the  their the in  of  The  final  chapter  successes  t o the  alter  to  microeconomic are  r o l e s of  The and  long-run  p r i c e system.  targets  distinguished The  dis-  f o r e i g n trade national  in  economic to  commodities. the  paper assesses  i n the  to  1965  the  the  original  economic s e c t o r s  analyzed,  the  made i n  to the  modifications present  general  reforms  efficiency  benefits  to maximize the  the  network  means u t i l i z e d  time.  reforms  increased  p r i c e v a r i a b l e s , and  the  both  trade,  of  at the  the  bureaucracy  of  utilization  the  the  role  material  However, t h e  Soviet  level. are  d e c i s i o n making  economic processes of  and  incentives,  microeconomic  Efficient  of  of  p o s t - S t a l i n reforms  anticipated. execution  Many  undertaken  fundamental c h a r a c t e r i s t i c s of  than o r i g i n a l l y  a rational  It discusses  administrative-economic  increase  t h a t would o p t i m i z e as  any  similar  discussed.  o f p r o d u c e r goods. the  systems  made p r i o r  financial  attempt  of  i s very  distribution  industry  shortcomings of  guidance  systems.  However, t h e  a way  the  the  populace;  to domestic  methods and  mechanics  and  pertained  smaller  traded  allocation  allocation  an  i n the  flows  modifications  selected  details  the  thus d i d not  in  reforms  respective  1965  trade.  economy, i t s i n t e g r a t i o n i n t o t h e the  Stalinist and  allocation  foreign trade  Soviet  plan,  for light  urban  already  i s described,  consumer goods i s d e t a i l e d , and  and  farming  regard  for  formulated  rural  resources essence of  i n such  necessitates the  Soviet  V allocation through  mechanics  is still  quantitative  centralized administrative  planning,  controls.  implemented  vi  TABLE OF CONTENTS  ABSTRACT TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES GLOSSARY ACKNOWLEDGEMENT  CHAPTER I .  '  '  ,  Pag i i vi viii  INDUSTRY  The F o r m u l a t i o n o f A n n u a l P r o d u c t i o n - S u p p l y P l a n s . F i n a n c i a l P l a n n i n g and t h e R o l e and F o r m u l a t i o n o f P r i c e s i n t h e S o v i e t Economy M i c r o e c o n o m i c P l a n n i n g : T a r g e t s , I n c e n t i v e s , and Controls CHAPTER I I . AGRICULTURE P r o d u c t i o n - S u p p l y P l a n n i n g and M i c r o C o n t r o l s i n Agriculture Agricultural Prices I n c e n t i v e s a t t h e Farm L e v e l CHAPTER I I I .  x  i x i i x  1 1 14 37 60 60 71 79  TRADE  91  R e t a i l Trade F o r e i g n Trade  91 106  CHAPTER IV.  EVALUATION OF THE ECONOMIC REFORMS UNDERTAKEN IN INDUSTRY, AGRICULTURE AND TRADE, 19 50 1970  Industry Agriculture Trade C o n s l u s i o n : The Problem o f C e n t r a l P l a n n i n g and the market BIBLIOGRAPHY OF SOURCES CONSULTED  119 119 14 5 16 7 179 184  vii Page APPENDIX I Outline Plans  196. of the Schedules and B u d g e t s  for Preparing  Annual 196.  vii i  LIST OF TABLES Table I.  Page D i s t r i b u t i o n o f Bank Loans O u t s t a n d i n g ,  as o f  J a n u a r y 1 , 1956  20 .  II.  I n t e r e s t Rates on V a r i o u s Types o f Bank Loans  III.  Outline of the Consolidated F i n a n c i a l Plan of the U.S.S.R P l a n f o r t h e C o n s o l i d a t e d Budget o f t h e U.S.S.R., 1968  IV. V.  Major Plan Indices Assigned  VII.  Premiums f o r P l a n t Management  V I I I . C e n t r a l l y Targeted Post-1965  t o Firms  Enterprise Indices,  39. 40. Introduced  •  IX.  A c c e p t a n c e Methods Employed  X.  I n d i c e s o f S e l e c t e d S o v i e t A g r i c u l t u r a l Procurement Prices I n d i c e s o f S o v i e t S t a t e R e t a i l P r i c e s and C o l l e c t i v e Farm Market P r i c e s f o r S e l e c t e d Y e a r s , 1958-1964 P e r c e n t a g e Share o f T o t a l R e t a i l S a l e s by t h e Three Main Trade Networks f o r S e l e c t e d Y e a r s , 1950-1965  X I I I . C o m p o s i t i o n o f I n d u s t r i a l W h o l e s a l e P r i c e s , 1964... XIV.  XV.  XVI.  25. 35.  VI.  XII.  23.  Average P r i c e Change by Branch o f I n d u s t r y , 1963 Price Revision  XI.  20.  44. 52. 75. 96. 98. 133.  R a t i o s o f Average P r i c e t o Average C o s t s o f S e l e c t e d A g r i c u l t u r a l Commodities i n 1960, 1963, and 1966  157.  R e l a t i v e Shares o f S t a t e Farms, C o l l e c t i v e Farms and P r i v a t e P l o t s i n t h e T o t a l A g r i c u l t u r a l Output o f S e l e c t e d Commodities i n 1965  162.  R e t a i l S a l e s and I n v e n t o r i e s o f S o f t Goods f o r S e l e c t e d Y e a r s , 1950-1966  170.  ix Table XVII.  Page P e r s o n a l D i s p o s a b l e Money A c c o u n t s , 1960-1967  Income and S a v i n g s 172.  X  L I S T OF  FIGURES  Figure 1.  Page Schematic  Distribution  of Enterprise  Profits  47.  GLOSSARY Fondy  Authorizations  Glavk  A main a d m i n i s t r a t i o n  Gosbank  State  Gosplan  State planning  Gosstroy  State  Hectare  A measure o f a r e a acres).  IBEC  I n t e r n a t i o n a l Bank f o r E c o n o m i c C o o p e r a t i o n .  Khozraschet  "Economic' (or b u s i n e s s ) a c c o u n t i n g , p r o f i t - a n d loss accounting.  Kolkhoz  Collective  farm.  Kolkhoznik  Collective  farm  Krai  A t e r r i t o r y , i n t h e same s e n s e a s , f o r t h e Yukon T e r r i t o r y .  MTS  Motor  Oblast  Province.  Raion  District  RSFSR  Russian Soviet  Sovkhoz  State  Sovnarkhoz  R e g i o n a l economic  Stroibank  Investment  Torg  Wholesale of r e t a i l  Trust  An a d m i n i s t r a t i v e a g e n c y i n c h a r g e o f a number o f production units. Used h e r e t o d e n o t e a d m i n i s t r a t i v e agencies i n charge o f s t a t e farms.  Zaiavka  Application  f o r funded  commodities.  of a  ministry.  bank. commission.  construction  Tractor  commission. (equals  approximately  2.47  worker. example,  Station.  (sub-unit of  oblast).  Federative  Socialist  Republic.  farm. council.  bank. t r a d i n g agency outlets.  form  i n c h a r g e o f a number  f o r an a l l o c a t i o n  certificate  xii  ACKNOWLEDGMENT  I  should  supervisor Economics  like  Professor  t o express Hans  and Slavonic  curiosity  through  h i sstimulating  supervise  the  Faculty I  Dr.  Harry  nary  draft  my  i n the Soviet  thesis,  o f Commerce  am a l s o Purdy  Ronimois  Studies.  initial  to  even  and format  final  manuscript.  were  economy  my ago accepted  he i s n o t c o n n e c t e d  with  Administration.  through  Winiata and  a handwritten  constructive  a considerable  years  graciously  t o Dr. Whatarangi  Their  thesis  aroused  several  but also  and Business  thesis.  t o my  o f t h e Departments o f  though  f o rs t r u g g l i n g  style  gratitude  He n o t o n l y  lectures,  indebted  of this  my  prelimi-  criticisms of  a i di n completing the  1  CHAPTER I INDUSTRY The of  the  f o l l o w i n g chapter  industrial  tion-supply tion  of  allocation  plans;  financial  p r i c e s ; and  centives.  The  integrated  system of  The  during  trace  the  anics  up  the  the  Formulation  The  initial  leaders and  of  projected  i n the  stems  allocative  desired  ity  areas within  growth r a t e s  of  are  i n the  an  investigated.  allocative  construction of  Party.  Basing  the  in and  mech-  industry  and  (Gosplan).  construction of  and  Plans  the  national  directives issued their the  decisions  economy,  fundamental p r i o r i t i e s  formulated.  sectors,  income between c o n s u m p t i o n  f o r the  be  to S t a l i n ' s death,  year-end performance of  the  Commission  in-  system u t i l i z e d  f r o m a number o f  Communist  n a t i o n a l economic p l a n  bases  mechanics w i l l  of Annual Production-Supply  the  Planning  formula-  these v a r i a b l e s i n p r o v i d i n g  political-economic goals,  these  r o l e and  produc-  time.  point  the  their  the  of  parts  m i c r o e c o n o m i c t a r g e t s , c o n t r o l s and  present  by  past  and  e a r l y 1950's, p r i o r  plan  the  planning  e l u c i d a t e the  production-supply the  formulation  allocation  The  component  the  changes t h a t have t a k e n p l a c e to  three  system:  r e l a t i o n s h i p of  discussion w i l l  industry  the  examines the  and the  Directives  investment  are  sent  to  of  of  prior-  national  the  These d i r e c t i v e s p r o v i d e a skeletal  and  regarding  a g r i c u l t u r e , the distribution  on  State the  n a t i o n a l economic  plan.  2  The and  foundation  of t h i s s k e l e t a l p l a n i s a. s e t of s o u r c e  a l l o c a t i o n t a b l e s known as m a t e r i a l b a l a n c e s .  Material  b a l a n c e s are c o m p i l e d from an a n a l y s i s o f h i g h l y a g g r e g a t e d d a t a on p a s t i n p u t norms and o u t p u t c a p a c i t i e s , p l u s a n t i c i p a t e d input-output planned year.  f i g u r e s o f new  c a p a c i t y t o be i n s t a l l e d d u r i n g  the  W i t h t h e s e d a t a , m a t e r i a l b a l a n c e s are drawn up  f o r b r o a d groups o f c r i t i c a l m a t e r i a l s and equipment. j e c t i v e i s t o equate s u p p l y  and  demand ex a n t e .  The  I n the  ob-  balancing  p r o c e s s p r i m a r y c o n s i d e r a t i o n i s g i v e n t o the d e s i r e d o u t p u t of p r i o r i t y s e c t o r s o f the economy, then t o t h e i r s u p p l i e r s , and on.  C o n t r o l f i g u r e s f o r the major a d m i n i s t r a t i v e u n i t s are  c a l c u l a t e d from the m a t e r i a l b a l a n c e s . for t o t a l outputs, and  so  then  They s t i p u l a t e t a r g e t s  inputs, cost reductions, c a p i t a l investments,  l a b o u r p r o d u c t i v i t y , and must be approved by the C o u n c i l  of  M i n i s t e r s , U.S.S.R. Once a p p r o v a l disseminated up t o 1957  has been g i v e n , the c o n t r o l f i g u r e s  among the v a r i o u s m i n i s t r i e s . ' ' " P r e v i o u s a l l i n d u s t r i a l production  branch of i n d u s t r y p r i n c i p l e . s t r y was  ostensibly responsible  was  administered  are  t o 1950  and  under a  Under t h i s arrangement one  mini-  f o r the a d m i n i s t r a t i o n of a l l  the e n t e r p r i s e s c o n n e c t e d w i t h i t s p a r t i c u l a r b r a n c h , f o r examp l e , n o n - f e r r o u s m e t a l s , machine b u i l d i n g , e t c .  To  facilitate  the a d m i n i s t r a t i o n o f t h e s e w i d e - s p r e a d e n t e r p r i s e s , many m i n i s t r i e s had  intermediate  administrative organizations c a l l e d  g l a v k i , which i n turn administered  a group of e n t e r p r i s e s .  "'"The number of m i n i s t r i e s have v a r i e d around twentyf i v e , depending on the importance p l a c e d by government l e a d e r s on p a r t i c u l a r s e c t o r s of the economy.  When t h e r e s p e c t i v e  ministries received  the  various  were d i s a g g r e g a t e d  the  specific  Each g l a v k ing  targets  repeated  the process  usually  figures  of the ministry.  of disaggreation  control figures to i t s subordinate enterprise  control  a n d d i s t r i b u t e d among  g l a v k i under t h e j u r i s d i c a t i o n  then  The  their  i n assign  enterprises.  received  i t s control  figures  around t h e b e g i n n i n g  o f J u n e a n d was i n f o r m e d  at this  time o f  its  assignments and m a t e r i a l  inputs,  as w e l l  t e n t a t i v e output  as  cost  On  the basis  culate  reduction,  cost  with  p r o d u c t i v i t y , and wage f u n d  necessary reduction  t o achieve  this  possibilities.  d e t a i l e d orders  delivered  t o the glavk,  superiors  trol  f i g u r e s they had p r e v i o u s l y  regarding  their  tain  production  Past  experiences o f being  and  low i n p u t  and f i n a n c i a l  enterprises  in  practice of understating  bar-'  o f the con-  to deflate their  requirements that  absurdly  they high  i n order  deliveries of materials their  ordered, real  output t o ob-  can f u l f i l l . output  as r e c u r r i n g d i f f i c u l t i e s  timely  along  ( z a i a v k i ) , i s then  the f e a s i b i l i t y  targets  assigned  norms,"'" as w e l l  productivity  received.  input  taining this  inputs  i s common p r a c t i c e f o r f i r m s and i n f l a t e  labour  where t h e r e s p e c t i v e  with t h e i r  potentials  output,  cal-  quantities of  The above i n f o r m a t i o n ,  for material  gain  It  targets.  o f t h e c o n t r o l f i g u r e s , t h e e n t e r p r i s e would  i t s maximum o u t p u t p o t e n t i a l , s p e c i f i c  materials and  labour  have  targets i n ob-  resulted  p o t e n t i a l and s t o c k  ^Absurd c o n t r o l f i g u r e s r e s u l t from o v e r - o p t i m i s t i c e x p e c t a t i o n s and l e a d t o t h e c r e a t i o n o f t a u t p l a n s . When t h e c o n t r o l f i g u r e s a r e d i s t r i b u t e d , b o t h m i n i s t r i e s and g l a v k i i n f l a t e t h e i r r e a l assignments i n order t o o b t a i n a margin o f safety i n f u l f i l l i n g their control figures.  piling  inventories.  This  practice i s recognized  by t h e g l a v k i  administrations,  and when t h e z a i a v k i a r e p r e s e n t e d  their  enterprises,  tive in  respective bargaining.  i t s output  wage f u n d ,  The e n t e r p r i s e  target  and c o s t  this  bargaining  authority, issues  gregated  reduction that  glavk  the glavk,  targets, while  as t h e s u p e r i o r  the glavk  level  enterprises  where t h e b a r g a i n i n g  process  Once t h e s e  plan  relevant  inputs, tries to  to obtain.  organ, has f i n a l unresolved  ministries  over  Unresolved  discrepancies  Council  issues  have been  total  at this  outputs,  t o Gosplan,  U.S.S.R.  material research  control  of bargaining  U.S.S.R., f o r f i n a l  aggregate  figures  assigned.  are r e f e r r e d to decision.  t h e complex p r o c e s s  balances  Another  and t h e v a r i o u s  between t h e t e n t a t i v e  level  then begins  estimated material  regard  resolved,  o f market o u t p u t s ,  and t h e i n i t i a l  of Ministers,  Gosplan  and d e l i v e r e d t o t h e i r  ensues between G o s p l a n  f o r the m i n i s t r y  data are ag-  e c o n o m i c v a r i a b l e s , and d e l i v e r t h e  f o r the ministry  round o f b a r g a i n i n g  its  reduction  i s repeated with  issues  ministries calculate their  and o t h e r  aggregated  the  the glavk  t h e above p r e l i m i n a r y  r e q u i r e m e n t s , wage f u n d , c o s t / r u b l e  plan  a  i n i t s material  t h e f i r m has t h e r i g h t t o a p p e a l  assignments.  various  costs,  to justify  t h e f i r m has a t t e m p t e d  f o r the subordinate  ministries  the  attempts  a t the m i n i s t e r i a l l e v e l . At  to  while  ensues a p r o c e s s o f c o l l e c -  a n d / o r an i n c r e a s e  remove t h e p r o t e c t i o n In  there  t o them by  of revising  f o r f u n d e d commodities."''  In  Up t o 1959 c o m m o d i t i e s and m a t e r i a l s were c l a s s i f i e d into four categories. 1) F u n d e d c o m m o d i t i e s i n c l u d e d a l l i m p o r t a n t p r o d u c e r goods, f u e l s , and the major i n p u t s o f l i g h t industry. A l l funded m a t e r i a l s are i n c l u d e d i n the n a t i o n a l  5 1957,  G o s p l a n had  material related  simultaneously  balances."'" and  ances vary  i n one  balances.  the  close  balance The  the  of  the  are  methods u s e d input  inter-  changes  in  i n c l o s i n g the  norms o f  deficit  less scarce  deficit  individual  highly  cause v a r i o u s  s u b s t i t u t i o n of  production  some 1,050  i n d i v i d u a l balances  from r e d u c i n g  encouraging  increasing  The  changes  numerous o t h e r  or  to  materials,  materials,  good; t h e  bal-  latter  to  alter-  2 native  i s used  i f the  former ones  b a l a n c e s have b e e n o b t a i n e d , plan  i s drawn up  U.S.S.R., and  and  i n turn  Once t h e  plan  has  Gosplan d i s t r i b u t e s the and  authorizations  a d r a f t of  forwarded to the  fail.  to  the  Soviet  When the  national  Council  of  legislature  b e e n a p p r o v e d by  various  'consistent'  output  the  economic  Ministers, for  approval.  government,  targets, input  f o r funded commodities  (fondy)  to  norms, the  e c o n o m i c p l a n and a r e a l l o c a t e d by G o s p l a n . 2) C e n t r a l l y p l a n n e d c o m m o d i t i e s , i n c l u d e d l e s s c r i t i c a l goods and p r o d u c t s u s e d by a n a r r o w g r o u p o f c o n s u m e r s and were b a l a n c e d and a l l o c a t e d by p r o d u c i n g m i n i s t r i e s . I n 1957 t h e number o f s u c h goods r e a c h e d 5,000. 3) D e c e n t r a l l y p l a n n e d c o m m o d i t i e s , i n c l u d e d goods and m a t e r i a l s o f l e s s e r i m p o r t a n c e and were p l a n n e d by p r o d u c i n g m i n i s t r i e s o r l o c a l g o v e r n m e n t o r g a n s . 4) S e l f - p r o c u r e d goods and m a t e r i a l s , i n c l u d e d more a b u n d a n t m a t e r i a l s , f o r e x a m p l e , s a n d , r o c k s and some t y p e s o f l u m b e r ; f o r t h e s e m a t e r i a l s t h e f i r m i s r e s p o n s i b l e f o r i t s own procurement . "'"Eugene Z a l e s k i , P l a n n i n g 1962-1966, p.104.  Reforms  i n the  Soviet  Union:  2 I t i s b e l i e v e d t h a t i n c r e a s i n g t h e p r o d u c t i o n o f def i c i t m a t e r i a l s i s u s e d as a l a s t r e s o r t b e c a u s e o f t h e e f f e c t t h i s w i l l have on t h e b a l a n c e s o f t h e i n p u t s o f t h e d e f i c i t commodity and on t h e i n p u t s o f t h e s u p p l i e r s o f t h e i n p u t s o f t h e p r o d u c e r s o f t h e d e f i c i t commodity, and so on. Apparently when an i n c r e a s e i n t h e p r o d u c t i o n o f t h e d e f i c i t commodity i s u n a v o i d a b l e , o n l y c o n s p i c u o u s changes i n the a f f e c t e d b a l a n c e s are accounted f o r . (Herbert Levine, " C e n t r a l i z e d Planning of S u p p l y i n S o v i e t I n d u s t r y " , i n The S o v i e t Economy: A Book o f R e a d i n g s , ed. by M o r r i s B o r n s t e i n and D a n i e l F u s f e l d , pp.57-58.)  6  v a r i o u s m i n i s t r i e s i n accordance w i t h the approved p l a n . m i n i s t r i e s then d i s a g g r e g a t e  and  The  d i s t r i b u t e the above t a r g e t s  among t h e i r v a r i o u s g l a v k i , a l o n g w i t h g r o s s a l l o c a t i o n s o f fondy f o r c e n t r a l l y p l a n n e d m a t e r i a l s .  The  g l a v k i i n turn  dis-  aggregate and d i s t r i b u t e d e t a i l e d i n p u t and o u t p u t t a r g e t s  along  w i t h the n e c e s s a r y m a t e r i a l a u t h o r i z a t i o n s , i n g r o s s terms, t o their respective  enterprises.  When the e n t e r p r i s e r e c e i v e s i t s o u t p u t and  input  tar-  g e t s and m a t e r i a l a u t h o r i z a t i o n s , i t s p e c i f i e s the e x a c t r e q u i r e ments of the m a t e r i a l s d e s i r e d and back t o the g l a v k .  The  sends t h e s e s p e c i f i c a t i o n s  g l a v k i combine the v a r i o u s  t e r i a l s p e c i f i c a t i o n s of t h e i r e n t e r p r i s e s and combined o r d e r s  l i s t s of  forward these  t o the main a d m i n i s t r a t i o n o f s u p p l y  their respective ministries. send s p e c i f i e d o r d e r s  The  supply  ma-  attached  administrations  t o the s a l e s a d m i n i s t r a t i o n s o f the  to  i n turn appro-  p r i a t e p r o d u c i n g m i n i s t r y , who  i n turn assign s p e c i f i c orders  their respective enterprises.  At t h i s s t a g e f o r m a l  are s i g n e d between each f i r m and  i t s s u p p l i e r s , and  d a t e s , methods o f payment, and o t h e r specified. production  The and  contracts delivery  relevant considerations  are  c o n t r a c t u a l arrangements complete the p r o c e s s o f supply  planning;  a f t e r the c o n t r a c t u a l a r r a n g e -  ments are c o m p l e t e d , each e n t e r p r i s e f o r m u l a t e s  operational  d u c t i o n p l a n s w i t h monthly breakdowns f o r the f i r s t q u a r t e r one-half  to  o f the p l a n n e d  or  year.  Reforms i n a d m i n i s t r a t i o n and supply planning i n i n d u s t r y :  production1950-1970  A l l of the s i g n i f i c a n t r e f o r m s t h a t o c c u r r e d p e r i o d i n the p l a n n i n g  pro-  of p r o d u c t i o n - s u p p l y  and  during  this  administration  7 i n i n d u s t r y took p l a c e a f t e r 1956. o r g a n i z a t i o n of i n d u s t r y was g i o n a l economic c o u n c i l s  In May  d i s s o l v e d and  (sovnarkhozy).^  1957  the  ministerial  r e p l a c e d by 104 H e n c e f o r t h , the  read-  m i n i s t r a t i o n o f a l l l a r g e - s c a l e i n d u s t r y , which i n c l u d e d a l l heavy i n d u s t r y , was  to f o l l o w h o r i z o n t a l geographic 2  r a t h e r t h a n the p r e v i o u s hozy were s u b o r d i n a t e d  v e r t i c a l branch l i n e s .  lines  The  sovnark-  t o the C o u n c i l of M i n i s t e r s o f  r e p u b l i c i n w h i c h they were s i t u a t e d .  the  Several m i n i s t r i e s for  c r i t i c a l areas of the economy, f o r example, defence and  chemi-  c a l s , were r e t a i n e d , w h i l e some o t h e r  still  l e s s c r i t i c a l but  i m p o r t a n t m i n i s t r i e s were t r a n s f o r m e d i n t o s t a t e committees. The  a d m i n i s t r a t i o n o f s m a l l - s c a l e i n d u s t r y was  the v a r i o u s o b l a s t and The  l o c a l government o r g a n s .  r a t i o n a l e b e h i n d t h i s massive r e o r g a n i z a t i o n i n  i n d u s t r i a l a d m i n i s t r a t i o n was w h i c h had tion.  t r a n s f e r r e d to 3  t o c o r r e c t the g r o s s d e f i c i e n c i e s  become a p p a r e n t i n the b r a n c h system o f  administra-  E x c e s s i v e b r a n c h d i f f e r e n t i a t i o n i n t o more than t h i r t y U.S. Bureau of the Census, The S o v i e t F i n a n c i a l System: S t r u c t u r e , O p e r a t i o n and S t a t i s t i c s , by D a n i e l G a l l i k , C e s t m i r J e s i n a and Stephen Rapawy. I n t e r n a t i o n a l P o p u l a t i o n S t a t i s t i c s R e p o r t s , S e r i e s P-90, No.23, p.14. 2 The c r i t e r i o n used was t h a t the sovnarkhozy would adm i n i s t e r a l l e n t e r p r i s e s w i t h o v e r 200-250 employees. (Phillipe B e r n a r d , P l a n n i n g i n the S o v i e t U n i o n , p.114.) 3 . . . To ease a d m i n i s t r a t i o n , s m a l l s c a l e i n d u s t r i a l f i r m s i n the same a r e a , p r o d u c i n g s i m i l a r goods, were encouraged t o amalgamate i n t o ' f i r m s ' o r 'producer u n i o n s ' . The c o n s o l i d a t i o n s were supposed t o b r i n g about the f o l l o w i n g b e n e f i t s : 1) e a s i e r c e n t r a l i z e d a l l o c a t i o n of m a t e r i a l s and equipment; 2) g r e a t e r m a n o e u v r a b i l i t y of m a n a g e r i a l and m a t e r i a l r e s o u r c e s ; 3) l a r g e r s c a l e p r o d u c t i o n and g r e a t e r s t a n d a r d i z a t i o n of o u t put. The movement toward the amalgamation of s m a l l - s c a l e e n t e r p r i s e s c o n t i n u e d a f t e r t h e y were t r a n s f e r r e d t o the sovnarkhozy a d m i n i s t r a t i o n s , and were f u r t h e r i n t e n s i f i e d a f t e r November, 1962. ( Z a l e s k i , P l a n n i n g Reforms, pp.157-158.)  8  m i n i s t r i e s had l e a d t o f r a g m e n t a t i o n o f t h e c e n t r a l command s t r u c t u r e , thereby i n c r e a s i n g the d i f f i c u l t y of t r a n s m i t t i n g c e n t r a l d i r e c t i v e s p e r t a i n i n g t o s p e c i f i c types of i n d u s t r y down t h r o u g h t h e a d m i n i s t r a t i v e h i e r a r c h y .  Over t h e y e a r s i n -  d i v i d u a l m i n i s t r i e s had a t t e m p t e d t o g a i n s e l f - s u f f i c i e n c y through v e r t i c a l i n t e g r a t i o n o f t h e i r production  processes, t h e  r e s u l t o f w h i c h l e a d t o a d i l u t i o n o f t h e b r a n c h p r i n c i p l e and the a d m i n i s t r a t i v e  s c r a m b l i n g o f industries.''"  In a d d i t i o n t o  the above problems m i n i s t e r i a l c o n t r o l o v e r t h e s p a t i a l a r r a n g e ment o f new e n t e r p r i s e s had l e a d t o l o c a t i o n a l a b s u r d i t i e s , v i s - a - v i s s u p p l i e r s and c u s t o m e r s , r e s u l t i n g i n e x c e s s i v e portation costs.  trans-  The r e p l a c e m e n t o f t h e m i n i s t e r i a l system by  r e g i o n a l economic c o u n c i l s was an attempt t o remedy t h e abovenoted defects  i n industrial  administration.  This t o t a l transformation  of the administrative  t u r e i n i n d u s t r y had few major e f f e c t s on t h e p l a n n i n g duction planning  and s u p p l y o f goods i n t h e n a t i o n a l economy.  strucof pro-  The  h i e r a r c h y was now t h e C o u n c i l o f M i n i s t e r s , U.S.S.R.,  G o s p l a n , U.S.S.R., t h e r e p u b l i c a n the e n t e r p r i s e s .  g o s p l a n i , s o v a r k h o z y , and  G o s p l a n , U.S.S.R., a c q u i r e d  partments and t h e main a d m i n i s t r a t i o n s  t h e r e s e a r c h de-  o f s a l e s o f t h e former  "'"An example o f t h i s a d m i n i s t r a t i v e s c r a m b l i n g was t h e M i n i s t r y o f Machine T o o l P r o d u c t i o n . D u r i n g 1956 i t c o n t r o l l e d o n l y f i f t y - f i v e e n t e r p r i s e s o u t o f a t o t a l o f 171 f i r m s whose p r i m a r y t a s k was t h e p r o d u c t i o n o f such t o o l s . The r e m a i n i n g 116 e n t e r p r i s e s were s c a t t e r e d among n i n e t e e n d i f f e r e n t m i n i stries. The e f f e c t o f t h i s on c o n v e y i n g i n f o r m a t i o n and cont r o l l i n g the execution of d i r e c t i v e s p e r t a i n i n g t o t h i s indust r y i s obvious. (Oleg H o e f f d i n g , "The S o v i e t I n d u s t r i a l R e o r g a n i z a t i o n o f 1957", papers and p r o c e e d i n g s o f t h e 7 1 s t a n n u a l meeting o f t h e American Economic A s s o c i a t i o n , American Economic Review, V o l . X L I X (May, 1959), p.72.)  9  m i n i s t r i e s , and was research  and  goods and  thus r e s p o n s i b l e  the p l a n n i n g  materials.  tion.  of a l l i n t e r - r e p u b l i c d e l i v e r i e s  At the r e p u b l i c a n Gosplan l e v e l ,  main a d m i n i s t r a t i o n s each broad category  f o r c e n t r a l i z e d production  f o r supply  and  combined  s a l e s were formed, with  of product having  i t s own  main  administra-  S i m i l a r main a d m i n i s t r a t i o n s were formed at the  narkhoz l e v e l . of production  The and  e f f e c t o f the above changes on the  supply  was  t h a t the p r e v i o u s  c r i b e d f o r the o l d h i e r a r c h y were a d m i n i s t e r e d formed organs, while  the  of  sovplanning  functions by  des-  the newly  f u n c t i o n s performed, with c e r t a i n  q u a l i f i c a t i o n s , remained e s s e n t i a l l y the same. One z a t i o n was and  of the major b e n e f i t s proclaimed  t h a t the use of c o n t r o l f i g u r e s would be  the p l a n n i n g  level.  f o r the  process  would be  i n i t i a t e d at the  Each e n t e r p r i s e would formulate  i t s own  reorganiabolished  enterprise  preliminary  t a r g e t s , based on the major i n d i c a t o r s given to each e n t e r p r i s e i n i t s long-term p e r s p e c t i v e plan.*''  Due  to the  frequent  and  r e c u r r i n g changes t h a t were made i n the long-term p l a n s ,  the  i n d i c a t o r s used by the e n t e r p r i s e were o f t e n not  appropriate; 2  thus the new f i g u r e s had  planning  scheme was  never r e a l i z e d .  to be e s t a b l i s h e d every year and  New  target  control figures  still  remained the b a s i s f o r c a l c u l a t i n g the p r e l i m i n a r y  prise  plans.  was its was own  enter-  The seven-year p l a n f o r the development of the economy d i s s e m i n a t e d down through the h i e r a r c h y u n t i l each f i r m had own seven-year p l a n . Once the p e r s p e c t i v e p l a n f o r the f i r m approved, i t was to use t h i s as a b a s i s f o r e s t a b l i s h i n g i t s preliminary targets. 2  pp.50-51  U.S.  Bureau of the Census, The  S o v i e t F i n a n c i a l System,  10 Changes i n t h e p l a n n i n g  o f the output  consumer goods i n d u s t r i e s o c c u r r e d vious  to this  targeted cation  targets  of light  organizations, were h e l d  sumer goods fairs  and r e t a i l  vestments,  other  relative  previous  fondy  greater  trade  separate  trade  that  followed  these  producing  area.  had been a l l o w e d t o In a d d i t i o n , the sov-  to reallocate their  subordinate  of authority  gross a l l o c a t i o n s  enterprises  as t h e y  t o the sovnarkhoz  t h e sovnarkhozy would h e n c e f o r t h  require  saw f i t .  l e v e l was  I n 1959 a d i r e c t i v e by t h e c e n t r a l g o v e r n m e n t  their  firms.  c o n t r o l over d e c e n t r a l i z e d i n -  t o the freedom t h a t  among t h e i r  prises."'" in  firm,  r e f o r m s were u n d e r t a k e n i n 1957 t h a t  ministries i n this  delegation  lived.  for  on t h e  f o r each branch o f the con-  The n e g o t i a t i o n s  n a r k h o z y were p e r m i t t e d  that  Each y e a r  t h e assortment mixes o f t h e v a r i o u s  gave t h e s o v n a r k h o z y  This  between t h e p r o d u c i n g outlets.  appli-  following, the  i n d u s t r i e s were f i n a l i z e d  i n most r e p u b l i c s  industry.  Several  of  From i t s i n i t i a l  b e t w e e n t h e p r o d u c e r a n d t h e d i s t r i b u t o r s were u s e d t o  finalize  the  held  pre-  i n d u s t r i e s were  i n 1957, and i n c r e a s i n g l y i n t h e y e a r s  of negotiations  fairs  a n d a f t e r 19 57;  time t h e o u t p u t mixes o f these  by t h e c e n t r a l a u t h o r i t i e s .  assortment basis  during  assortment of  higher  ruled approval  d i s t r i b u t i o n s o f fondy  among t h e i r  A s i m i l a r retrenchment  of centralized control  1961 when t h e s o v n a r k h o z y s 1  short  subordinate  c o n t r o l over d e c e n t r a l i z e d  enteroccurred invest-  2 ments was s e v e r e l y  limited.  "'"Alec Nove, "The I n d u s t r i a l P l a n n i n g S y s t e m : Reform i n P r o s p e c t " , S o v i e t S t u d i e s , V o l . X I V , ( J u l y , 1962), p.2. 2  Ibid.  During istrative  1960  structure  attempt  to  In  a large  1960  find  to various to  latter  part  the  Soviet  their  an  for several industry  acceptable of  and  local  of  the  supply  was  the three  of  f o r the  coordination  of  the  admin-  previously  trans-  During  the  largest republics  sovnarkhozy, operational  the  an  subordinated  a u t h o r i t i e s was  the  in  organization.  sovnarkhozy."""  republican  gosplani,  industrial  industry,  of  following,  continually modified  government  same y e a r  Union c r e a t e d  years  form o f  light  jurisdiction  republican  material  of  part  oblast  ferred  the  and  in  responsible  control  to  and  sovnarkhozy w i t h i n  their  2 respective tion  republics.  among t h e  U.S.S.R. was  and  administrative  ber  activities 1962  the  divided  of  b o d i e s were s e t  the  number o f  made r e s p o n s i b l e  proved  forty-seven t o be  agency  called  was  created  and  The  coordina-  i n 1961  economic  coordinate  reduced  econom-  I n Novem-  f r o m 104  to  U.S.S.R.  was  implementation above  when  regions  the  each r e g i o n .  Sovnarkhoz  f o r the 3  sovnarkhozy.  unsatisfactory,  Economic C o u n c i l  to  s o v n a r k h o z y was  created the  a new  up  large  sovnarkhozy w i t h i n  and  in  further intensified  i n t o seventeen  forty-seven and  movement t o w a r d g r e a t e r  s o v n a r k h o z y was  the  ic  This  of  plans  reorganizations  i n M a r c h 1963  the  Supreme  to  c o o r d i n a t e the three major 4 organs of economic a d m i n i s t r a t i o n . The above a r r a n g e m e n t ''"Ibid. p . l . 2 Ukraine,  3  R e p u b l i c a n e c o n o m i c c o u n c i l s were s e t and K a z a k h s t a n . Bernard,  Planning  i n the  Soviet  Union,  up  i n the  RSFSR,  p.147.  4 G o s p l a n , U.S.S.R.; S o v n a r k h o z , U.S.S.R.; and G o s s t r o y , t h e a d m i n i s t r a t i v e body i n c h a r g e o f c o n s t r u c t i o n . (U.S. B u r e a u o f t h e C e n s u s , The S o v i e t F i n a n c i a l S y s t e m , p.18.)  12 persisted taken  up t o t h e m a s s i v e  i n November,  1965.  system o f a d m i n i s t r a t i o n branch was  system,  economic  At this  was d i s s o l v e d  s i m i l a r to t h a t which  re-establishment  the Soviet  leaders  economy  recent  rate  against  the sovnarkhozy  ized  control  regional  t o 1957,  The g r e a t e r  had c o r r e s p o n d i n g l y  sufficiency  I t was f o r t h e s e r e a s o n s t h a t September,  the c r i t i c i s m s  to a dilution  administrative  and s u p p l y  1965 by some t w e n t y - t h r e e newly  toward  integration  the tendency  the sovnarkhozy  in  tendency  of vertical  disper-  of central-  of coordination;  i n i n t r a - r e g i o n a l production  decline  t h e wide  i n the regional  increased  The new  f o r the recent  a distinct  degree  place  system o f i n d u s t r i a l  Specifically,  power h a d l e a d  the system had e x h i b i t e d  took  o f t h e economy  s y s t e m was t h a t  i n d u s t r i e s t h a t was i n h e r e n t  system,  that  o f Khrushchev.  and monumental p r o b l e m s  autarky.  changes  responsible  o f t h e economy.  of administrative  addition;  major  the r e g i o n a l  was p a r t i a l l y  sion  in  previous  w i t h the performance  y e a r s and b e l i e v e d  t h e growth  voiced  of  and t h e o l d m i n i s t e r i a l  existed  a f t e r the f a l l  were d i s s a t i s f i e d  administration in  economic  o f the m i n i s t e r i a l system o f ad-  m i n i s t r a t i o n was among t h e f i r s t  in  time the r e g i o n a l  under-  re-established. The  in  r e f o r m s t h a t were  toward  self-  activities.  s y s t e m was created  replaced  mini-  stries. The returned form.  in  r e s t o r a t i o n of the m i n i s t e r i a l administrative  the production-supply  Since  planning  t h e 1965 r e f o r m s , t h e m a j o r  system  system  t o i t s pre-1957  changes  t h a t have  been  "'"Gertrude S c h r o e d e r , " S o v i e t E c o n o m i c R e f o r m s : A Study C o n t r a d i c t i o n s " , S o v i e t S t u d i e s , V o l . X X , ( J a n u a r y , 1 9 6 8 ) , p.4,  undertaken in  i n the p r o d u c t i o n - s u p p l y system  t h e number o f c e n t r a l l y  input-output sovnarkhozy centrally majority by  goods and  balancing techniques. system,  planned  the d i v i s i o n  goods l o s t  of c e n t r a l l y  Gosplan,  planned  U.S.S.R.  have been a r e d u c t i o n  After  between  the  introduction  the c r e a t i o n funded  of  planned  goods b e i n g b a l a n c e d  By  1966  July  the  commodities  i t s previous significance,"'"  t h e number o f  and  of  and  the  allocated  centrally 2  planned time,  and  due  allocated  commodities  to the e x c e s s i v e burden  number o f g o o d s , centralized  had  exceeded  o f p l a n n i n g f o r such  6,000 goods were t o be  manner by  20,000.  distributed  regional material-equipment  At  this  a vast  in a  de-  supply  3 agencies. Input-output the  r e c e n t p a s t as  ancing not  indirect in ing  any  one  annual  put-output and of  can  alternative  system  The  inability  to a d j u s t f o r the c y c l i c a l material  balance  techniques  theoretically  lend  have p l a g u e d themselves  account  Ibid.  bal-  for following balances of  of m a t e r i a l  ramifications  f o r the r e c u r r i n g the S o v i e t t o computer  f o r the d i r e c t  and  the  changes balancthat  a  balances incon-  economy.  In-  calculations indirect  a l t e r e d f a c t o r i n p u t s and o u t p u t s . 1 2 See n . l , pp.4-5. Z a l e s k i , P l a n n i n g R e f o r m s , p. 3  in  to material  creates i n other related  source or reason  plans that  used  o f m a t e r i a l b a l a n c i n g does  accounting procedures  balance.  been the p r i m a r y  sistant  crude  and  created in related material  material  procedures  The  feasible  effects  c h a n g e i n one has  a supplement  techniques.  facilitate  t e c h n i q u e s have been i n c r e a s i n g l y  effects  105.  Input-output check the  c o n s i s t e n c y of the  been a p p r o v e d . two-year p l a n techniques  ante  remains  and  i n the  done on  Since  this  the  i n concert with  and  and  the  latter  used to achieve  an  allocated  P l a n n i n g and t h e R o l e and Formation P r i c e s i n t h e S o v i e t Economy  Planning  i s used  to supplement  physical  c o n t r o l s p l a y the  mechanics,  financial  predominant  planning  and  provide  m a j o r means f o r p o l i c i n g  the  fiscal  policy.  plans  as w e l l as  physical  plans.  I t i s the  of  plans  construction  on  of  credit  the  the  p l a n , and  Cash p l a n n i n g  checking  the on  financial  largely  "*"Other f i n a n c i a l f o r example, ' e s t i m a t e s ' institutions.  f o r the  the  allocation  formulation  of  validity and the  of  Although  i n Soviet  execution  p h y s i c a l plans  the  system  In a d d i t i o n , f i n a n c i a l  economy t h a t p r o v i d e  primary  the  economy.  role  i s necessary  o f monetary  the  the  demand o f c e n t r a l l y  c o n t r o l s i n t h e management o f t h e  plan,  plan  input-output  p l a n s , but  physical  these  already  planning  Financial  financial  to  the m a t e r i a l b a l a n c i n g  dominant t e c h n i q u e  supply  i t had  1963  time  i n 1962  equipment.  Financial of Financial  the  introduced  plan after  c o n s t r u c t i o n of annual  balance  materials  annual  f o r 1964-1965.  have b e e n u s e d  method s t i l l  were f i r s t  S i m i l a r work was  methods i n t h e  ex  techniques  plans non-  of  these  the i m p l i c a t i o n s basis  for  p l a n s , v i z . , the  the  cash  s t a t e budget.''" consist  plans are of budget  of b a l a n c i n g the  volume  i n c o r p o r a t e d i n t o the budget, f i n a n c e d e n t e r p r i s e s and  15 o f monetary  income r e c e i v e d by  the  population  and  s t r u c t u r e o f monetary e x p e n d i t u r e s  The  dynamics o f  enter  the  firms  i n the  are  not  law  plan,  the  settlements  sector  exchanges o f  through  from p a y i n g  Gosbank.  i n the  currency  The  c o n t r o l l e d , and cash  f o r any  plan  of  the  cash  plan  of each o f  local  'enlarged'  district  plan  of  i s drawn up  workers, o f f i c e categories.  the  balance  i n terms o f  enlarged  the  socialized  s e c t o r and  and  the  flow  return  tween s o c i a l  groups  back  the  ( i n a d d i t i o n to products  or  The  expenditures  f o r each  only  facilitates  the the  population estimation  goods i n t h e  r e g i o n , but  ferentiation  of  also  of  lends  r e a l wages b e t w e e n  and  regions offices  money f l o w s vis-a-vis  the  individual  a g g r e g a t e demand itself  an  factory  other  work  between  these  groups,  money t u r n o v e r  of  of  expendi-  s e r v i c e s t o one  balancing  by  simplified  i n c o m e s and  the  enter-  and  p r o f e s s i o n a l s , and  population  book  rubles."'"  g r o u p s , e.g.,  shows t h e  goods  1,000  each of these  through market t r a n s a c t i o n s ) . of  any  of  prohibited  aggregated  specialized  plan  selling  selling  a v a i l a b l e to  o f monetary  workers, peasants,  This  t r a n s f e r s of  by  not  between  but  districts  At  place  and  Gosbank i s an  offices.  population.  buying  e n t e r p r i s e s are  the  volume  t r a n s a c t i o n s do  purchases exceeding  cash  the  the  t h a t take  currency  The  Gosbank's  tures  as  socialized  is rigidly  form of  made by  i n t e r - e n t e r p r i s e monetary  done by  accounts prise  cash  with  be-  another  incomes region,  and not  f o r consumer  to planning  the  dif-  regions.  "'"Joseph B e r l i n e r , " M o n e t a r y P l a n n i n g i n t h e U.S.S.R.", A m e r i c a n S l a v i c and E a s t E u r o p e a n R e v i e w, V o l . X X I X , (December, 1 9 5 0 ) , p.240. The p r o b l e m o f c o n t r o l l i n g e n t e r p r i s e t r a n s a c t i o n s t h a t t a k e p l a c e by t h e t r a n s f e r r i n g o f a c c o u n t i n g balances i s a s e p a r a t e p r o b l e m and w i l l be d i s c u s s e d i n t h e s e c t i o n on microeconomic c o n t r o l s i n i n d u s t r y .  16 An a b b r e v i a t e d v e r s i o n o f the above p l a n t h a t does not c o n t a i n the i n f o r m a t i o n on s o c i a l groups i s forwarded by a l l o f the d i s t r i c t o f f i c e s o f Gosbank t o Gosbank h e a d q u a r t e r s .  A l l of  the v a r i o u s d i s t r i c t p l a n s are then c o m p i l e d i n t o an o v e r a l l cash p l a n f o r the economy. A s i m p l i f i e d scheme o f Gosbank's cash p l a n i s shown below: (I) Payments R e c e i v e d i n Cash  (E) Payments Made i n Cash  1. Trade ( s t a t e as w e l l as c o o p e r a t i v e t r a d e ) , and e a t i n g houses. (Accounts f o r a p p r o x i m a t e l y 75 p e r c e n t o f payments.)  1. Remuneration o f l a b o u r and o t h e r s o u r c e s o f p e r s o n a l income, i n c l u d i n g wages, s a l a r i e s i n i n d u s t r y and commerce, s t i pends, s u b s i d i e s , o l d age p e n s i o n s , money wages o f kolkhoz farmers, e t c . (Accounts f o r a p p r o x i mately 90 p e r c e n t o f cash payments.)  2. T r a n s p o r t ( r a i l , a i r , l o c a l ) . Municipal revenues. Public entertainments. Mobilization of the monetary means o f the p o p u l a t i o n ( s t a t e l o a n s ) . Accounts o f k o l k h o z e s w i t h Gosbank. Etcetera.  2. A g r i c u l t u r a l purchases p a i d f o r i n cash. Small o p e r a t i v e expenses o f e n t e r p r i s e s and o f f i c e s p a i d f o r i n cash. Autho r i z e d t r a v e l l i n g expenses. Accounts o f the k o l k h o z e s , (money wages i n c l u d e d under E 1 ) . E t c e t e r a .  3. D e p o s i t s o f the s a v i n g s banks w i t h Gosbank ( i f positive). Post O f f i c e , telegraph, etc. (final expected balances, i f positive).  3. D e p o s i t s o f the s a v i n g s banks w i t h Gosbank ( i f n e g a t i v e ) . Post O f f i c e , telegraph, etc. ( f i n a l e x p e c t e d b a l a n c e s from operations, i f negative).  Hans Ronimois, "An S o v i e t Monetary P l a n n i n g and on Some Problems R e l a t e d t o the Monetary C i r c u l a t i o n i n the U.S.S.R.", (paper p r e s e n t e d a t U n i v e r s i t y o f Stockholm, 1945), p.5. A l a t e r r e f e r e n c e , (G. Dundukov, " F i n a n c i a l B a l a n c e s " , Report o f the U n i t e d N a t i o n s Seminar on P l a n n i n g Techniques, p.136,) g i v e s an example o f a cash p l a n which c l o s e l y f o l l o w s the more compreh e n s i v e scheme shown above.  17 4. The b a l a n c e o f c a s h a t the b e g i n n i n g o f the planned period.  4. The b a l a n c e o f c a s h a t the end o f t h e p l a n n e d period.  5.  5.  Planned i n c r e a s e o f cash, i . e . , planned t r a n s f e r s of notes from t h e i s s u e funds o f t h e d i s t r i c t o f f i c e s concerned.  The  data used  the d i s t r i c t national  offices  of  i n the c o m p i l a t i o n o f the cash plans o f a n d Gosbank a r e l a r g e l y  e c o n o m i c p l a n and t h e s t a t e  period,"'" w h i c h  are then  budget  figures  (decrease) plan  i n the n a t i o n a l  on g o v e r n m e n t of cash  and i s based  the planned  transfer  The  primary  of r e t a i l  affect  objective  the c r e d i t  o f consumer goods and  trade turnover, including  esti-  outlets.  i n constructing of the currency.  the cash p l a n i s The c a s h  plan that  t h e amount o f money i n t h e hands o f t h e p o p u l a t i o n and o f t h e s e monies by t h e p o p u l a c e .  and o u t f l o w s o f c a s h t o and f r o m  cash plan i s l a r g e l y  a  the p o p u l a t i o n , the  stability  Since  plan that incorporates of the currency i s  G . Dundukov, " F i n a n c i a l B a l a n c e s " , R e p o r t S e m i n a r on P l a n n i n g T e c h n i q u e s , p.136. 1  By b a l a n c i n g  o f the currency.  'synthetic'  many o t h e r p l a n s , t h e ex p o s t  Nations  o f the t o t a l  The p l a n n e d i n c r e a s e  i s d e r i v e d from  government can p l a n f o r t h e s t a b i l i t y the  amount  v a r i o u s p o r t i o n s o f o t h e r p l a n s and b a l a n c e s  the u t i l i z a t i o n inflows  payments.  g r a n t e d by r e t a i l  provide f o r the s t a b i l i t y  consolidates  The t o t a l  the figures  on t h e v o l u m e o f o u t p u t  mates o f consumer c r e d i t  f o r the previous  economic p l a n p l u s t h e budgetary  in circulation  velocity  p r o v i d e d by t h e  adjusted accordingly.  n e t p e r s o n a l income i s d e r i v e d f r o m  wage f u n d s  to  Planned decrease of cash, i . e . , planned t r a n s f e r s of notes t o the i s s u e funds o f the d i s t r i c t o f f i c e s concerned.  of the United  18 dependent  upon t h e  which  incorporated  also  are  provides plans  which  these  plans  will  cial the in  are  plan  hands o f  i s of  the  i s to  provide  a comprehensive activities  The  the  the  m i n e d by: surplus;  the past  budget  amount o f o t h e r  are  b a s e d on  the  planning  (used  lowing  ciples,  manner:  cash  the in  plan. to the  finan-  i t influences  state institutions  The  function of of  the  the  and credit  economy' and  to  economic  Gosbank i n i t s c o m p i l a t i o n the  supply  the  The  of  credit  supply  of  bank's r e s e r v e s ;  surpluses  the  held  on  on  the with  credit  deter-  the  is  current the  Non-active  hand a t the  of  resources  d e p o s i t by  deposits.  distribution  of  credit  end  budget  bank;  and  deposits of  an  opera-  available involves  of q u a n t i f i a b l e or planned  finance  n o n - s p e c i f i c but of  of  state enterprises.  non-active  aggregation  aggregation  plan  deviations  importance  resources  minimum b a l a n c e  p r i m a r i l y to  mates on  cash  period.  Planning both the  of  plans  fulfillment  system i n t h a t  public.  resources.  extent  the  tive  of  i s to balance  demand f o r t h e s e  the  c o n t r o l mechanism o v e r the  .objective of  plan  Thus t h e  i n the  d i s p o s a l of  idle  of other  i n t o i t , as  critical  economic  general  'mobilize  (financial)  credit  the  plan.  c o n t r o l over  amount o f money a t t h e the  cash  totality  in deviations  plan  e q u i l i b r i u m of  the  incorporated  result  credit  of  i n t o the  a measure o f  other  The  fulfillment  planned  inventory  to  firms  e a c h e n t e r p r i s e has  ^"Nicolas S p u l b e r , Problems, p.175  requirements),  recurring credit  credits  The  Soviet  credit and  needs esti-  requirements.  i s e f f e c t e d i n the  already  The fol-  been a l l o c a t e d a  Economy:  Structure,  Prin-  charter  fund of  assigned  targets:  working ter  capital  fund  single year  cial  tends  period  the  above,  f i x e d and  to  the  working  the  capital  the  their  capital  f u n d s , b a s e d on  each e n t e r p r i s e ' s  the  The  above manner and  where t h e y forwarded  are to  planned it  are  types of  of  planned only  as  centage of The ferentiated  up  total  i n t e r e s t rates  are  own  finan-  requirements.  The  the  enterprise's  r e c e i p t s and  the  own  expendi-  is calculated  in  hierarchy  of  and  aggregation  finally  sum,  following  to  firms  loans  be  f o r goods i n  b a s e d on table  cannot  trans-  i n d i c e s of  shows t h e  on  January  1,  1956,  charged  f o r the  above l o a n s  the  major  as  a  per-  loans.  interest rates slightly,  planned  administrative  f o r example,  The  the  any  Finance.  outstanding  bank  the  for  d i f f e r e n c e between  planned  level  a general  economic p l a n .  t y p e s o f bank l o a n s  and  credits allotted  i n d e t a i l e d form,  national  the  sent  Ministry  the  the  fluctuate  their  each e n t e r p r i s e  checked at each  the  Other  are  of  production  requirements  c r e d i t demands o f  required  Throughout  level  o f bank c r e d i t i s t o p r o v i d e  i s that  under i t s c h a r -  requirements w i l l  o c c a s i o n a l l y below), to  i n meeting i t s  followed  enterprise  p l a n n e d year."""  according  t o use  minimum b a l a n c e  maximum w o r k i n g  tures.  capital practice  to  approach the  during  resources  function  customary  funds g r a n t e d  firm's  (and  the  working  d e p e n d i n g on meant t o  i t s category.  cover  In  administrative  are  dif-  general, costs,  and  What t h e c e n t r a l a u t h o r i t i e s a t t e m p t t o a c h i e v e i s t o r e s t r i c t the l e v e l o f funds a v a i l a b l e to the e n t e r p r i s e d u r i n g any p e r i o d o f t h e p l a n n e d y e a r , a f t e r g i v i n g due consideration t o the c o s t s of a d m i n i s t r a t i n g c r e d i t r e q u i r e m e n t s .  20 do n o t r e f l e c t s c a r c i t y o r r i s k f a c t o r s ,  TABLE I DISTRIBUTION OF BANK LOANS OUTSTANDING, AS OF JANUARY 1, 19 56* Use o f C r e d i t  Percentage of T o t a l Bank Loans  Raw m a t e r i a l s , s u p p l i e s , f i n i s h e d goods Wages, u n f i n i s h e d p r o d u c t i o n , t e c h n i c a l improvements Goods i n t r a n s i t Other ( i n c l u d i n g p a s t due l o a n s ) Total  64.9 1.8 25.5 7.8 100.0  S o u r c e : Donald Hodgman, " S o v i e t Monetary C o n t r o l s t h r o u g h t h e B a n k i n g System", i n Comparative Economic Systems, ed. by M a r s h a l l Goldman, p.374.  TABLE I I INTEREST RATES ON VARIOUS TYPES OF BANK LOANS* **  C a t e g o r y o f Loan  I n t e r e s t Rate Charged  Loans f o r goods i n t r a n s i t A l l other short-term loans Overdue l o a n s Source:  1% 2% 3% - 5%  S p u l b e r , The S o v i e t Economy, p.170.  I n t e r e s t r a t e s were those  i n e f f e c t during the e a r l y  1960 * s.  A f t e r t h e c r e d i t p l a n i s approved by t h e C o u n c i l o f M i n i s t e r s , U.S.S.R., t h e 'planned c r e d i t s ' a r e d i s a g g r e g a t e d into  'credit limits'  f o r t h e v a r i o u s m i n i s t r i e s (sovnarkhozy)  and e v e n t u a l l y i n t o c r e d i t l i m i t s f o r each i n d i v i d u a l e n t e r p r i s e v i a t h e a p p r o p r i a t e b r a n c h banks. assigned  Non-planned c r e d i t s a r e  t o t h e v a r i o u s o f f i c e s and branches o f Gosbank, based  21 on  assessments  of t h e i r  Up u n t i l  requirements.""  1959, t h e l o n g - t e r m  Gosbank and t h e numerous up  to that  plan.  t i m e were i n c l u d e d  Beginning  purpose  1  purpose  term  grants with repayable  credit  requires  isters,  U.S.S.R. The  financial  credit  credit  the s p e c i f i c  s t a t e budget  system.  r e p l a c e d the bulk o f c a p i t a l long-term  credits,  the long-  used  and a t  approval o f the C o u n c i l o f Min-  i s the p i v o t a l  The b u d g e t a r y  lows t h e p r o c e d u r e s  plan  S i n c e the implementa-  p l a n h a s assumed a f a r g r e a t e r i m p o r t a n c e  present  existed  the functions  banks, the long-term  o f t h e 1965 r e f o r m s , w h i c h  investment  banks t h a t  i n an a l l - e n c o m p a s s i n g  b e e n drawn up as a s e p a r a t e document.  tion  d i s t r i b u t e d by  i n 1959, when Gosbank a b s o r b e d  o f most o f t h e s p e c i a l has  'special  credits  point  of the Soviet  planning process  closely  i n compiling the n a t i o n a l  fol-  economic  2 plan.  The M i n i s t r y  balance  sheet o f revenues  received  from  o f F i n a n c e , U.S.S.R., c o m p i l e s and e x p e n d i t u r e s b a s e d  t h e government  economic p l a n .  and t h e d r a f t  The g o v e r n m e n t d i r e c t i v e s  of  coverage  d e s i r e d by e a c h  of  e x p e n d i t u r e s ; norms f o r i t e m s  investment, tion, lating  social  defence,  and c u l t u r a l  revenues.  and p r e l i m i n a r y  targets indicate  level;  o f the annual the breadth  t h e main  directions  of expenditure, i . e . , c a p i t a l measures,  costs of administra-  On t h e b a s i s  o f the above-mentioned  balances, the M i n i s t r y  of Finance,  R.W. D a v i e s , " S h o r t Term C r e d i t i n t h e U.S.S.R.", S t u d i e s , V o l . X I V ( J u l y , 1 9 6 2 ) , p.30. 1  Soviet  on d i r e c t i v e s  e t c . ; and t h e c h a n g e s i n and methods o f c a l c u -  budgetary  directives  budgetary  a draft  2  See  Appendix I.  U.S.S.R., i s s u e s tions  appropriate  to the A i l - U n i o n  the  n a t i o n a l budget  The  republican  structions agencies, lines tive of  m i n i s t r i e s and a g e n c i e s  m i n i s t r i e s of finance respective  the l a t t e r  bodies  f o r a l l lower-level jurisdictions.  aggregate  then  d r a f t budgets  Ministry the  financial  summary f i n a n c i a l  these plans  plans,  the finance  ministry  Once t h e p r e l i m i n a r y gets the  have been  insurance  respec-  compiles  their consoli-  ministry.  time has a l s o  The  received  of the All-Union  checked the  the preliminary  conformity  economic  a d r a f t o f t h e Union  budget.  republican  the M i n i s t r y of Finance  budgets o f t h e Union R e p u b l i c s ,  social  finance  drafts of the consolidated  accepted,  guide-  their  and f o r w a r d t h e i r  A f t e r having with  finance  appropriate  c a l c u l a t e d by  and e s t i m a t e s  and e s t i m a t e s  similar i n -  b u d g e t s on t h e b a s i s o f  U.S.S.R., b y t h i s  and a g e n c i e s .  issue  bodies within  and e s t i m a t e s  plans  from  the republican m i n i s t r i e s  to the Ail-Union  of Finance,  ministries of  i n turn  calculate draft republican plans  financed  ministries of finance.  formulating  Simultaneously  financial  and i n s t r u c -  r e g i o n a l and t e r r i t o r i a l  r e s p e c t i v e m i n i s t r i e s and a g e n c i e s , dated  targets  and t o t h e r e p u b l i c a n  to their  finance  preliminary  then  bud-  combines  and t h e d r a f t b u d g e t f o r  into a d r a f t of the consolidated  budget o f the  U.S.S.R. The to  Gosplan  preliminary  and t o t h e C o u n c i l  sponsibility to t h e i r completed budget  consolidated  o f Gosplan  budget  i s then  delivered  o f M i n i s t e r s , U.S.S.R.  i s t o check  the conformity  The r e -  o f the budget  d r a f t o f the n a t i o n a l economic p l a n , which they by t h i s  time.  The c o n f o r m i t y  t o t h e n a t i o n a l economic p l a n  and d e v i a t i o n s  i s ascertained  by  have  o f the compiling  23 a consolidated scheme o f  the  financial  plan  consolidated  f o r the  financial  e n t i r e economy. plan  The  i s shown b e l o w .  TABLE I I I OUTLINE OF  Financial 1.  THE  CONSOLIDATED FINANCIAL OF THE U.S.S.R.*  PLAN  Resources  M o n e t a r y a c c u m u l a t i o n made by s o c i a l i s t e n t e r p r i s e . a) P r o f i t (Net p r o f i t i n t e r m s o f e c o n o m i c b r a n c h e s ) . b) T u r n o v e r t a x ( b a s e d on p r e d i c t e d s a l e s o f p r o d u c t s a v e r a g e t a x r a t e s on t h e s e p r o d u c t s ) .  2.  R e c e i p t s f r o m e n t e r p r i s e s and i n s u r a n c e scheme.  3.  D e p r e c i a t i o n o u t l a y s ( i s d e t e r m i n e d by e s t i m a t i n g t h e a v e r a g e a n n u a l volume o f o p e r a t i n g f i x e d a s s e t s and m u l t i p l y i n g by an a v e r a g e r a t e o f d e p r e c i a t i o n ) .  4.  Foreign  trade  institutions  under the  and  social  gains.  5. O t h e r r e c e i p t s f r o m t h e s o c i a l i s t amusement t a x e s , e t c . ) .  economy  (forestry  income,  6.  Monetary r e c e i p t s from the p o p u l a t i o n . a) C o m p u l s o r y payments ( i n c l u d e s income and a g r i c u l t u r a l taxes). b) V o l u n t a r y payments ( i n c l u d e s d e p o s i t s made by t h e p o p u l a t i o n i n s a v i n g s b a n k s and t h e q u a s i - c o m p u l s o r y p u r c h a s e o f b o n d s , w h i c h were d i s c o n t i n u e d i n 1 9 5 7 ) .  7.  Other  revenues  Utilization  of  (includes foreign loans,  etc.).  F i n a n c i a l Resources  1.  C a p i t a l i n v e s t m e n t s i n t h e n a t i o n a l economy ( b a s e d ment p l a n and e s t i m a t e d c o s t s o f c o n s t r u c t i o n ) .  2.  Decentralized  3.  Overhauling fixed assets the d e p r e c i a t i o n r e s e r v e  4.  Increment to c u r r e n t a s s e t s ( i n c l u d e s investment i n product i o n r e s e r v e s , e.g., raw m a t e r i a l s , i n - p r o c e s s i n v e n t o r y , f i n i s h e d goods i n s t o c k , e t c . ) .  Source:  capital  on  invest-  investments.  Dundukov,  (planned a c c o r d i n g to the p o r t i o n a l l o c a t e d f o r such p u r p o s e s ) .  " F i n a n c i a l Balances",  p.125.  of  24  5.  Increment t o s t a t e m a t e r i a l resources (includes the t o t a l i n v e n t o r i e s held at the various l e v e l s w i t h i n the administrat i v e hierarchy to cushion the e f f e c t s of i n c o n s i s t e n t o r u n f u l f i l l e d plans).  6. O t h e r e c o n o m i c e x p e n d i t u r e s ( i n c l u d e s d r a f t i n g and d e s i g n i n g e x p e n d i t u r e s , e x p e n d i t u r e s on g e o l o g i c a l p r o s p e c t i n g , irrigation, etc.). 7.  A l l o c a t i o n s f o r education,  8. A l l o c a t i o n s f o r s c i e n c e 9. M i l i t a r y  health,  pension  (excluding  capital  and a l l o w a n c e s . investment).  expenditures.  10.  E x p e n d i t u r e s on g e n e r a l g o v e r n m e n t and a d m i n i s t r a t i o n ( c a l c u l a t e d on t h e b a s i s o f a v e r a g e s a l a r y , t i m e s t h e number o f e m p l o y e e s , p l u s a d m i n i s t r a t i v e expenditures; c a p i t a l construction costs are excluded).  11.  Other  12.  Reserve  13.  E x p a n s i o n o f bank f a c i l i t i e s ing .  state  fund.  Gosplan and of  the f i n a l  submits  f o r n a t i o n a l economic  i t s recommendation  regarding  d r a f t o f t h e n a t i o n a l economic p l a n  o f the c o n s o l i d a t e d  budget  by t h e C o u n c i l  f o r approval,  A simplified  the budget  receive the  from the M i n i s t r y o f  and t h e n a t i o n a l e c o n o m i c p l a n  simultaneously legislature  budget  credit-  to the Council  M i n i s t e r s , U.S.S.R., a b o u t t h e same t i m e as t h e y  draft The  expenditures.  are then  of Ministers,  a f t e r which they  scheme o f t h e p l a n  approved  forwarded achieve  Finance.  to the  legal  status.  f o r t h e 1968 c o n s o l i -  d a t e d b u d g e t o f t h e U.S.S.R. i s shown b e l o w . The final  downward d i s s e m i n a t i o n  approval,  has  completed  The  budget  usually  o f the budget begins  a f t e r the M i n i s t r y of Finance,  i t s preliminary  d r a f t of the consolidated  i s p a s s e d down and d i s a g g r e g a t e d  through  before U.S.S.R., budget.  the f i n a n c i a l  25 administrative  hierarchy  and n e c e s s a r y a d j u s t m e n t s  the r e p u b l i c a n ,  regional,  draft  Modifications  budgets.  dated budget  territorial  budgetary  and o t h e r l o w e r  level  made t o t h e p r e l i m i n a r y  i n the course of i t s r a t i f i c a t i o n  p a s s e d down and a p p r o p r i a t e  a r e made t o  adjustments  consoli-  are subsequently  a r e made a t t h e v a r i o u s  levels.  TABLE IV PLAN  FOR THE CONSOLIDATED BUDGET OF THE U.S.S.R. - 19 68*  Expenditures  Billion  1) F i n a n c i n g t h e n a t i o n a l a) I n d u s t r y b) A g r i c u l t u r e c) O t h e r  economy  Rubles  40.5  50.1 23.9 9.0 17.2  2) S o c i a l - c u l t u r a l s e r v i c e s a) E d u c a t i o n b) H e a l t h c) S o c i a l W e l f a r e  45.7  3) D e f e n c e a n d A d m i n i s t r a t i o n a) D e f e n c e b) A d m i n i s t r a t i o n c) O t h e r  28.0  19.3 7.3 13.9 36.9  21.0 7.6 17.1  17.0 6.1 13.8 22 . 6 13.5 1.2 7.9  16.7 1.5 9.8 123. 8  Total  Percentage  100 .0  Revenues 1) From e n t e r p r i s e s a) T u r n o v e r t a x b) P r o f i t d e d u c t i o n s c) Income t a x on c o l l e c t i v e farms, s o c i a l i n s u r a n c e , other 2) From t h e p o p u l a t i o n a) Income t a x b) O t h e r Total  91.3 42.2 43.8 26.7  34.2 35.5 21.6  10.8  8.7 10.3 0.5  123.5  Source:  The  112.7  S p u l b e r , The S o v i e t  100.0  Economy,  implementation o f the budget  8.3 0.4  p.184.  i s based  o n , and c o n -  26  trolled  by 'budget  s c h e d u l e s ' , which  plans o f the revenues gets, broken piled  after  quarter years.  ratification  the necessary adjustments on  the f u l l y  various  The the  detailed  finance  of the consolidated  disbursements  o f cash  to control  made.  At the A l l - U n i o n  grants  a r e made b y o p e n i n g  administrators.''"  from  budget  credits'  budgetary  t h e c r e d i t s who a c t a s c r e d i t  credits  a r e a s s i g n e d q u a r t e r l y , any  Republican  levels  from  for budgetary At  o f h i s agency  allotted  i n meeting the  o r may r e a s s i g n  a portion of  fit.  Control of and U n i o n  i s m a i n t a i n e d by Gosbank by means o f e x t e n s i v e  receipts  the l o c a l  receipts  The c r e d i t  and e x p e n d i t u r e s a t t h e A i l - U n i o n  i t s various branch  authorization  budgetary  t h e funds  t o s u b o r d i n a t e a g e n c i e s a s he s e e s receipts  budgetary  i n t h e name o f  s u r p l u s e s b e i n g r e t u r n e d t o the budget.  planned o b j e c t i v e s  funds  appropriations are  Republican levels  'budgetary  Budgetary  t h e v a r i o u s b u d g e t s and  a t which  and U n i o n  a d m i n i s t r a t o r may u t i l i z e  the  o u t and a r e b a s e d  the flow of budgetary  the heads o f a g e n c i e s r e c e i v i n g  funds  budget;  p l a n s and e s t i m a t e s s u b m i t t e d t o t h e  according to the l e v e l  reports  The s c h e d u l e s a r e com-  have b e e n c a r r i e d  differ  the  bud-  organs.  t e c h n i q u e s used  year-end  final  and e x p e n d i t u r e s o f t h e r e s p e c t i v e  down i n t o final  a r e comprehensive  and/or  level,  offices  maintain  accounts  expenditures.  budget  of the l o c a l  which  appropriations  finance organs.  a r e made on  Control  and e x p e n d i t u r e s a r e m a i n t a i n e d by a  of local single  "'"The p r i n c i p a l c r e d i t a d m i n i s t r a t o r s f o r t h e A i l - U n i o n and r e p u b l i c a n b u d g e t s a r e t h e m i n i s t e r s and h e a d s o f o t h e r c e n t r a l g o v e r n m e n t d e p a r t m e n t s and i n s t i t u t i o n s .  27  branch bank o f Gosbank, where a l l the budgetary revenue and expense accounts f o r the l o c a l i t y a r e c e n t r a l i z e d . Gosbank compiles monthly r e p o r t s  on the changes o f the  revenue and e x p e n d i t u r e accounts o f the v a r i o u s budgetary l e v e l s and  submits these accounts t o the M i n i s t r y  o f Finance, U.S.S.R.  In this" way the f i n a n c i a l p o s i t i o n o f a l l s t a t e e n t e r p r i s e s and i n s t i t u t i o n s are s u b j e c t e d t o the c o n t i n u a l banking and f i s c a l  surveillance  o f the  authorities.  The r o l e and f o r m a t i o n o f p r i c e s i n the S o v i e t economy The  need f o r a p r i c e system i n a c e n t r a l l y planned  economy where many o f the goods a r e a d m i n i s t r a t i v e l y  allocated  a r i s e s out o f the need f o r a common u n i t o f account.  Even i f  all  the goods i n the economy were p h y s i c a l l y a l l o c a t e d , without  r e s o r t i n g t o an a b s t r a c t  unit to record  the flow o f goods, any  method o f a c c o u n t i n g would prove u n f e a s i b l e  i n a diverse  economy p r o d u c i n g an immense v a r i e t y o f goods. t h e i r accounting function,  prices  also play  A s i d e from  an important  i n the a l l o c a t i o n and d i s t r i b u t i o n o f the n a t i o n a l  role  income; i n  a very r e s t r i c t e d sense, they are a l s o a f a c t o r i n the a l l o c a t i o n of resources.  The above-mentioned f u n c t i o n s  o f p r i c e s are  o p e r a t i v e t o some degree throughout the economy but t h e i r r e l a tive functional  importance v a r i e s  economy one i s examining.  depending on which area o f the  G e n e r a l l y i t may be s a i d t h a t the  primary purpose o f the S o v i e t  p r i c e system i s t h a t o f p r o v i d i n g  f o r the c o n t r o l o f economic p r o c e s s e s . In t h i s s e c t i o n o f the paper the d i s c u s s i o n primarily  on the r o l e s and f o r m u l a t i o n o f p r i c e s  will  center  f o r industry  28 and,  to  light  lesser extent,  industry,  tivity each  a  of  enterprises  f i r m i s faced  impossible  to  quantities. geneous for  inputs  prise  can  be  dual  price  prices' costs  evaluate  provide  the  outputs.  the  lished;  of  function  as  same as  of  specific  prices of  Although  targets,  i t is  physical hetero-  the  pay  enter-  performance  current  from t h i s p o i n t  in industry  the  economy.  comparisons groups of  each e n t e r p r i s e ; cost  regard-  are  the  current  two  price  prices  and  lists  used i n  and  or  recording  facilitate  the current  o v e r t i m e and  will  a  "Constant  of outputs  base y e a r  the  l e d to  b e i n g b a s e d on  revised  p r i c e s when t h e  has  enterprises  they a l s o  structures,  Constant p r i c e s  a l t e r a t i o n s of  ac-  making each e n t e r p r i s e  "Current p r i c e s ' are  enterprise  costs.  physical  o v e r a l l performance of  for intertemporal  of  accounting.  and  outputs.  industry.  transactions  c o n t r o l l i n g the  t h e s e norms i n  Thus by  as w e l l  used  of  In b o t h h e a v y  means f o r a g g r e g a t i n g  for individual enterprises,  average  the  and  system i n t h i s s e c t o r  are  evaluation  be  a multitude  evaluated and  a method o f financial  the  control  branches of the  through  received,  i t s inputs The  and  provide  with  control Prices  services  ing  prices  f o r consumer goods.''"  is  will  re-estab-  diverge  introduction  with  of  new  2 commodities, The  until  the  constant  a l l o c a t i v e r o l e of  prxces prices  are  revised  in industry  "'"For a more d e t a i l e d d i s c u s s i o n pp.99-103.  of  retail  again. varies prices,  see  2 P r i c e s o f new c o m m o d i t i e s a r e ' p r o v i s i o n a l p r i c e s ' w h i c h a r e e x p e c t e d t o d e c r e a s e as p r o d u c t i o n d i f f i c u l t i e s a r e mastered. Once p r o d u c t i o n p r o c e d u r e s have b e e n e s t a b l i s h e d , the c a l c u l a t e d p r i c e i s e n t e r e d i n t o the c u r r e n t p r i c e catalogue,  29  according  to  the  administrative  output  ratios,  future  investments,  alternative by new  the  well  influence  will  benefits  innovations  balancing deficit  cal  and  value  Design planners  in deciding  h a v e , and  prices  are  are  ment o f  level  the  also  also  used  as  or In  guides  do  influence  i n the  somewhat a g g r e g a t e d  levels,  the  do  i t i s recognized necessarily  exception  of  f o r each other. likely  play  if  relevant  scarcity  this  by  the to  the  basic  the  the  incorporating material  more  of  reason  of  the  expensive uses.  a host these  of  physi-  targets  enterprise  level,  the  assortthe  d e c i s i o n making a t  that  At  enterprise.  that  relative  products  p r i c e s have b e e n use  the  planners  relative  the  are  easily  evaluations  to  will  approximate  non-adjusted p r i c e s mainly  p h y s i c a l t o o l s and  to  with  substituted  d e c i s i o n making p r o c e s s  'adjusted'  top  prices  s c a r c i t y values,  financial  a dominant r o l e i n the  The  in  to  s u b s t i t u t i o n and  influence  correspond  For  values.  supplement  faced  by  groups of  functions  l i m i t e d f r e e d o m a l l o w e d by  targets  prices  input  influenced  in closing  with  a t the  planning  as  priority  specificity  decisions  areas of  outputs, within  Although  the  Capital  s e l e c t i o n of  in decisions  manager i s f a c e d  and  in  what p r o d u c t i o n  d i r e c t e d towards h i g h e r  targets,  Prices  particularly  the  in their  b a l a n c e s where s u b s t i t u t e s e x i s t , t h e  enterprise  the  planners  of modernizing o l d plants  process,  the  not  considered.  into existing enterprises.  commodities being  do  being  'estimate p r i c e s ' used  investments.  enterprises  vary.  as  above v a r i a b l e s  potential new  as  level  facilitate  only their  serve  to  accounting  procedures. Three major exceptions  to  the  a l l o c a t i v e r o l e of  prices  30 in  the  of  labour,  by  s t a t e and  found  economy  long-term  labour  labour  into  by  into  the  desired  demand. on  the  The  then and  distribution.  a balance  material  of  requirements age,  a l s o on  of  then  skill  basis  labour  force i s  of the  of  of  t h a t of the  requisites  based  distribution the  of  labour  are  level  s e t on  Thus t h e  desired occupational  prices  economy w h i c h a r e  labour  are  'free'  distribution  required spatial  requirements  necessary  the  c a t e g o r i e s by  Wage l e v e l s  and  In the basis of  p r i c e s of fixed  requiallo-  economy  (wage) i n c e n t i v e s t o  kolkhoz supply  levels  are  tive  mechanisms o f b o t h  n a t i o n a l income.  and  some i n d u s t r i a l  the b a s i s of  the  determining  retail  The  ensure  state  supply  trade  the  principle and  the  and  almost  provide  the  i n the  kolkhoz  m a j o r means f o r  p r i c e s of  are  free to f l u c t u a t e rela-  alloca-  markets.  distributing  a l l consumer goods  goods i n c l u d e a t u r n o v e r  enterprise profits,  the  demand; h e n c e i t i s s e e n t h a t  a l s o provi.de  the  on  markets p r i c e s are and  price  Prices  c o n s u m e r goods s o l d by  'roughly'  tive  with  of  the  f o r the  d r a w i n g up  requirements  skill  and  sold  distribution."""  Retail determined  Planning  the  distribution  f o r consumer c o m m o d i t i e s  outlets,  i s done by  specific  force.  p r o v i d i n g the  the  retail  r e q u i r e d , and  geographical  cated  prices set  economic p l a n s .  educational or site  o f wage p r i c e s i n t h e  markets.  economy  disaggregated  the  use  selling  kolkhoz  and  or education  the  cooperative  i n the  resources on  the  i n the  labour  are  tax, which  main s o u r c e  of  along  accumulation  "'"The l a b o u r m a r k e t i n t h e S o v i e t U n i o n i s i n f a c t an i m p e r f e c t m a r k e t due t o t h e i n a d e q u a t e d i s s e m i n a t i o n o f i n f o r m a t i o n r e g a r d i n g employment o p p o r t u n i t i e s .  31 for  the s t a t e budget.  prices,  the Soviet  Through t h e m a n i p u l a t i o n ^ o f  planners  income o f t h e p o p u l a t i o n labour  have b e e n a b l e  low, thus  p a r t i c i p a t i o n along  with  t o keep t h e r e a l  achieving  a high  retail  a high  rate of  rate o f accumulation.  The f o r m u l a t i o n o f i n d u s t r i a l wholesale prices I n d u s t r i a l wholesale transferred within factured  the state  prices  apply  sector  o f t h e economy.  g o o d s , raw m a t e r i a l s ,  agencies  industrial  are included  wholesale  under t h i s  enterprise  settlement sale as  are  prices  wholesale  Enterprise  settlement  prices  f i x e d by l o c a l  heading o f  prices; industry  wholesale and l o c a l  wholesale  prices  a r e f i x e d by n a t i o n a l o r r e g i o n a l the l a t t e r  two c a t e g o r i e s  wholesale p r i c e  enterprise  sells  i s that  production  branch  i t s output.  the  weighted  ducing duction  f o r the product,  average  cost  average costs  as w e l l State  of prices  costs  (both  average  cost  markup.  The p l a n n e d  f o r any commodity  approximates  of production those  from the weighted  b a s e d on l a b o u r  whole-  Two p r i n c i p a l com-  and a p r o f i t  of production  t h e good, b u t e x c l u d e s costs  prices;  p r i c e a t which  p o n e n t s make up t h e s e p r i c e s ; t h e p l a n n e d b r a n c h of  five  authorities.  enterprise  producing  to foreign  are d i f f e r e n t i a t e d into  and i n d u s t r y  Committees, w h i l e  The the  general  p r i c e s ; p r i c e s o f own p r o c u r e m e n t ;  prices.  Planning  by t h e s t a t e  prices.  I n d u s t r i a l wholesale groups:  A l l manu-  semi-fabricates, a g r i c u l t u r a l  p r o c u r e m e n t p r i c e s , and t h e p r i c e s p a i d trade  t o a l l goods t h a t a r e  firms  average.  of the e n t e r p r i s e s with  the highest  Production  d i r e c t and i n d i r e c t  propro-  costs are  labour,  i n c l u d i n g wages,  s a l a r i e s and s o c i a l  ciation  transportation  the  charges,  seller),  planned  various  The  profit  average  overhead  the working charges  that  of production.  profits  payments),  depre-  ( i f t h e y were b o r n e by term c r e d i t s t h a t are  capital  of the e n t e r p r i s e ,  a r e a l l o c a t e d t o t h e product."'"  markup o f t h e e n t e r p r i s e  cost  to provide  charges  i n t e r e s t c h a r g e s on s h o r t  t o supplement  and  insurance  i s c a l c u l a t e d on t h e b r a n c h  The p r o f i t  of approximately  markup was  5 percent  calculated  f o r the i n d u s t r y  2 as  a whole.  profits ducers cost  Consequently,  ranged  to profits  f o r the higher  much i n e x c e s s o f 5 p e r c e n t  utilization  extensively  planned  cost  pro-  f o r the lowest  At t h i s  profits  contributions withdrawals  vestment  and u n p l a n n e d p r o f i t s  point  i t is sufficient  a r e d i s t r i b u t e d among f o u r  be  planning  t o note t h a t  enter-  a l t e r n a t i v e uses:  to special enterprise capital  incentive  of the e n t e r p r i s e  by i t s c h a r t e r  fund);  funds;  supplements  ( t o t h e maximum  and c o n t r i b u t i o n s  amount  to i t s i n -  fund. The  industry  wholesale p r i c e  i s that  price  """Overhead c h a r g e s i n c l u d e f u e l and l i g h t , p e n d i t u r e s on w o r k e r s ' h o u s i n g a n d e d u c a t i o n , and p l e t i o n a l l o w a n c e s f o r e x t r a c t i v e i n d u s t r i e s , and f o r a l l e n t e r p r i s e s a r e n o t i n c l u d e d as c o s t s o f S i m i l a r l y , c h a r g e s f o r i n v e s t e d c a p i t a l were a l s o c o s t c a l c u l a t i o n s p r i o r t o t h e 1965 r e f o r m s .  Soviet p. 84.  will  t o t h e s t a t e b u d g e t by means o f a p r o f i t t a x ;  the working  stipulated  o f planned  examined under t h e s e c t i o n on t h e m i c r o  industry.  prise  to  losses  level  producers. The  of  from planned  at the enterprise  2 Morris Economy,  c h a r g e d by postage, exthe l i k e . Deground r e n t s production. e x c l u d e d from  B o r n s t e i n , "The S o v i e t P r i c e S y s t e m " , i n The e d . by M o r r i s B o r n s t e i n and D a n i e l F u s f e l d ,  the  industry  wholesale items:  sales  price i s derived  the branch  turnover  organizations  taxes  average e n t e r p r i s e  applicable  (if  b o r n e by t h e s a l e s  i s that within  costs  and n o t t h e b u y e r ) .  (as w e l l  the average costs  the branch  with planned p r o f i t s  that  there  with  will  be many  planned  profits  are less subject  enter-  profit  losses).  out of the i n e q u a l i t y of p r o f i t s  with high  whole-  of the branch  the 5 percent  exceed  as many e n t e r p r i s e s  problem a r i s i n g prises  markup o f  and t h e t r a n s p o r t a t i o n  organization  at approximately  enterprises  level  the p r o f i t  outcome o f t h e p r a c t i c e o f s e t t i n g e n t e r p r i s e  prices  prises  wholesale p r i c e ; the  t o the product;  branch sales organization;  sale  The i n d u s t r y  f r o m t h e summation o f t h e f o l l o w i n g  the  An  to state buyers.  The  i s that  to financial  enter-  disci-  pline. To in  those  mitigate  i n d u s t r i e s where s h a r p c o s t  enterprises, quently  t h e above d i s a d v a n t a g e o f a v e r a g e p r i c i n g  used.  an a l t e r n a t i v e s y s t e m o f s e t t l e m e n t These p r i c e s  1  to high  enterprises.  profit  sales  organization  Thus l o w e r s e t t l e m e n t  enterprises  prices  are e s s e n t i a l l y accounting  s e t between t h e b r a n c h o f i n d u s t r y individual  v a r i a t i o n s o c c u r among t h e  prices  ( v i s - a - v i s the e n t e r p r i s e  price)  t o remove t h e e x c e s s i v e  accrue  to these  profits  t h a t would  i s freprices  and t h e are paid wholesale  otherwise  enterprises.  'Own p r o c u r e m e n t p r i c e s ' a r e t h o s e p r i c e s p a i d b y prises  f o r scrap  and l o c a l  raw m a t e r i a l s  utilized  enter  i n manufactur  S e t t l e m e n t p r i c e s a r e p a r t i c u l a r l y used i n petroleum, c o a l , c o t t o n g i n n i n g and t h e cement i n d u s t r i e s as t h e s e i n d u s t r i e s a r e s u b j e c t t o wide c o s t v a r i a t i o n .  34 ing  processes  or  the  workers.  Local wholesale  by  the  own  i n the  enterprise  scraps  sources  at  and  construction  in selling  waste o r  'own  prices output  of are  facilities  those p r i c e s  t h a t was  from m a t e r i a l s  procurement  social  charged  produced  procured  from  for  from i t s local  prices'.  Reforms i n f i n a n c i a l p l a n n i n g and p r i c i n g i n t h e S o v i e t U n i o n : ~1930-19 70 All Soviet  of  the  financial  1960's.  The  significant  system during  1955  r e v i s i o n of  minor s i g n i f i c a n c e i n that price in  formulation.  the  cost  reforms this  that  period  industrial  there  was  no  took p l a c e occurred  wholesale  structure  since  the  time o f  the  last  the  during prices  fundamental  P r i c e s were a l t e r e d t o r e f l e c t  in  the had  change the  in  change  revision in  1949 . The  r e v i s i o n of wholesale p r i c e s  transportation reflect in  the  the  t h a t was  changing  cost  c a l c u l a t i o n of  prices.  In  e f f e c t e d i n 1963  addition,  structure  costs, with relative  their  c a r r i e d out concomitant  menting  desired  s u b s t i t u t i v e changes i n the  economy.  The  e f f e c t of  the  r e f o r m on  level  industry  was  a minor decrease of  f o r heavy  cent."'" edly  The  structure  a l t e r e d to  dustries  and  of  reflect  decreasing  prices within increasing costs  "'"Morris B o r n s t e i n , Revision", Soviet Studies,  changes  l e v e l s were s e t w i t h  a l l o c a t i v e r o l e of  the  heavy  costs  i n other  prices  of  in  on a  imple-  wholesale  about  industry  i n the  and  to  consequent e f f e c t s  sensitivity  prices  the  the  industry  greater  net  to  was  and  price  f o r heavy  3 per-  was  mark-  extractive i n -  industries that  had  been  "The 1963 S o v i e t I n d u s t r i a l P r i c e Vol.XV ( J u l y , 1963), p.46.  e n g e n d e r e d by t h e l a t t e r ' s The in  following the p r i c e  table  increased  productivity  s i n c e 1955.  d e t a i l s t h e d e g r e e o f change t h a t  took  place  structure.  TABLE V AVERAGE PRICE CHANGE BY BRANCH OF INDUSTRY, 1963 PRICE Branch o f Industry  REVISION*  P e r c e n t a g e Change i n t h e Average Branch P r i c e L e v e l  Coal Nonferrous ores Ferrous metallurgy Construction Materials Oil Gas Machine b u i l d i n g Chemicals E l e c t r i c power Railway f r e i g h t  + + + + -  30.0 15.0 8.5 2.0 7.0 10.0 10.0 14.5 15.0 20.0  * Price  Source: Revision",  The  M o r r i s B o r n s t e i n , "The 1963 S o v i e t I n d u s t r i a l S o v i e t S t u d i e s , Vol.XV ( J u l y , 1963), p.48.  above p r i c e changes  to  changes  i n costs.  to  providing  as  a w h o l e was t o a d j u s t  structural  The o b j e c t i v e  a 'normal l e v e l  changes  c a n n o t be a t t r i b u t e d  that  of the reform,  of profitability'  the r e l a t i v e prices had occurred  p r o c e s s was p a r t l y r e s p o n s i b l e structure ter.  Relative  were a l s o mix  prices  of the various  a l t e r e d t o promote g r e a t e r  targets The  assigned price  t o each  f o r the branch  to r e f l e c t the Increased  i n the planning  f o r t h e marked s h i f t  o f f u e l s , due t o t h e i r h i g h  i n addition  i n t h e economy.  awareness o f t h e a l l o c a t i v e a f f e c t o f p r i c e s  strictly  i n the price  i n t e r s u b s t i t u t i v e characoutputs w i t h i n adherence  each  branch  to the output  enterprise.  changes a l s o  r e f l e c t e d two a l t e r a t i o n s made i n  calculating allowances b a s e d on lated  the  average c o s t s o f the  were i n c r e a s e d t o a more r e a l i s t i c  the  revalued  earlier  i n the  penses  attached  in  calculation  the  The the  fall  levels  to the  of costs  gross  investment  1965  billion  and  bank c r e d i t s ."""  was  funds,  of  long-term  t h a t 25  of  October,  48.3  such  calcuex-  included  system o c c u r r e d  grants  used  grants  had  was  the  for financing provided  billion  the  rubles of  r u b l e s ; the  the  remaining  ' d e c e n t r a l i z e d funds'  i n productive resources The  after  significant  reforms,  period necessary  internal  of  1965  billion  bank c r e d i t s .  percent  were  t h a t were  o f t h e most  f i n a n c i n g 4 3.0  investment  f i n a n c e d from the  through  One  budgetary  a transitional  ments, the b u l k be  the  financial  r u b l e s were f i n a n c e d f r o m  After  and  f o r the e n t e r p r i s e s .  i n the  1965,  investments  5.3  level  Geological prospecting  of non-repayable budgetary During  assets  Amortization  e x t r a c t i v e i n d u s t r i e s were now  major reforms  investments. of  fixed  same y e a r .  changes, i n t r o d u c e d a f t e r  bulk  of  o f K h r u s h c h e v i n 1964.  reduction  enterprise.  for price  fixed  of the  capital  was  enterprise  target figure  investments  adjust-  s h o u l d be  to  and  s e t f o r 19 6 7 financed  by  2 the  above-mentioned Under t h e  'fund cing:  means.  new  method o f  self-financing  f o r development of p r o d u c t i o n ' a p o r t i o n of the  had  three  enterprise profits;  """Zaleski, P l a n n i n g R e f o r m s , p. 144. g r o s s 1965 i n v e s t m e n t s i n c l u d e p r i v a t e and investments. 2  Ibid.  the  investments, sources  of  p o r t i o n of  the finanthe  The f i g u r e f o r t h e c o l l e c t i v e farm  amortization ized  allowance that  investment  equipment addition  fund;  ( w h i c h had to  the  and  had  previously  proceeds  previously  above-mentioned  from the  reductions  f o r investment, budgetary  as  financial  grants  had  cases of After with  previously  unfulfilled  the the  granting The  system t h a t levied  of  profit  plans  against  repayable  from the  the  and  grants  enterprise  r e f o r m was gross  the  'own'  f i x e d and  Budgetary  working  The  the  in  losses. replaced  state  bank.  1  financial  a capital  profits.  a percentage of  eliminated  and  Soviet  In  grants  enterprises  discontinued  c h a r g e s were c a l c u l a t e d as enterprises'  state).  were  c r e d i t s from the  1965  unused  f o r unplanned  change i n t h e  central-  i n budgetary  subsidize  p r a c t i c e was  most s i g n i f i c a n t arose  the  resuscitation for firms.  been used t o  reform, t h i s  the  sale of  b e e n t a k e n by  to e n t e r p r i s e s a method o f  gone t o  charge  capital  average value  capital  f o r the  of  planned  2 year. larly cost  Up  until  o p p o s e d on of  capital  capital.  this  time, the  i d e o l o g i c a l grounds Even a t t h i s  charge, which  deduction  Soviet  from gross  formally  recognizing  juncture  in their  history,  rather  Microeconomic Targets, Incentives  Targets  and  been p a r t i c u -  to  i s tantamount profits  U n i o n had  to  the  i n t e r e s t p a y m e n t s , was  t h a n an  a d d i t i o n to  a  costs.  Planning: and Controls  incentives  Microeconomic  planning  "'"Planned l o s s e s  are  of  still  industry  consists  r e i m b u r s e d by  of  budget  the subsidies.  2 section  the  The a b o v e c h a r g e s a r e d i s c u s s e d on m i c r o e c o n o m i c p l a n n i n g .  more f u l l y  under  the  38  assigning  of targets  t o each e n t e r p r i s e ,  encourage the f u l f i l l m e n t  of these  the  e n t e r p r i s e which  the  firm i n i t s productive  deviations  the preceding  annual plans, detail.  to  A preliminary  preliminary  negotiates  part  process  level.  plans  the  enterprise, ers.  agency.  At this  following  plans  The  ferent in  priorities  importance.  output, a  various  cost  attached  Priority  reductions,  system o f sanctions  sponses  figures assigned,  targets  its  superior  a r e a g g r e g a t e d and national plan f o r  the d i r e c t i v e s  o f major p l a n  to the  indices  assigned  on t h e b a s i s  plans.  t o them as t h e y v a r i e d  i n d i c e s , namely t h o s e  managers.  limits  these  had d i f -  considerably  regarding  gross  were r e i n f o r c e d by  to provide  Since  and  i n d i c a t e the  to the e n t e r p r i s e  and wage f u n d  lead-  assigned.  to enterprises  and i n c e n t i v e s  from e n t e r p r i s e  with  and  the d r a f t plans are  e c o n o m i c and f i n a n c i a l targets  drafts  drafts detailed production  t h a t were a s s i g n e d  the disaggregated The  table  hierarchy  by t h e g o v e r n m e n t a n d p a r t y  accordingly  following  economic p l a n i s  f l o w s down t h e h i e r a r c h y  approval  of  was d e s c r i b e d i n  the enterprise  where t h e y  i n compliance with  numerous t a r g e t s of  point  i n t o the integrated then  and i n d i c a t e  down t h e a d m i n i s t r a t i v e  After approval,  The p l a n  The e n t e r p r i s e  financial  f o r industry  b a s e d on t h e c o n t r o l  consolidated  economy.  activities  d r a f t o f the n a t i o n a l  p a s s e d b a c k up t h e h i e r a r c h y , eventually  over  o f t h e p a p e r on t h e f o r m u l a t i o n  any change i n i t s a s s i g n e d  administrative  and c o n t r o l s  targets.  as i t i s p a s s e d  the e n t e r p r i s e  its  and f i n a n c i a l  the planning  disaggregated  targets,  schemes t o  a r e meant t o e n s u r e t h e p r o p e r c o n d u c t o f  from t h e a s s i g n e d  In  incentive  appropriate r e same  indices  39 provided  the b a s i s f o r managerial  remaining  indices  e v a l u a t i o n and r e w a r d s ,  assumed s e c o n d a r y  TABLE  importance.  VI  MAJOR PLAN INDICES ASSIGNED TO  FIRMS*  Technical progress - i n s t a l l a t i o n o f new equipment - s t a r t i n g up new processes - improvement o f processes - new p r o d u c t d e s i g n - prototype building  Output - gross output - marketable output - output composition assortments new products improvement o f p r o d u c t s subcontracted output Labour  the  productivity  Capital  Costs - production costs of marketable output - expenditures per r u b l e of marketable output - percentage cost reduction - u n i t c o s t s o f m a j o r goods  and  current  repairs  Fixed Assets - new m a c h i n e r y and equipment - c o n s t r u c t i o n work Labour - wage f u n d ( t o t a l and a c cording to categories) - a v e r a g e wages  Accumulation - turnover tax - profit c o n t r i b u t i o n s to budget and s t a t e share remaining i n f i r m d i s t r i b u t i o n among v a r i o u s funds percentage of p r o f i t (to c o s t )  Materials - from s p e c i f i c s o u r c e s - f o r s p e c i f i c uses Working c a p i t a l - normatives - b a l a n c e a t end o f period - rate of turnover  D e p r e c i a t i o n and i t s apportionment  plan  *  Source: G e o r g e F e i w e l , The S o v i e t Q u e s t f o r E c o n o m i c Efficiency: I s s u e s , C o n t r o v e r s i s, and R e f o r m s , p.111.  The targets  differed  managerial b o n u s e s was output  system  c r e a t e d t o s t i m u l a t e the  between m a n a g e r i a l  personnel the  target  the  primary  fulfillment  (as w e l l  as  fulfillment  personnel  criterion  and  the  workers;  f o r t h e payment  or o v e r f u l f i l l m e n t  fulfilling  of  target  of the  gross  for cost  plan for of  40 reduction). to  The  1  the v a r i o u s  following  managerial  table  i n d i c a t e s t h e premiums  l e v e l s as a p e r c e n t a g e  of t h e i r  paid basic  salary.  TABLE  VII  PREMIUMS FOR PLANT MANAGEMENT (percentages of b a s i c salary) For f u l f i l l m e n t o f p r o d u c t i o n t a r g e t by  Machinery Automotive transport Coal Mining Chemical  Group I  Group II  Group III  Senior  management  For each percentage of o v e r f u l f i l l m e n t of p r o d u c t i o n t a r g e t by Group I  ( d i r e c t o r and  Group II  chief  Group III  engineer)  37  30  22  4  3  2  30 100 75  25  20  4 10 8  3  2  I n t e r m e d i a t e management ( d e p u t y d i r e c t o r s , shop and d e p a r t m e n t a l c h i e f s ) Machinery Automotive transport  30  22  15  3  2  1.5  25  20  15  3  2  2  J u n i o r management ( d e p u t y shop and department c h i e f s , s e n i o r e n g i n e e r s , s e n i o r foreman) Machinery Automotive transport  * Source Planning, p.76.  The  22  15  15  2  1.5  20  15  15  3  2  Abram B e r g s o n ,  incentive  scheme u s e d  The  Economics  to encourage  of  1.5 2  Soviet  worker  fulfillment  B e r g s o n has n o t e d t h a t t h i s l a t t e r p r o v i s o was n o t a l ways i m p e r a t i v e . The r e a s o n f o r t h i s i s t h a t t h e s o v n a r k h o z y were e v a l u a t e d p r i m a r i l y by t h e i r d e g r e e o f f u l f i l l m e n t o f t h e i r gross output targets. (Abram B e r g s o n , The E c o n o m i c s o f S o v i e t P l a n n i n g , p.7 8.)  o f p l a n i n d i c e s was  considerably  d i f f e r e n t t h a n t h a t used t o  reward m a n a g e r i a l p e r s o n n e l as the l a t t e r were much more i n f l u e n t i a l i n the a t t a i n m e n t o f key  targets.  an i n d u s t r y are c l a s s i f i e d i n t o one i n g on t h e q u a l i f i c a t i o n and pay  A l l workers w i t h i n  o f e i g h t c a t e g o r i e s , depend-  s k i l l s r e q u i r e d , and  an  appropriate  r a t e f o r each grade i s e s t a b l i s h e d by the S t a t e Committee  on Labour and Wages. of labour  r e m u n e r a t i o n i s d i f f e r e n t i a t e d between s t r a i g h t t i m e  and p i e c e w o r k wages. are e s t a b l i s h e d and t h e d a i l y pay norms.  Among t h e s e v a r i o u s c a t e g o r i e s , the method  For p i e c e r a t e w o r k e r s , d a i l y p i e c e norms the p i e c e r a t e i s d e t e r m i n e d by d i v i d i n g  a c c o r d e d t o the a p p r o p r i a t e  groups by the  piece  Thus f o r o v e r f u l f i l l i n g h i s norm the w o r k e r i s remun-  e r a t e d u s u a l l y on a s t r a i g h t p i e c e r a t e basis."'"  These p i e c e  norms were r e g u l a r l y r e v i s e d t o o f f s e t and encourage productivity.  Incentives  increased  t o encourage s t r a i g h t time w o r k e r s i n  f u l f i l l i n g p l a n n e d t a r g e t s were p r i m a r i l y p r o v i d e d  by bonuses  2  p a i d from p r o f i t - s h a r i n g arrangements. The s o u r c e o f the major p r o p o r t i o n o f i n c e n t i v e payments 3  up t o 1966  was  the e n t e r p r i s e fund.  were made from p r o f i t s and  D e d u c t i o n s i n t o the  fund  the r a t e s f o r t h e s e d e d u c t i o n s v a r i e d  "'"Progressive p i e c e r a t e s f o r over-norm f u l f i l l m e n t i n p r i o r i t y s e c t o r s were used w i d e l y a t one t i m e , but have been s e v e r e l y reduced s i n c e 1966. ( A l e c Nove, The S o v i e t Economy,  p.133.)  2  In e n t e r p r i s e s t h a t i n c u r r e d p l a n n e d l o s s e s , i n c e n t i v e s schemes were based on the degree o f o v e r f u l f i l l m e n t o f p l a n n e d cost reductions. 3  B e f o r e 19 56 the e n t e r p r i s e fund was c a l l e d the d i r e c t o r s fund. Other minor s o u r c e s o f i n c e n t i v e payments were: the consumer goods fund ( f o r improvement o f q u a l i t y and f o r p r o d u c t i o n from w a s t e ) ; the s o c i a l i s t c o m p e t i t i o n fund; bonuses f o r the i n t r o d u c t i o n o f new t e c h n i q u e s ; and bonuses f o r e x p o r t d e l i v e r i e s .  42 between p l a n n e d and unplanned ent branches  of i n d u s t r y .  p r o f i t s as w e l l as between d i f f e r -  For example, the a l l o c a t i o n o f p r o -  f i t s t o t h e e n t e r p r i s e fund was  6 p e r c e n t of p l a n n e d  profits  and 60 p e r c e n t o f o v e r p l a n p r o f i t s f o r the cement i n d u s t r y ; f o r machine b u i l d i n g and m e t a l w o r k i n g the comparable f i g u r e s were 4 p e r c e n t and 50 p e r c e n t ; i n a l l cases t o t a l d e d u c t i o n s t o the e n t e r p r i s e fund were not t o exceed 5.5 fund.  1  p e r c e n t o f the wages  The r u l e s a p p l y i n g t o t h e u t i l i z a t i o n o f the e n t e r p r i s e  fund were the f o l l o w i n g :  an amount g r e a t e r o r e q u a l t o 40 p e r -  c e n t o f the fund had t o be spent on communal h o u s i n g c o n s t r u c t i o n and/or r e p a i r s on communal houses;  an amount l e s s t h a n o r  e q u a l t o 40 p e r c e n t o f t h e fund on bonuses, and/or f r i n g e benefits,  ( e . g . , v a c a t i o n s , and p e r s o n a l l o a n s t o w o r k e r s ) ; an  amount e q u a l t o o r g r e a t e r t h a n 20 p e r c e n t o f t h e i n c e n t i v e had t o be spent on new  t e c h n o l o g y , machinery 2  modernization  fund and  t h e improvement o f p r o d u c t i o n t e c h n i q u e s . The  d i s r e g a r d f o r many c e n t r a l l y planned i n d i c e s t h a t  a r o s e because t h e m a n a g e r i a l i n c e n t i v e system was based on the key i n d e x o f g r o s s o u t p u t l e a d t o a g e n e r a l r e v i s i o n o f the system i n 1959. payments was  H e n c e f o r t h the c e n t r a l c r i t e r i o n f o r premium  t o be based on the degree o f f u l f i l l m e n t o f t h e  cost reduction target.  I n a d d i t i o n the amount o f bonus payments  were t o be a f f e c t e d by t h e degree o f f u l f i l l m e n t o f g r o s s o u t put, assortment  and l a b o u r p r o d u c t i v i t y i n d i c e s .  The new  system  s e v e r e l y r e d u c e d the bonuses r e c e i v e d by m a n a g e r i a l p e r s o n n e l , "''D.A. A l l a k h u e r d y a n , S o v i e t F i n a n c i a l System, 2 Z a l e s k i , P l a n n i n g Reforms, p.148.  p.146  43 which  undoubtedly  reforms  rate of  level.  made a t t h i s  those  consequent  g e n e r a l l y had  the worker was  had  little  One  on  the  their  morale."'"  incentive  exhibit  obvious  b e n e f i t s by  to s t r a i g h t  time.  number o f p i e c e w o r k e r s  b e i n g on  T h i s had  i n the  The  system  at  scheme  a l l p i e c e r a t e j o b s were r e v i e w e d  scheme were s w i t c h e d  r e d u c i n g the  effect  on  m o d i f i c a t i o n t o t h e w o r k e r bonus  time:  t h a t d i d not  effects  and  a piece  the  effect  industrial  labour  2 force  from The  the  73  percent  new  prises'  d i d not  s o l v e the problem o f the  out  economic r e s o u r c e s  utilization  percent.  s y s t e m d e s c r i b e d above o n l y  that arose  problem of c r e a t i n g  priate  61  incentive  c h a r a c t e r of but  inefficiencies  to  proper  of the m a n i p u l a t i n g  t o maximize m a n a g e r i a l  o f economic r e s o u r c e s  These p r o p o s a l s  the whole system o f nificant  stimulus  administration  gross  of the  enter-  rewards.  i n c e n t i v e s which would maximize and  direct  o b j e c t i v e s formed the b a s i s o f the  proposals.  altered  suggested  industrial  now  them t o w a r d famous  a radical  the  appro-  Liberman  reformation i n  a d m i n i s t r a t i o n and  were a  t o t h e w i d e r a n g i n g d i s c u s s i o n s on  that culminated  The  sig-  industrial  i n the major economic reforms  of  1965. The ciencies  basic thrust  a t the micro  of the  level  utilization  aimed a t r e d u c i n g  of administration.  system of e n t e r p r i s e c o n t r o l cient  reform  of c a p i t a l ,  had  been  inadequate  in fostering  rapid  The  defi-  pre-existing  i n the  effi-  increases in  "'"The s h a r e o f bonus payments t o t h e b a s i c s a l a r i e s o f e n g i n e e r s and t e c h n i c i a n f e l l f r o m 26.4 p e r c e n t i n 1959 t o 19 p e r c e n t i n 1960, 13.2 p e r c e n t i n 1961 and 11.6 p e r c e n t i n 1962. ( Z a l e s k i , P l a n n i n g R e f o r m s , p.67.) 2  Zaleski,  Planning  Reforms,  p.58.  44 labour prise  p r o d u c t i v i t y and level,  technology reforms the  as  as  abolished  eight  targets  point  of  the  introducing  indices  assigned  assigned the  the  to  profit  7) 8)  1965  evaluation. are  reduced  enterprise  concept  as 1  the The  to  pivotal eight  shown i n  the  VIII  CENTRALLY TARGETED ENTERPRISE INDICES,  3) 4) 5) 6)  The  newer  table.  TABLE  1) 2)  enter-  s y s t e m and  the  enterprise  the  i n t r o d u c t i o n of  incentive  c o n t r o l and to  the  at  central authorities.  pre-existing  administrative  following  the  central indices by  innovations  i n encouraging  recommended by  number o f  central  well  i n promoting  INTRODUCED POST-1965*  Sales. A s s o r t m e n t 'mix', i . e . , p h y s i c a l o u t p u t t a r g e t s o f p r i n c i p a l p r o d u c t s , i n c l u d i n g p r o d u c t i o n f o r e x p o r t and o u t p u t q u a l i t y . P r o f i t ( g r o s s ) and p r o f i t a b i l i t y . Wage f u n d . C o n t r i b u t i o n s t o the c e n t r a l budget. C a p i t a l i n v e s t m e n t s f r o m c e n t r a l f u n d s , ( s p e c i f y i n g amount of c o n s t r u c t i o n , t a r g e t dates f o r i n i t i a l operations of new capacities). I n t r o d u c t i o n o f new t e c h n o l o g y and a s s i m i l a t i o n o f new products. Material supplies. Source:  The  sales  Schroeder,  target  "Soviet  (or output  Economic  sold)  Reforms",  replaced  the  p.4.  gross  The i n t r o d u c t i o n o f p r o f i t a b i l i t y as one o f t h e g u i d i n g f o r c e s i n the e x e c u t i o n of the economic plans n e c e s s i t a t e d a complete r e v i s i o n of i n d u s t r i a l w h o l e s a l e p r i c e s i n o r d e r to e n s u r e t h a t t h e n o r m a l o p e r a t i o n o f most e n t e r p r i s e s w o u l d p r o v i d e an a d e q u a t e p r o f i t . C o n s e q u e n t l y , as a p r i c e r e f o r m was a n e c e s s a r y p r e r e q u i s i t e t o i n t r o d u c i n g t h e new m i c r o c o n t r o l s , t h e i n t e n t i o n t o r e v i s e p r i c e s was a l s o a n n o u n c e d a t t h e same t i m e as t h e r e f o r m p r o p o s a l s . The p r i c e r e f o r m began immedia t e l y a f t e r t h e d e c i s i o n t o a d o p t t h e new g u i d a n c e s y s t e m was t a k e n and t h e f i r s t e n t e r p r i s e s were p u t u n d e r t h e new controls i n l a t e 1966 and e a r l y 1967.  value plan  of output  index  fulfillment.  incentive  as  the  Corresponding  system;  bonuses  shown by The  tion  profit  to  efficiency,  limits,  charge  mix  facilities arisen  to ensure  to the  occurred with  t o f i n a n c e t h e b u l k o f new was  based  varied  averaged  on  of the  capital,  financing  enterprise  charge  was  f o r the  to induce  particularly  fixed  from  meant t o d i s c o u r a g e had  the  investment.  value of  fixed  planned  the  occurred  "'"Alec Nove, The  budgetary  have  alterations  introduction  of  repayable  The and  capital 'own'  year.  work-  The  capital  o f i n d u s t r y but  efficiency  capital.  speci-  profit.  f o r i n d u s t r y as a whole.''"  investments  that  average  of  concentration of  of long-term  c o n s i d e r a b l y between b r a n c h e s  6 percent  capital  the  physical  items, which would  t o maximize  substitution  wage  balance  above c h a n g e s , t h e m a j o r  system the  The  to discourage  attempt  total  the o v e r a l l  population.  remained  i n the  and  e x c e p t i o n o f the  on h i g h p r o f i t  guidance  charge  capital  sources  the  e x p e n d i t u r e of the  the micro  credits  with  which remained  of output  a capital  was  profit-  enterprise.  based  In a d d i t i o n  of  and  related  otherwise  the  increases in sales  and  o f most t a r g e t s p r e v i o u s l y a s s i g n e d t h a t  production  levy  personnel  new  elimina-  fication  ing  managerial  of  f o r the  income and  in  target  bonus scheme a l l o w e d  enterprise fund  the  the  quantitative  c h a n g e s were made i n t h e  f o r both  w o r k e r s were d e p e n d e n t on ability  principal  The i n the  Shifting  grants  objective  utilization the  source  to long-term  level  S o v i e t Economy, p. 200.  when  of  credits  a b u n d a n t demand f o r i n v e s t m e n t  at the e n t e r p r i s e  of  re-  investment  46 funds  had been p r o v i d e d by n o n - r e p a y a b l e  system,  investment  profits  and t h e i n t e r e s t  from  credits  gross p r o f i t s  incentive  funds.  charge  charges  were  ciated group base ary  with  New  tain for  credits,  In the former  had been completed,  were n o t t o be i n c l u d e d  capital  investments  self-financed  profit  after  charges  so t h a t  their were  Thus t h e t e m p o r a r y  investments  over  those  centive  f u n d s . . The f o l l o w i n g  figure  profits.  For the d i s t r i b u t i o n  of profits  that  capital  charge  payments  the f o l l o w i n g and bank  investment  funds;  Feiwel,  Soviet  f o r the i n dis-  Quest,  only to planned  exceed  the  exceeding  the  exist:  planned;  social-cultural-housing,  payments  bonuses; repayment o f working  1  interest  order of p r i o r i t i e s  interest  to the m a t e r i a l - i n c e n t i v e ,  decentralized tion  payments  long-term  profits. refers  of p r o f i t  c o u l d ob-  the schematic  of profits  level  Tempor-  1  encouraged  carried  division  planned  levy  internally  available  shows  latter  their innovations  f i n a n c e d by  the p r o f i t  asso-  i n the c a p i t a l  exemption  and t h e r e f o r e r e d u c e d  following  capital  while the  given to  type o f investments  of enterprise  credits from the  completion.  a c c r u i n g from  charges  The  deducted  case  progressive enterprises  benefits  as t h e l a t t e r  tribution  was  the repayment o f the c r e d i t s  o f two y e a r s  years.  credits  enterprise  f i n a n c e d by l o n g - t e r m  of time.  after  the investment  exemptions from  several  investments  initiated  the f u l l  out of  r e s o u r c e s o f t h e f i r m were exempted  of investments  financed  attached to these  f o r a period  for a period  t o be r e p a i d  Under t h e new  b e f o r e any payments were made t o any o f t h e  o r by t h e i n t e r n a l capital  were  grants.  for socialist  capital  p.294.  credits;  and  competi-  repayment o f  47  l o n g - t e r m c r e d i t s ; a l l o c a t i o n s f o r i n c r e a s i n g t h e o u t p u t o f consumer goods; a l l o c a t i o n s f o r i n t r o d u c i n g new p r o d u c t l i n e s ; payments f o r t h e improvement o f p r o d u c t q u a l i t y ; o t h e r c h a r g e s ; remainder t o budget.  FIGURE I SCHEMATIC DISTRIBUTION OF ENTERPRISE PROFITS' Gross P r o f i t P r o f i t Tax C a p i t a l Charge-  - I n t e r e s t on C r e d i t s  - P r o f i t Disbursements I Material Fund  Incentive  Social, Cultural and H o u s i n g Fund I Decentralized I n vestment Fund Source:  Repay nlent o f LongTerm C r e d i t  Reserve f o r F i n a n c i a l Aid to Enterprises  Financing Centralized Investments  Payment o f o t h e r P l a n n e d Expenses  I n c r e a s e s o f Working Capital  F r e e Remainder o f P r o f i t (transferred t o budget)  F e i w e l , S o v i e t Quest, p.29 3.  N.B., o r d e r o f p r i o r i t y i s l e f t t o r i g h t .  To encourage t h e f u l f i l l m e n t  ( o v e r f u l f i l l m e n t ) of the  new t a r g e t i n d i c e s a s s i g n e d t o t h e f i r m a new i n c e n t i v e system was c r e a t e d  t o provide the necessary m a t e r i a l  The p r e - r e f o r m i n c e n t i v e scheme was a b o l i s h e d three funds:  reinforcement. and r e p l a c e d by  t h e m a t e r i a l i n c e n t i v e fund; t h e s o c i a l , c u l t u r a l  and h o u s i n g fund; and t h e development fund ( d e c e n t r a l i z e d i n vestment fund) .  48  The m a t e r i a l i n c e n t i v e fund i s t h e p r i m a r y s o u r c e o f bonuses f o r b o t h m a n a g e r i a l and p r o d u c t i o n p e r s o n n e l as w e l l as workers.  Payments i n t o t h i s fund a r e d e r i v e d from t h r e e s o u r c e s :  a p e r c e n t a g e o f t h e t o t a l wage b i l l  ( g e n e r a l l y f o r worker  b o n u s e s ) ; a g i v e n p e r c e n t a g e o f t h e wage fund f o r i n c r e a s e s i n profits  (or s a l e s where i t i s t h e c h i e f i n d e x ) ; and a g i v e n  p e r c e n t a g e o f t h e wage fund f o r i n c r e a s e s i n p r o f i t a b i l i t y ( n e t p r o f i t as a p e r c e n t a g e o f t h e annual average employed).  The a c t u a l p e r c e n t a g e  stock of c a p i t a l  r a t e s o f t h e 'norms' t h a t a r e  used v a r y between groups o f e n t e r p r i s e s and/or i n d i v i d u a l e n t e r p r i s e s because under t h e e x i s t i n g p r i c e system e n t e r p r i s e s have widely d i f f e r i n g p r o f i t a b i l i t i e s .  I n d i v i d u a l l y c a l c u l a t e d norms  a l l o w t h e p l a n n e r s t o g i v e g r e a t e r emphasis t o , f o r example, s a l e s r a t h e r than The  profitability.  1  fund f o r s o c i a l , c u l t u r a l measures and h o u s i n g  con-  s t r u c t i o n i s f i n a n c e d from t h e same s o u r c e s as t h e m a t e r i a l i n c e n t i v e fund b u t d i f f e r e n t norms a r e used i n c a l c u l a t i n g t h e d e d u c t i o n s from p r o f i t s . k i n d f o r t h e workers  T h i s fund i s e s s e n t i a l l y a bonus i n  and i s expended on such t h i n g s as k i n d e r -  g a r t e n s and s p o r t s f a c i l i t i e s ,  as w e l l as f o r t h e b u i l d i n g and  r e p a i r i n g o f houses. ''"An example c i t e d by Z a l e s k i w i l l e l u c i d a t e t h e method used: " f o r each percentage p o i n t o f i n c r e a s e i n p r o f i t s , p r o f i t s amounting t o 0.5 p e r c e n t o f t h e p l a n n e d wage fund may be t r a n s f e r r e d t o t h e i n c e n t i v e fund; f o r each p e r c e n t a g e p o i n t o f i n c r e a s e i n p r o f i t a b i l i t y , p r o f i t s amounting t o 0.25 p e r c e n t may be t r a n s f e r r e d . I f planned and a c t u a l p r o f i t s i n c r e a s e by 8 p e r c e n t and p r o f i t a b i l i t y by 20 p e r c e n t , (0.5 x 8) + (0.25 x 2 0 ) , or 9 p e r c e n t o f t h e p l a n n e d wage fund f o r p r o d u c t i o n p e r s o n n e l i s t o be deducted from p r o f i t s and p l a c e d i n t h e fund f o r material incentives". ( Z a l e s k i , P l a n n i n g Reforms, p.151).  49 The development fund o f t h e f i r m i s used t o f i n a n c e i n vestments and the i n t r o d u c t i o n o f new t e c h n i q u e s .  Resources f o r  the development fund o r i g i n a t e from the f o l l o w i n g s o u r c e s : s e t o f norms a p p l i e d t o p l a n n e d i n c r e a s e s ability  a  i n p r o f i t s and p r o f i t -  (these norms are a p p l i e d a g a i n s t t h e p l a n n e d v a l u e o f  b a s i c c a p i t a l , i . e . , e n t e r p r i s e f i x e d c a p i t a l and i t s 'own' working c a p i t a l ) ; a p o r t i o n of the firm's amortization  allow-  ance; and revenue from t h e s a l e o f f i x e d a s s e t s . In t h e case o f t h e t h r e e above-mentioned f u n d s , o v e r f u l f i l l m e n t and u n d e r f u l f i l l m e n t o f t h e p l a n t a r g e t s f o r s a l e s , p r o f i t s - a n d p r o f i t a b i l i t y a r e p e n a l i z e d by a r e d u c t i o n i n t h e norms used t o c a l c u l a t e d e d u c t i o n s i n t h e o r d e r o f a p p r o x i m a t e l y 30 percent."'"  A minimum f l o o r o f 40 p e r c e n t o f t h e p l a n n e d  c a t i o n s t o t h e s e funds i s p r o v i d e d 2 gross e r r o r s m  achievement.  allo-  to m i t i g a t e the e f f e c t of  The p r o f i t f i g u r e a g a i n s t  a l l o f t h e above s e t s o f norms use as a f o u n d a t i o n  which  forcalcula-  t i o n i s net p r o f i t  ( i . e . , g r o s s p r o f i t minus c a p i t a l , r e n t and  i n t e r e s t charges).  F o r a l l o f t h e above funds a p r e c o n d i t i o n  f o r p r o f i t d e d u c t i o n s t o t h e i n c e n t i v e funds i s t h e achievement o f t h e f i r m ' s a s s o r t m e n t mix t a r g e t s .  F o r e n t e r p r i s e s t h a t are  to operate a t a planned l o s s , the deductions t o various  funds  are based on t h e d e c r e a s e i n c o s t s e x p r e s s e d as a p e r c e n t a g e o f the f i r m ' s  capital.  """Nove, The S o v i e t Economy, p. 36. A n o t h e r source notes t h a t t h e amount o f r e d u c t i o n o f t h e norms f o r u n d e r f u l f i l l m e n t o f p r o f i t s o r s a l e s i s f i x e d by t h e m i n i s t r y i n c h a r g e , b u t the r e d u c t i o n cannot be l e s s than 3 p e r c e n t f o r each p e r c e n t a g e p o i n t o f u n d e r f u l f i l l m e n t . ( Z a l e s k i , P l a n n i n g Reforms, p.151). 2 Nove, The S o v i e t Economy, p.37.  50 Controls In the S o v i e t Union a l l economic u n i t s can be  classified  as e i t h e r budget s u p p o r t e d i n s t i t u t i o n s or a g e n c i e s and schet o r g a n i z a t i o n s budget f i n a n c e d  or e n t e r p r i s e s .  i n s t i t u t i o n s was  The  khozra-  control exerted  described  over  i n the s e c t i o n of  paper d e a l i n g w i t h the i m p l e m e n t a t i o n o f the b u d g e t .  the  The  1  k h o z r a s c h e t system i s the form of f i n a n c i a l o r g a n i z a t i o n  that  i s a p p l i e d t o a l l i n d u s t r i a l e n t e r p r i s e s , as w e l l as t h o s e o r ganizations  t h a t are i n v o l v e d i n the i n t e r m e d i a t e  d i s t r i b u t i o n o f goods i n the economy.  final  A l l khozraschet organi-  z a t i o n s have the f o l l o w i n g c h a r a c t e r i s t i c s : e n t i t i e s and  and  t h e y are  legal  can t h e r e f o r e e n t e r c o n t r a c t u a l o b l i g a t i o n s  i n c u r m a t e r i a l r e s p o n s i b i l i t i e s ; each o r g a n i z a t i o n i s an economic p l a n t o f u l f i l l ;  the o p e r a t i o n s  of these  and  assigned organiza-  t i o n s are s u b j e c t t o ' c o n t r o l by the r u b l e ' t o ensure the f i l l m e n t of t h e i r a s s i g n e d  plans.  The  following section  s p e c i f i c a l l y w i t h the microeconomic c o n t r o l s t h a t are in controlling  the o p e r a t i o n s  fuldeals  utilized  o f i n d u s t r i a l e n t e r p r i s e s but  the  methods of c o n t r o l are g e n e r a l l y a p p l i c a b l e t o a l l k h o z r a s c h e t institutions. various  C o n t r o l o v e r the economic o p e r a t i o n s  the  s t a t e e n t e r p r i s e s i s m a i n t a i n e d by a c o m b i n a t i o n of  p h y s i c a l and monetary c o n t r o l s . c a l and  of  The  f u l f i l l m e n t of both p h y s i -  f i n a n c i a l i n d i c e s o r t a r g e t s are r e p o r t e d by the  firm  i n the monthly, q u a r t e r l y and y e a r l y r e p o r t s i t must submit t o the a d m i n i s t r a t i v e l e v e l t o which i t s s u b o r d i n a t e ministry).-  The  a u d i t i n g of e n t e r p r i s e r e c o r d s  '''See pp.26-27.  to  (glavk  t a k e p l a c e on  or a  51 y e a r l y b a s i s t o ensure t h e a c c u r a c y o f t h e above r e p o r t s .  1  The  above-mentioned c o n t r o l p r o c e d u r e s a r e o n l y e f f e c t i v e d u r i n g a p r o l o n g e d time span and c o n s e q u e n t l y a r e i n e f f e c t i v e f o r t h e continual control of enterprise a c t i v i t i e s . tion of enterprise a c t i v i t i e s  i s provided  Constant observa-  by t h e c o n s t a n t s c r u -  t i n y of the f i n a n c i a l transactions of a l l enterprises  through  the s t a t e bank. To p r o v i d e  f o r ' c o n t r o l by t h e r u b l e ' a l l goods and  s e r v i c e s r e c e i v e d by any economic u n i t i n t h e c o u n t r y must be paid for.  Payment f o r goods and s e r v i c e s must t a k e p l a c e i n  the p r e s c r i b e d  form as t h e g r a n t i n g o f commercial c r e d i t i s  banned and t h e 'cash' b a l a n c e s m a i n t a i n e d by t h e e n t e r p r i s e s are r i g i d l y c o n t r o l l e d .  Cash payments made by e n t e r p r i s e s a r e  r e s t r i c t e d t o t h e payment o f wages, and minor s e r v i c e s may be p a i d f o r o u t o f p e t t y c a s h ) .  (which  For the vast majority of  the goods and s e r v i c e s r e c e i v e d by an e n t e r p r i s e , payments must be made t h r o u g h book account t r a n s f e r s o f bank d e p o s i t s  v i a the  s t a t e bank. The most common method o f payment used i s where payment i s i n i t i a t e d by t h e payee by means o f t h e 'acceptance method'. Under t h i s method t h e s u p p l i e r d r a f t s an i n v o i c e - p a y m e n t demand which i s a n o n - n e g o t i a b l e , n o n - a s s i g n a b l e d r a f t on t h e p u r c h a s e r . Campbell n o t e s t h a t i n a d d i t i o n t o t h e above c o n t r o l s , the e n t e r p r i s e books a r e a v a i l a b l e t o t h e a u d i t i n g s t a f f s o f t h e M i n i s t r y o f F i n a n c e , t h e C e n t r a l S t a t i s t i c a l A d m i n i s t r a t i o n and the Committee o f S t a t e S e c u r i t y . I n t e r n a l observations of the f i r m ' s a c t i v i t i e s a r e a l s o p r o v i d e d by t h e c h i e f bookkeeper, who i s p r i m a r i l y r e s p o n s i b l e t o t h e a d m i n i s t r a t i v e a g e n c i e s above tne f i r m , and by r e p r e s e n t a t i v e s o f t h e Communist P a r t y who operate w i t h i n the e n t e r p r i s e . (Robert C a m p b e l l , S o v i e t Economic Power, p . 6 8 ) .  The  payee d e l i v e r s  after  the d r a f t  t h e goods c o v e r e d  t h e method o f payment that  o f subsequent  payer's branch  i n the  invoice  stipulated  acceptance,  bank  acceptance within  to h i s branch  two  days  inter-firm  the d r a f t The  p a y e r must  inter-city  liveries  t o r e m o t e a r e a s o f t h e country."'"  given, is  the payer's  credited.  subsequent unless  account  the  three  days  seven  days  After  acceptance i s  the payee's  acceptance  f o r de-  account  i s of  the  s o r t where payment demands a r e c o n s i d e r e d a c c e p t e d  advised otherwise within  rights  the payer's by  i s d e b i t e d and  In the m a j o r i t y o f cases  Under t h e s u b s e q u e n t ance  and w i t h i n  to  acknowledge  deliveries,  f o r most  If  contract i s  i s forwarded  for intra-city  deliveries,  bank  have been s h i p p e d .  i n the  f o r acceptance.  of the s t a t e  a c c e p t a n c e method  have been waived account  and  the payee's  i s d e b i t e d on  the payee to h i s b r a n c h  distribution  the p r e s c r i b e d  bank.  time  i n c a s e s where a c c e p t  account  i s credited  the p r e s e n t a t i o n Gallick  limits.  of the  gives the  draft  following  o f t h e v a r i o u s t y p e s o f a c c e p t a n c e methods  TABLE  and  used.  IX  ACCEPTANCE METHODS EMPLOYED* Type o f A c c e p t a n c e P r i o r acceptance Subsequent acceptance Acceptance waived cial  Source: U.S. S y s t e m , p.272.  System",  Bureau  Percentage 1958  Distribution 1961  62.8 31.5 5.7  42.0 55.1 2.9  o f the Census,  Hodgman, " S o v i e t M o n e t a r y p.373.  The  Soviet  C o n t r o l s through  the  Finan-  Banking  53 The a c c e p t a n c e method i s used o n l y i n payments f o r goods and s e r v i c e s and accounts f o r 80 p e r c e n t of a l l such payments.""" The i n c r e a s i n g use o f the subsequent  acceptance p r o c e d u r e  that  i s e v i d e n t i n the above d i s t r i b u t i o n i s a t t r i b u t a b l e t o the d e s i r e o f the f i n a n c i a l a u t h o r i t i e s t o h a s t e n c l e a r i n g p r o c e dures and thus reduce the w o r k i n g c a p i t a l b a l a n c e s needed by the  enterprises. A v a r i a t i o n o f the a c c e p t a n c e methods n o t e d above,  which  has been i n c r e a s i n g l y adopted t o s i m p l i f y c l e a r i n g  operations,  i s the opening o f mutual o f f s e t c l e a r i n g a c c o u n t s .  Under t h i s  scheme, groups o f e n t e r p r i s e s w h i c h have many m u t u a l l y compens a t i n g t r a n s a c t i o n s w i t h one a n o t h e r a r e g i v e n s p e c i a l accounts w h i c h a r e k e p t s e p a r a t e d from t h e i r b a s i c a c c o u n t .  The  account  i s used f o r t r a n s a c t i o n s w i t h f i r m s p a r t i c i p a t i n g i n t h e mutual o f f s e t group.  Subsequent  a c c e p t a n c e methods are used and  each  account i s n e t t e d and a u d i t e d a t i n t e r v a l s t h a t are adopted t o the p a r t i c u l a r e n t e r p r i s e p r o d u c t i o n s c h e d u l e .  The n e t b a l a n c e  of the account i s then t r a n s f e r r e d t o the e n t e r p r i s e s '  regular  account. Other non-cash methods o f payment used i n c l u d e payment a u t h o r i z a t i o n s , l e t t e r s o f c r e d i t s , s e t t l e m e n t cheques and  col-  l e c t i o n a u t h o r i z a t i o n s . Payment a u t h o r i z a t i o n s a r e g e n e r a l p u r pose payment documents i n which the payer d i r e c t s h i s bank t o 2  t r a n s f e r the s t i p u l a t e d funds t o the account of the U.S. p. 2 72 .  payee.  Bureau o f the Census, The S o v i e t F i n a n c i a l System,  2  G a l l i c k notes t h a t i n a 1961 s u r v e y the above method a c c o u n t e d f o r 20.7 p e r c e n t o f the volume of payments f o r goods and s e r v i c e s and 97.8 p e r c e n t o f a l l o t h e r non-cash t r a n s a c t i o n s (U.S. Bureau o f the Census, The S o v i e t F i n a n c i a l System, p.273).  L e t t e r s o f c r e d i t a r e s i m i l a r t o t h o s e used by t h e W e s t e r n - b l o c and p r o v i d e g u a r a n t e e d payment t o t h e payee under t h e c o n d i t i o n s s t i p u l a t e d i n t h e document. for  S e t t l e m e n t cheques a r e used o n l y  payment o f goods and s e r v i c e s and may guarantee payment i n  f u l l o r t o a s t i p u l a t e d amount f o r c e r t i f i e d o r l i m i t e d ment cheques r e s p e c t i v e l y . to  settle-  C o l l e c t i o n a u t h o r i z a t i o n s a r e used  e x p r o p r i a t e funds from s p e c i f i e d a c c o u n t s and a r e g r a n t e d  on t h e b a s i s o f c o u r t o r d e r s , a r b i t r a t i o n b o a r d d e c r e e s , and v a r i o u s o t h e r t y p e s o f e x e c u t i v e documents.  I n a d d i t i o n , ex-  p r o p r i a t i v e powers a r e g i v e n t o t h e m i n i s t r y (sovnarkhoz) f o r the r e d i s t r i b u t i o n o f w o r k i n g c a p i t a l o r p r o f i t s between e n t e r prises.  The s t a t e bank may a l s o remove funds from e n t e r p r i s e  a c c o u n t s f o r payments on bank l o a n s . I t s h o u l d be n o t e d t h a t i n a l l o f t h e methods o f payment d e s c r i b e d above, t h e payment documents a r e n o n - n e g o t i a b l e and non-transferrable.  I n t h e case o f i n s u f f i c i e n t funds i n t h e  p a y e r ' s a c c o u n t , t h e payment document i s a s s i g n e d t o a s p e c i a l overdue  file.  The bank u n d e r t a k e s c o l l e c t i o n s e r v i c e s f o r a l l  o f t h e above-mentioned  payment methods w i t h t h e e x c e p t i o n o f  o r d i n a r y cheque payments.  B i l l s t h a t accumulate i n t h e overdue  f i l e a r e p a i d when funds become a v a i l a b l e b u t payment o f such bills bill.  i s on a p r i o r i t y system, r e g a r d l e s s o f t h e due d a t e o f t h e The p r i o r i t y o f payments from t h e overdue  follows:  f i l e a r e as  1) wages and e q u i v a l e n t payments t o worker and employ-  e e s , s t a t e s o c i a l i n s u r a n c e payments; 2) payments t o t h e budget; 3) payments f o r goods and s e r v i c e s , ( i n c l u d i n g payments t o b a l ance mutual o f f s e t c l e a r i n g b a l a n c e s ) ; 4) d e p o s i t s o f p r o f i t s and a m o r t i z a t i o n d e d u c t i o n s i n t h e a c c o u n t s f o r f i n a n c i n g c a p i t a l  55 i n v e s t m e n t s and  c a p i t a l r e p a i r s ; 5) payments on bank l o a n s  and  o t h e r bank c l a i m s ; 6) a l l o t h e r payments.""" By l i m i t i n g a l l f i n a n c i a l t r a n s a c t i o n s of the  firms  the above methods o f payment the s t a t e bank e f f e c t i v e l y the amount of  limits  'cash' a t the d i s p o s a l of the e n t e r p r i s e and  can  t h e r e b y c o n t i n u a l l y s c r u t i n i z e the a c t i v i t y of e n t e r p r i s e s the above-mentioned s e t t l e m e n t s I n t h i s way ments t o and  to  as  must be made v i a the s t a t e bank.  the s t a t e bank can o v e r s e e a l l payments and  disburse-  from the e n t e r p r i s e a c c o u n t s t o a s s u r e t h a t they  are i n a c c o r d a n c e w i t h p l a n n e d f l o w s and  t h a t payments are made  a t the p r i c e s s t i p u l a t e d by the s t a t e . The  wide use o f c r e d i t i n f i n a n c i n g the o p e r a t i o n s  enterprises provides  of  an a d d i t i o n a l means o f s u r v e i l l a n c e o v e r  enterprise a c t i v i t i e s .  I t i s customary p r a c t i c e i n the  Soviet  Union t h a t the w o r k i n g c a p i t a l g r a n t e d t o the f i r m approaches a p r a c t i c a l minimum w i t h r e g a r d  t o the t r a n s a c t i o n b a l a n c e s  required to finance i t s a c t i v i t i e s .  By t h i s means the  b a l a n c e s h e l d by the f i r m are m i n i m i z e d , thus e n s u r i n g p r o p e r u t i l i z a t i o n o f funds t h a t are at the d i s p o s a l of enterprise.  Short-term c r e d i t s provide  idle the the  the d i f f e r e n c e between 2  the maximum and minimum t r a n s a c t i o n b a l a n c e s r e q u i r e d .  Credits  are g r a n t e d t o the e n t e r p r i s e i n accordance w i t h p l a n n e d needs d e r i v e d t h r o u g h a n a l y s i s o f the f l o w s of incomes and  expenditures  "'"U.S. Bureau of the Census, The S o v i e t F i n a n c i a l System, pp.276-277. 2 The a u t h o r i t i e s ' d e s i r e f o r m i n i m a l t r a n s a c t i o n b a l ances are b a l a n c e d a g a i n s t the c o s t s o f a d m i n i s t r a t i n g the f i r m ' s c r e d i t r e q u i r e m e n t s . For d e t a i l s on the d i s t r i b u t i o n of t h e s e c r e d i t s and i n t e r e s t r a t e s a p p l i c a b l e , see p.29.  w i t h t i m e , and are t h e r e f o r e p r o v i d e d the e n t e r p r i s e .  f o r i n the c r e d i t p l a n o f  S i n c e a l l of the c r e d i t s are g r a n t e d  f o r spe-  c i f i c purposes and d e f i n i t e p e r i o d s of t i m e , the bank has a d d i t i o n a l b a s i s of m o n i t o r i n g  an  the a c t i v i t i e s of the e n t e r p r i s e  as repayment o f the c r e d i t s can o n l y come about t h r o u g h income r e c e i v e d by f u l f i l l i n g i t s p l a n . In the case o f overdue c r e d i t s the bank imposes c r e d i t s a n c t i o n s which i n c r e a s e the i n t e r e s t r a t e on the overdue l o a n from 1-2  percent  the bank may may  t o 3-5  percent.  u t i l i z e any one  1  I f t h i s proves  ineffective  o f the f o l l o w i n g a l t e r n a t i v e s :  e x p r o p r i a t e any a v a i l a b l e funds i n the a c c o u n t of the  p r i s e up t o the l i m i t of the unpaid  ments; i t may  prevent  (certified  be used f o r o u t - o f - c i t y pay-  an e n t e r p r i s e from u t i l i z i n g any  shipments o f goods; i t may  enter-  l o a n and i n t e r e s t ; i t may  s p e c i f y t h a t o n l y g u a r a n t e e d methods of payment cheques, l e t t e r s o f c r e d i t ) may  it  r e f u s e t o g r a n t any  unpaid  further credit  u n l e s s the l o a n i s g u a r a n t e e d by the e n t e r p r i s e ' s s u p e r i o r s ; and as a l a s t r e s o r t , the bank may thus p r o v o k i n g  d e c l a r e the f i r m i n s o l v e n t ,  a f u l l scale i n q u i r y of e n t e r p r i s e operations.  Gosbank i s a l s o the f i s c a l agent f o r the government; i n f u l f i l l i n g t h i s r o l e i t i s r e s p o n s i b l e f o r the c o l l e c t i o n of b u d g e t a r y r e v e n u e s , which a l l o w s f o r f u r t h e r s c r u t i n y o f e n t e r prise operations  i n the f u l f i l l m e n t of t h e i r economic p l a n s .  Through the c o l l e c t i o n of t u r n o v e r t a x e s , r e n t a l c h a r g e s , t a x e s and c a p i t a l c h a r g e s ,  w h i c h are a l l s t i p u l a t e d i n the  p r i s e p l a n s and c o l l e c t e d a t v a r i o u s t i m e s , r a n g i n g ''"Spulber, The p.20.  profit  S o v i e t Economy, p. 170.  enter  from d a i l y  See T a b l e I I ,  57 to q u a r t e r l y c o l l e c t i o n , any d e v i a t i o n s from ex ante  expectations  w i l l be r e f l e c t e d i n ex p o s t b a l a n c e s  of the various  accounts  s p e c i f i e d f o r t h e above c o l l e c t i o n s .  I n a d d i t i o n Gosbank has a  c o r r e s p o n d e n t r e l a t i o n s h i p w i t h t h e i n v e s t m e n t bank  (Stroibank)  and i s r e s p o n s i b l e f o r t h e c o l l e c t i o n o f t h a t p o r t i o n o f t h e d e p r e c i a t i o n allowances c e n t r a l investment  and p r o f i t s t h a t a r e a l l o c a t e d t o t h e  fund.  1  From t h e p r e c e d i n g  d e s c r i p t i o n i t i s seen t h a t Gosbank  u t i l i z e s a v a r i e t y o f methods i n s u b j e c t i n g a l l k h o z r a s c h e t o r g a n i z a t i o n s t o c o n t r o l by t h e r u b l e i n t h e i r f u l f i l l m e n t o f t h e i r economic p l a n s .  By u s i n g a system o f monetary  the v a r i e t y o f heterogeneous i n p u t s and o u t p u t s be c o n v e r t e d  accounting,  o f a f i r m can  i n t o t h e i r monetary e q u i v a l e n t s and t h e p l a n n e d  f l o w s o f t h e s e goods can be e v a l u a t e d t h r o u g h m o n i t o r i n g t h e f i n a n c i a l t r a n s a c t i o n s of the e n t e r p r i s e . balances  As t h e f i n a n c i a l  o f e n t e r p r i s e s a r e r i g i d l y c o n t r o l l e d , p l a n n e d deduc-  t i o n s from p r o f i t s , a m o r t i z a t i o n a l l o w a n c e s ,  turnover  taxes,  repayment o f c r e d i t s and a l l o t h e r f i n a n c i a l o b l i g a t i o n s o f t h e f i r m can be met o n l y t h r o u g h t h e p r o p e r e x e c u t i o n o f t h e i r economic p l a n , w h i c h w i l l ensure t h e s u f f i c i e n t means w i t h which t o meet t h e above o b l i g a t i o n s . Proper  execution of e n t e r p r i s e plans i s a l s o r e i n f o r c e d  through the o b l i g a t i o n of the e n t e r p r i s e t o enter c o n t r a c t u a l The a p p r o p r i a t e sums a r e c o l l e c t e d and d e p o s i t e d i n s p e c i f i c a c c o u n t s e v e r y t e n days. (U.S. Bureau o f t h e Census, The S o v i e t F i n a n c i a l System, p.27.) I t s h o u l d be n o t e d here t h a t S t r o i b a n k p r o v i d e s a l l b a n k i n g f u n c t i o n s f o r t h e cons t r u c t i o n o r g a n i z a t i o n s . In a d d i t i o n , i t a d m i n i s t e r s e n t e r p r i s e development funds and d i s b u r s e m e n t s from these funds a r e made o n l y on t h e b a s i s o f t h e approved i n v e s t m e n t p l a n s .  58 agreements w i t h i t s s u p p l i e r s and w i t h the p u r c h a s e r s p l a n n e d o u t p u t of the e n t e r p r i s e . -  of  Both s u p p l i e r s and  the  purchasers  are s t i p u l a t e d i n the e n t e r p r i s e p l a n but the f o r m a l s i g n i n g of c o n t r a c t s i s necessary  f o r g i v i n g d e t a i l t o the g e n e r a l  ments s p e c i f i e d i n the p l a n .  assign-  Thus the c o n t r a c t u a l o b l i g a t i o n s  s t i p u l a t e such t h i n g s as p a c k a g i n g r e q u i r e m e n t s ,  d e l i v e r y dates,  d e t a i l e d s p e c i f i c a t i o n s and q u a l i t y of goods c o n t r a c t e d f o r , method o f payment, and the p r i c e s o f the c o n t r a c t e d goods. the case of c o n t r a c t s f o r custom o r d e r s o r e x p e r i m e n t a l  In  models  t h a t are not s p e c i f i e d i n s t a t e p r i c e l i s t s the f i r m i s a l l o w e d t o s e t i t s own  p r i c e i n agreement w i t h the p u r c h a s e r ,  the p r i c e  b e i n g based on the average c o s t of p r o d u c t i o n o f the o r d e r  plus  a 5 p e r c e n t markup.""" C o n t r a c t u a l d i s p u t e s are o u t s i d e the j u r i s d i c t i o n c i v i l c o u r t s when b o t h p a r t i e s are  'socialist organizations',  s e t t l e m e n t s of such d i s p u t e s b e i n g c a r r i e d out e i t h e r by i o r a d m i n i s t r a t i v e o r g a n s , o r by s t a t e a r b i t r a t i o n The  does not exceed 1,000  super-  tribunals.  m i n i s t r y o f the respondent o r g a n i z a t i o n s e t t l e s  where the sum  of  disputes  rubles; a l l disputes i n 2  e x c e s s o f t h i s amount are r e f e r r e d t o a r b i t r a t i o n  tribunals.  A r b i t r a t i o n t r i b u n a l s deal with a l l pre-contract p u t e s and d i s p u t e s a r i s i n g out o f b r e a c h o f c o n t r a c t .  dis-  In  "^"Martin S p e c h l e r , " D e c e n t r a l i z i n g the S o v i e t Economy: L e g a l R e g u l a t i o n of P r i c e and Q u a l i t y " , S o v i e t S t u d i e s , V o l . X X I I (October, 1970), p.231. The above a r t i c l e notes t h a t a f t e r 1965 the p r i c e s of such goods were a l l o w e d a markup o f 10-20 percent o v e r average c o s t s . 2 E.L. Johnson, " P l a n n i n g and C o n t r a c t Law", S o v i e t S t u d i e s , V o l . X I I ( F e b r u a r y , 1961) , p. 263.  59 pre-contractual  disputes  i n v o l v i n g the r e f u s a l to c o n t r a c t o r  t h e terms o f t h e c o n t r a c t , t h e t r i b u n a l w i l l p o i n t s and o r d e r  decide the disputed  t h e p a r t i e s t o c o n c l u d e t h e c o n t r a c t on what-  e v e r terms i t has d e c i d e d . t i o n b o a r d may o r d e r  For breach of c o n t r a c t the a r b i t r a -  s p e c i f i c performance o r money damages.  Generally  s p e c i f i c performance can be o r d e r e d o n l y where t h e  execution  o f such an o r d e r w i l l n o t i n t e r f e r e w i t h t h e normal  operations  of the e n t e r p r i s e .  I n such cases where s p e c i f i c  performance i s i m p o s s i b l e , due t o such f a c t o r s as a l a c k o f n e c e s s a r y s u p p l i e s , t h e a r b i t r a t i o n b o a r d w i l l g r a n t money damages i f t h e c o n t r a c t i s s t i l l v a l i d under t h e p l a n i n f o r c e a t t h e time o f t h e d i s p u t e .  1  I n t h e i m p o s i t i o n o f f i n e s and i n  t h e g r a n t i n g o f money damages t h e t r i b u n a l has t h e power t o enf o r c e such awards by g r a n t i n g e x e c u t i o n Gosbank t o e x p r o p r i a t e  warrants, which  order  t h e s t i p u l a t e d sum from t h e e n t e r p r i s e ' s  account. By e n t e r i n g i n t o c o n t r a c t u a l o b l i g a t i o n s t h e v a r i o u s enterprises contracts  'pledge' t o f u l f i l l  these assigned  tasks.  As a l l  a r e drawn up t o r e f l e c t t h e p l a n n e d o b l i g a t i o n s o f  the f i r m i n f u l f i l l i n g i t s output orders  t h e d e f a u l t on any  c o n t r a c t r e f l e c t s d e v i a t i o n s from t h e p l a n , which can t h e n be subjected  t o i n v e s t i g a t i o n by t h e a p p r o p r i a t e a u t h o r i t i e s .  Changes i n e n t e r p r i s e p l a n s t h a t o c c u r d u r i n g t h e p l a n n e d y e a r , t h a t make i t i m p o s s i b l e t o f u l f i l l p r e v i o u s cont r a c t s under t h e terms o f t h e new p l a n , a r e r e c o g n i z e d as a v a l i d defence f o r b r e a c h o f c o n t r a c t . These t y p e s o f d i s p u t e s o c c u r f r e q u e n t l y due t o changes i n t h e p l a n where t h e a u t h o r i t i e s f a i l t o consider the r a m i f i c a t i o n s i n v o l v e d i n changing e n t e r p r i s e assignments.  60  CHAPTER I I AGRICULTURE The  f o l l o w i n g c h a p t e r on the a g r i c u l t u r a l s e c t o r of  economy w i l l  f o l l o w a s i m i l a r i n v e s t i g a t i v e format as t h a t used  i n the c h a p t e r on i n d u s t r y . be p u r s u e d : and  the  Three a r e a s of i n v e s t i g a t i o n w i l l  macro p r o d u c t i o n - s u p p l y p l a n n i n g and  c o n t r o l s ; a g r i c u l t u r a l p r i c e s ; and  of i n c e n t i v e s  a t the  farm l e v e l .  The  micro plans  the s t r u c t u r e and i n t e g r a t i o n of  level  these  above-mentioned v a r i a b l e s i n f o r m i n g a c o h e r e n t system of  allo-  c a t i o n mechanics v a r i e s s i g n i f i c a n t l y from t h e i r r e l a t i v e imp o r t a n c e i n the i n d u s t r i a l g u i d a n c e mechanism; thus the r o l e of p r i c e s and  incentives  a g r i c u l t u r e w i l l be chapter.  The  i n the a l l o c a t i v e mechanics a p p l i e d  i n t e n s i v e l y examined i n the  differences  i n the two  following  microeconomic  organization-  a l forms i n a g r i c u l t u r e , namely c o l l e c t i v e farms and w i l l be d i s t i n g u i s h e d , and t h e i r respective  to  state  farms,  the changes t h a t have t a k e n p l a c e i n  a l l o c a t i o n mechanics, s i n c e the death o f S t a l i n  t o the p r e s e n t t i m e , w i l l be  explored.  P r o d u c t i o n - S u p p l y P l a n n i n g and in Agriculture  Micro  Controls  Production-supply planning Soviet farms and  a g r i c u l t u r e i s b a s i c a l l y organized into  c o l l e c t i v e farms , w i t h b o t h t y p e s of m i c r o  state organiza-  61 t i o n a l forms s u b j e c t t o comprehensive systems o f s t a t e c o n t r o l . The system o f p l a n n i n g t o be d e s c r i b e d below r e f e r s t o the p e r i o d a f t e r 1955.  The methods used i n p l a n f o r m u l a t i o n changed  i n 1954 and 1955 f o r s t a t e and c o l l e c t i v e farms r e s p e c t i v e l y but t h e s e changes were g e n e r a l l y r e s t r i c t e d t o t h e f o r m u l a t i o n o f .micro p l a n s f o r t h e farms, a l t h o u g h  they had an e f f e c t a t  the macro l e v e l by r e d u c i n g t h e number o f c e n t r a l l y d e t e r m i n e d indices. The methods u t i l i z e d i n f o r m u l a t i n g t h e a g r i c u l t u r a l p o r t i o n o f t h e n a t i o n a l economic p l a n f o l l o w a p a r a l l e l  pattern  t o t h e methods d e s c r i b e d f o r i n d u s t r i a l p r o d u c t i o n - s u p p l y ning.  plan-  The core o f t h e a g r i c u l t u r a l p l a n i s t h e d i r e c t i v e s  formulated  by t h e P a r t y l e a d e r s .  B a s i n g t h e i r d e c i s i o n s on  a g g r e g a t e d p a s t and p r o j e c t e d y e a r - e n d a c h i e v e m e n t s , i n d u s t r i a l demand f o r a g r i c u l t u r a l raw m a t e r i a l s , t h e n u t r i t i o n a l t i o n standards  d e s i r e d f o r t h e p o p u l a t i o n and t h e these standards,  consump-  investments  necessary  to achieve  d i r e c t i v e s are sent to  Gosplan.  These d i r e c t i v e s s t i p u l a t e t h e d e s i r e d i n c r e a s e i n  g r o s s p r o d u c t i o n o f major c r o p s , g r o s s s t a t e purchase t a r g e t s f o r these c r o p s , c o s t r e d u c t i o n t a r g e t s f o r p r i n c i p a l s t a t e farm c r o p s and t h e l e v e l o f c e n t r a l i z e d i n v e s t m e n t s agriculture.  allocated to  Gosplan then c o n s t r u c t s c o n t r o l f i g u r e s f o r s t a t e  p u r c h a s e s o f farm and l i v e s t o c k p r o d u c t s  f o r t h e S o v i e t Union  "'"Private f a r m i n g s t i l l e x i s t s where i t was n o t f e a s i b l e t o c o l l e c t i v i z e p r i v a t e h o l d i n g s due t o t h e i r g e o g r a p h i c a l l o c a t i o n or other extenuating circumstances. Since p r i v a t e farms account f o r such a s m a l l f r a c t i o n o f the t o t a l a g r i c u l t u r a l o u t p u t , and s i n c e most o f t h e i r o u t p u t i s d i r e c t l y consumed, they w i l l not be d i s c u s s e d i n t h i s s t u d y .  as a whole, and fund and  f o r each r e p u b l i c .  number of w o r k e r s , and  In a d d i t i o n , the t o t a l wage  the volume o f c a p i t a l i n v e s t -  ments are s t i p u l a t e d f o r the s t a t e farm s e c t o r . i n t u r n are passed down the  s t a t e and  These f i g u r e s  c o l l e c t i v e farms' a d m i n i -  s t r a t i v e h i e r a r c h i e s where they are p r o g r e s s i v e l y u n t i l each c o l l e c t i v e and f o r major c r o p s and  s t a t e farm i s a s s i g n e d a s a l e s  l i v e s t o c k d e l i v e r i e s t o the s t a t e .  d u a l s t a t e farms a l s o r e c e i v e  targets  number of w o r k e r s , c o s t r e d u c t i o n p r o d u c t s , and  disaggregated target Indivi-  f o r t h e i r wage fund  targets  and  f o r p r i n c i p a l farm  l e v e l s of c a p i t a l i n v e s t m e n t .  From the  control  f i g u r e s a s s i g n e d , s t a t e and  c o l l e c t i v e farms f o r m u l a t e t h e i r  annual p r o d u c t i o n - f i n a n c i a l  p l a n s , w h i c h are composed o f  following 1) t a r g e t s  sections:  1  s e n t t o the c o l l e c t i v e and  2) l a n d u t i l i z a t i o n p l a n z a t i o n of arable  the  and  s t a t e farms by the  ( i n c l u d i n g the grazing  a v a i l a b i l i t y and  state; utili-  lands);  3) c r o p f a r m i n g program ( i n c l u d i n g sown a r e a s , c r o p a r e a s , y i e l d s and  g r o s s o u t p u t s o f main c r o p s , p r o d u c t i v i t y , r e -  q u i r e m e n t s i n seed, f e r t i l i z e r s , p e s t i c i d e s , l a n d measures and  d i r e c t outlays  on  production);  4) a n i m a l f a r m i n g program ( i n c l u d i n g l i v e s t o c k and stocks  and  t h e i r reproduction  5) c o n s t r u c t i o n  d i r e c t outlays program and  poultry  r a t e s , p r o d u c t i v i t y of  animals, fodder requirements, zootechnical measures, and  improvement  on  and  the  vetrinary  production);  programs f o r a n c i l l a r y e n t e r p r i s e s  Compiled from i n f o r m a t i o n g i v e n i n M.L. T e r e n t e v , "Meth ods and P r a c t i c e o f A g r i c u l t u r a l P r o d u c t i o n P l a n n i n g i n the U.S.S.R.", U n i t e d N a t i o n s Seminar on P l a n n i n g T e c h n i q u e s , pp.108 109, and V.A. Abramov, The Economics of A g r i c u l t u r e , pp.108-110.  ( i n c l u d i n g volume o f p r o d u c t i o n and q u a l i t y 6) m e c h a n i z a t i o n  indices);  o f p r i n c i p a l work p r o c e s s e s , u t i l i z a t i o n and  r e p a i r s t o equipment ( i n c l u d i n g MTS s e r v i c e s r e q u i r e d f o r c o l l e c t i v e s p r i o r t o 1958); 7) l a b o u r p l a n  ( i n c l u d i n g l a b o u r f o r c e s and i t s u t i l i z a t i o n ,  and t h e wage f u n d ) ; 8) e s t i m a t e d p r o d u c t i o n c o s t s ; 9) measures f o r r a i s i n g c u l t u r a l and l i v i n g s t a n d a r d s training 10)  and f o r  specialists;  s t a t e m e n t on s o u r c e s  and a p p l i c a t i o n o f funds.  Once t h e d r a f t p r o d u c t i o n - f i n a n c i a l p l a n s have been approved by t h e farms'  immediate s u p e r i o r s , t h e above i n d i c e s  are a g g r e g a t e d a l o n g w i t h t h e r e q u i s i t i o n s f o r t h e n e c e s s a r y m a t e r i a l i n p u t s and a c o n s o l i d a t e d a g r i c u l t u r a l p l a n i s c a l c u l a t e d i n d i v i d u a l l y f o r b o t h s t a t e and c o l l e c t i v e farms and f o r b o t h farm c a t a g o r i e s as whole.  The d r a f t a g r i c u l t u r a l p l a n i s  then i n c l u d e d as p a r t o f t h e g e n e r a l p l a n f o r t h e development o f t h e n a t i o n a l economy and t h i s g e n e r a l p l a n i s then to  forwarded  t h e C o u n c i l o f M i n i s t e r s , U.S.S.R., and t h e l e g i s l a t u r e f o r  t h e i r approval.  A f t e r t h e p l a n has been approved i t i s d i s -  a g g r e g a t e d i n i t s passage down through  the a d m i n i s t r a t i v e h i e r -  archy u n t i l each farm r e c e i v e s i t s f i n a l assignments. b a s i s o f these assignments,  On t h e  d e t a i l e d o p e r a t i o n a l p r o d u c t i o n and  f i n a n c i a l p l a n s a r e c o n s t r u c t e d and approved, c o n t r a c t u a l o b l i g a t i o n s are e s t a b l i s h e d v i s - a - v i s s t a t e purchases o f outputs, and d e t a i l e d o r d e r s f o r m a t e r i a l i n p u t s are s e n t t o t h e approp r i a t e supply  agencies.  I t was p r e v i o u s l y noted t h a t t h e above p l a n n i n g  64 techniques  r e f e r r e d t o those  used a f t e r 1955.  During  the e a r l y  1950's numerous o t h e r c o n t r o l f i g u r e s were e s t a b l i s h e d t o c o n t r o l the f o r m u l a t i o n o f the m i c r o p l a n s .  In the case o f  collective  farms, t h e i r p r o d u c t i o n p l a n s were c o n s t r u c t e d by t h e i r immediate s u p e r i o r s , the r a i o n S o v i e t s and the d i s t r i c t motor t r a c t o r station  (MTS), and were rubber stamped by the g e n e r a l meetings  of the c o l l e c t i v e farms.  In 1954  the number of c e n t r a l l y  set  i n d i c e s f o r s t a t e farms were reduced t o those mentioned above. In the f o l l o w i n g y e a r a l l c e n t r a l l y s e t i n d i c e s f o r c o l l e c t i v e f a r m s , w i t h the e x c e p t i o n of s t a t e purchase t a r g e t s f o r major c r o p s and  l i v e s t o c k , were a b o l i s h e d and o s t e n s i b l e c o n t r o l over  p l a n f o r m u l a t i o n was The  granted  t o the farm membership.  numerous r e f o r m s i n the a g r i c u l t u r a l a d m i n i s t r a t i v e  h i e r a r c h y t h a t were u n d e r t a k e n between 1957  and 1965  altered  the f l o w o f c e n t r a l l y d e t e r m i n e d i n d i c e s t o the farms, as w e l l as a g e n c i e s  r e s p o n s i b l e f o r the i m p l e m e n t a t i o n  but the r e f o r m s had  of the  plans,  l i t t l e e f f e c t on the a c t u a l a c t i v i t i e s  i n v o l v e d i n f o r m u l a t i n g the a g r i c u l t u r a l p l a n . p e r i o d the government c o n t i n u e d  Throughout t h i s  t o encourage the amalgamation  o f c o l l e c t i v e farms i n t o l a r g e r u n i t s and the c o n v e r s i o n c o l l e c t i v e farms i n t o s t a t e farms, a l t h o u g h and c o n v e r s i o n s  the amalgamations  took p l a c e a t a somewhat s l o w e r r a t e t h a n  p r e v i o u s l y been the case. n i n g and end o f 1950, from a p p r o x i m a t e l y  of  In a s i n g l e y e a r , between the  the number of c o l l e c t i v e farms was  252,000 u n i t s t o 121,000 u n i t s .  1  had beginreduced  Between  L a z a r V o l i n , " A g r i c u l t u r a l P o l i c y of the S o v i e t U n i o n " , i n The S o v i e t Economy, ed. by M o r r i s B o r n s t e i n and D a n i e l F u s f e l d , p.177.  65 1953  and  1963  the number of c o l l e c t i v e farms had  91,200 t o l e s s than 40,000, w h i l e increased  from 5,000 t o 9,176  the r e s p e c t i v e  into larger operating while  the number of s t a t e  o v e r the same p e r i o d ; 2  numbers were 37,618 and  b e h i n d the amalgamations was  d e c r e a s e d from  10,075.  to c o n s o l i d a t e  1  The  by  1964  rationale  weaker c o l l e c t i v e s  u n i t s i n the hope of i m p r o v i n g e f f i c i e n c y ,  the t r a n s f o r m a t i o n  of c o l l e c t i v e s i n t o s t a t e farms  u n d e r t a k e n on those c o l l e c t i v e s which were i n need of s c a l e s t a t e i n v e s t m e n t s f o r such t h i n g s trification.  farms  was  large-  as i r r i g a t i o n o r  elec-  A l t h o u g h the amalgamation o f c o l l e c t i v e farm u n i t s  g r e a t l y s i m p l i f i e d the p l a n n i n g p r o c e s s and  increased  the  ease  o f c e n t r a l s u p e r v i s i o n o v e r farm o p e r a t i o n s , the consequent problems of e f f e c t i v e i n t e r n a l management more than o f f s e t t h e s e 3 benefits.  A f t e r the removal o f Khrushchev the new  leadership  o r d e r e d a s t o p t o the amalgamation o f c o l l e c t i v e f a r m s , and c o n v e r s i o n of c o l l e c t i v e farms i n t o s t a t e farms was  the  severely  decreased. A l o n g w i t h e l i m i n a t i n g and and  r e d u c i n g the  amalgamations  c o n v e r s i o n s o f c o l l e c t i v e farms, one of the f i r s t reforms ''"Jerry K a r c z and V. Timoshenko, " S o v i e t A g r i c u l t u r a l P o l i c y , 1953-1962", Food Research I n s t i t u t e S t u d i e s , V o l . I V , No.2, 1964, p.137. 2 U.S. C o n g r e s s , J o i n t Economic Committee, " A g r i c u l t u r a l Reforms S i n c e Khrushchev", by K e i t h Bush, New D i r e c t i o n s i n the S o v i e t Economy, p.467. ^The average sown a r e a f o r c o l l e c t i v e and s t a t e farms a t the end of 1950 was 2,400 and 6,400 a c r e s r e s p e c t i v e l y . By the end o f 1963 the comparable f i g u r e s were 7,156 a c r e s and 24,000 acres. (Lazar V o l i n , "Khrushchev and S o v i e t A g r i c u l t u r e " , i n S o v i e t and E a s t European A g r i c u l t u r e , ed. by J e r r y K a r c z , p.16.) S p u l b e r g i v e s the average sown a r e a o f s t a t e farms i n 1965 as 60,000 a c r e s . (The S o v i e t Economy, p.79.)  introduced  by t h e new l e a d e r s h i p was t o p r o v i d e  stable  targets  f o r g r a i n procurements f o r t h e 1966-1970 f i v e - y e a r p l a n The  period.  e f f e c t o f t h i s r e f o r m was t h a t t h e procurement t a r g e t s r e -  c e i v e d by t h e i n d i v i d u a l farms i n 1965 were t o be s t a b l e f o r the  f o l l o w i n g four years,  planning  thus f a c i l i t a t i n g m e a n i n g f u l l o n g - t e r m  o f c r o p r o t a t i o n systems and o t h e r l o n g - t e r m  preservation The  soil  measures. l a s t m o d i f i c a t i o n t o the planning  system was under-  t a k e n i n l a t e 1967 when i t was d e c i d e d t o c o n v e r t s t a t e farms on t o a s i m i l a r p r o f i t a b i l i t y i n c e n t i v e system t h a t had been i n i t i a t e d i n i n d u s t r y a f t e r t h e 1965 r e f o r m s . 1969  some 3,800 s t a t e farms ( r o u g h l y  By t h e end o f  o n e - t h i r d o f t h e t o t a l ) had  been t r a n s f e r r e d t o t h e new system and c u r r e n t c o n v e r t a l l s t a t e farms t o t h e new s y s t e m .  1  i n t e n t i o n s are to  The e f f e c t o f t h e s e  f i n a n c i a l and i n c e n t i v e r e l a t e d r e f o r m s was t o reduce t h e number of c e n t r a l l y targeted  i n d i c e s a s s i g n e d t o t h e c o n v e r t e d farms.  By r e l a t i n g i n c e n t i v e s t o t h e p r o f i t a b i l i t y o f farm  operations,  the c e n t r a l a u t h o r i t i e s were a b l e t o e l i m i n a t e t h e t a r g e t i n g of cost reductions  and t h e maximum number o f w o r k e r s t h a t  could  be employed by r e l y i n g on m a t e r i a l s e l f - i n t e r e s t t o r e s p e c t i v e l y maximize and m i n i m i z e t h e now redundant t a r g e t v a r i a b l e s . Micro controls The  degree o f c o n t r o l e x e r t e d  over c o l l e c t i v e and s t a t e  farm a c t i v i t i e s by t h e c e n t r a l a u t h o r i t i e s has s i g n i f i c a n t l y d e c r e a s e d s i n c e t h e death o f S t a l i n .  Up t o 1953 t h e r e s p o n s i -  "^Gertrude S c h r o e d e r , " S o v i e t Economic Reform a t an Impasse", Problems o f Communism, Vol.XX ( J u l y - A u g u s t , 1970) , p. 39.  67 bility  f o r guidance and c o n t r o l o v e r c o l l e c t i v e farm a c t i v i t i e s  was v e s t e d i n t h e f o l l o w i n g i n s t i t u t i o n s :  t h e r a i o n government  and P a r t y organs and t h e agronomic departments a t t a c h e d t o these agencies; and  t h e motor t r a c t o r s t a t i o n s ; t h e d i s t r i c t  the v i l l a g e S o v i e t s .  The r a i o n a g e n c i e s  procurators;  were r e s p o n s i b l e  f o r d r a f t i n g the production plans of the i n d i v i d u a l  collective  farms, which c o n t a i n e d some 200-250 t a r g e t e d indices;"'" r e v i e w i n g t h e income and e x p e n d i t u r e farms; a p p r o v i n g  balances  of t h e i r  subordinate  c o n t r a c t s s i g n e d between t h e farms and t h e MTS;  and a n n u l l i n g any d e c i s i o n s u n d e r t a k e n by t h e g e n e r a l meetings of t h e c o l l e c t i v e farms which i t c o n s i d e r e d  unlawful.  The  agronomic departments a t t a c h e d t o t h e r a i o n s d e t e r m i n e d product i o n q u o t a s , sowing p a t t e r n s , s e a s o n a l implementation  use o f l a n d s , and t h e  o f a g r i c u l t u r a l i n n o v a t i o n s and  mechanization.  These same departments were a l s o r e s p o n s i b l e f o r g i v i n g d a i l y ' a s s i s t a n c e ' t o t h e c o l l e c t i v e farms i n a l l o f t h e i r and  a d m i n i s t r a t i v e matters.  i n the f o l l o w i n g matters;  productive  The MTS was t o ' a s s i s t ' t h e k o l k h o z  the preparation of i t s o p e r a t i o n a l  p r o d u c t i o n and f i n a n c i a l p l a n s , t h e d i s t r i b u t i o n and r e m u n e r a t i o n of t h e economic a c t i v i t i e s u n d e r t a k e n on t h e farm, and t o h e l p the farm d e t e r m i n e t h e most advantageous u t i l i z a t i o n o f i t s lands.  The d i s t r i c t p r o c u r a t o r ' s p r i m a r y  f u n c t i o n was t o ensure  t h a t t h e p r o d u c t i o n and c o l l e c t i o n o f farm o u t p u t s was i n a c cordance w i t h s p e c i f i e d q u a n t i t i e s .  I n a d d i t i o n , these  agencies  r e p o r t e d on t h e c o m p l i a n c e o f c o l l e c t i v e farms and i n d i v i d u a l k o l k h o z n i k i w i t h c e n t r a l government d i r e c t i v e s  regarding  "'"Erich S t r a u s s , S o v i e t A g r i c u l t u r e i n P e r s p e c t i v e , p. 37.  68 c o l l e c t i v e farm p r a c t i c e s .  F i n a l l y , the v i l l a g e S o v i e t s were  l e g a l l y empowered t o p a r t i c i p a t e i n the o p e r a t i v e guidance of the k o l k h o z y .  C o n s t a n t c o n t r o l o v e r p l a n f u l f i l l m e n t and  o r g a n i z a t i o n of a c t i v i t i e s w i t h i n the k o l k h o z y was by t h e s e b o d i e s  maintained  t h r o u g h a s s i g n i n g d e p u t i e s o r a k t i v s t o each  w o r k i n g u n i t w i t h i n the The  the  farm.  comprehensive and o f t e n o v e r l a p p i n g c o n t r o l s des-  c r i b e d above e x i s t e d u n t i l 1953.  At t h a t time the  agricultural  departments of the r a i o n e x e c u t i v e committees were a b o l i s h e d t h e i r f u n c t i o n s were l a r g e l y t r a n s f e r r e d t o the MTS.  In  and  1955  a c e n t r a l government decree a b o l i s h e d the numerous t a r g e t e d i n d i c e s t h a t were p r e v i o u s l y a s s i g n e d t o the c o l l e c t i v e Henceforth  the c e n t r a l a g e n c i e s  t a r g e t s t o the i n d i v i d u a l farms. f o r c o n s t r u c t i n g t h e i r own  farms.  would o n l y a s s i g n procurement The  farms were now  p r o d u c t i o n and  responsible  f i n a n c i a l plans w i t h i n  the minimum r e q u i r e m e n t s p r e s c r i b e d by t h e i r procurement t a r gets.  The  i n c r e a s e i n farm autonomy was  nominal;  the  farms  c o n s t r u c t e d t h e i r p l a n s under the t u t e l a g e o f the MTS were s u b j e c t t o a p p r o v a l committees. was  When the MTS  was  d i s s o l v e d i n 19 58 t h e i r machinery Although  c o n t r o l o v e r the type and t i m i n g of s o i l  measures, h a r v e s t i n g , p l o u g h i n g , g e n e r a l c o n t r o l and  they  and r e v i s i o n by the r a i o n e x e c u t i v e  a c q u i r e d by the i n d i v i d u a l k o l k h o z y .  obtained  and  the  farms  improvement  and o t h e r mechanized  activities,  s u p e r v i s i o n o v e r farm o p e r a t i o n s was  main-  t a i n e d by the r a i o n o f f i c e s . In 1962  the r u r a l r a i o n o f f i c e s were e l i m i n a t e d and  u n i f i e d system of s t a t e c o n t r o l o v e r a g r i c u l t u r e was Nearly  1,000  a  created.  t e r r i t o r i a l p r o d u c t i o n a d m i n i s t r a t i o n s were c r e a t e d  69 and  charged w i t h t h e f u n c t i o n s o f e x e c u t i n g  p a r t y and government r e g a r d i n g c o n t r o l l i n g the production products."'"  c o l l e c t i v e and s t a t e farms, and  and procurements o f a g r i c u l t u r a l  Thus t h e p r e v i o u s  f u n c t i o n s u n d e r t a k e n by t h e r a i o n  o f f i c e s and t h e d i s t r i c t p r o c u r a t o r s territorial  production  the d e c i s i o n s of the  were now u n d e r t a k e n by t h e  administrations.  I n 1965, under t h e  massive r e f o r m s c a r r i e d o u t by t h e new l e a d e r s , t h e t e r r i t o r i a l production  a d m i n i s t r a t i o n s were d i s s o l v e d and t h e s u p e r v i s o r y  a g e n c i e s f o r c o l l e c t i v e farm a c t i v i t i e s r e v e r t e d back t o t h e pre-1957 s t r u c t u r e , minus t h e d e f u n c t MTS. The has  s t r u c t u r e of the supervisory  remained c o n s t a n t  and c o n t r o l a g e n c i e s  from 1965 t o t h e p r e s e n t t i m e .  l e c t i v e farms a r e a s s i g n e d  q u o t a d e l i v e r i e s by t h e c e n t r a l  government t h r o u g h t h e i r r a i o n o f f i c e s and c o n s t r u c t production  plans  under t h e guidance o f t h e i r d i s t r i c t  departments and s u b j e c t t o t h e a p p r o v a l raion executive  The c o l -  committees.  of t h e i r  their agronomic  respective  Once t h e s e p l a n s have been approved,  t h e c o l l e c t i v e farms c o n t r a c t t o d e l i v e r t h e i r q u o t a assignments t o t h e s t a t e procurement The  agencies.  c o n t r o l s over the o p e r a t i o n  o f s t a t e farms were v e r y  s i m i l a r t o those t h a t e x i s t e d i n t h e i n d u s t r i a l s e c t o r o f t h e economy.  Up u n t i l 1962 c o n t r o l o v e r s t a t e farm o p e r a t i o n s  was  m a i n t a i n e d by t h e o p e r a t i v e management a g e n c i e s o f t h e v a r i o u s 2 agricultural glavki called trusts. These a g e n c i e s were Howard Swearer, " A g r i c u l t u r a l A d m i n i s t r a t i o n under K h r u s h c h e v " , i n S o v i e t A g r i c u l t u r e and Peasant A f f a i r s , ed. by R.D. L a i r d , p.29. 2 S t a t e farms l o c a t e d i n t h e same a r e a and engaged i n t h e same type o f p r o d u c t i o n were grouped under a s i n g l e a d m i n i s t r a t i v e  70 r e s p o n s i b l e f o r maintaining continuous  c o n t r o l over the  ment o f p r o d u c t i o n p l a n s and the u t i l i z a t i o n o f funds c r e d i t s by the i n d i v i d u a l farms.  fulfill-  and  In a d d i t i o n the t r u s t s were  r e s p o n s i b l e f o r the o v e r a l l o r g a n i z a t i o n o f work  processes  w i t h i n the s t a t e farms and f o r r e v i e w i n g , m o d i f y i n g , and  approv-  i n g the p r o d u c t i o n , f i n a n c i a l , and c a p i t a l e x p e n d i t u r e p l a n s o f t h e i r s u b o r d i n a t e farms.  Although  r e s p o n s i b l e f o r d r a f t i n g t h e i r own  the s t a t e farms are n o m i n a l l y production-financial plans,  w i t h i n the c o n t e x t o f the c e n t r a l l y d e t e r m i n e d  indices that  were l i s t e d above, they a r e s u b j e c t t o major m o d i f i c a t i o n b e f o r e approval i s given.  When t h e s e p l a n s are r e t u r n e d t o the  trusts  f o r a p p r o v a l the v a r i o u s i n p u t c o e f f i c i e n t s c o n t a i n e d i n t h e s e p l a n s , f o r example, the consumption o f f o d d e r per u n i t o f  live-  s t o c k , l a b o u r i n p u t s per h e c t a r e o f the main a g r i c u l t u r a l  crops,  and f u e l and l u b r i c a n t i n p u t s per u n i t o f o u t p u t , are compared w i t h c e n t r a l l y determined  i n p u t norms and are a d j u s t e d a c c o r d -  i n g l y , u n l e s s the proposed c o e f f i c i e n t can be a d e q u a t e l y fied.  justi-  A s i d e from t h e s e d i r e c t c o n t r o l s over farm o p e r a t i o n s ,  the p r o d u c t i o n and f i n a n c i a l p l a n s are s u b j e c t t o supplementary c o n t r o l s through  c o n t r a c t u a l o b l i g a t i o n s between the farms  the procurement a g e n c i e s and t h r o u g h  and  f o r the s a l e s o f the t a r g e t e d o u t p u t s ,  the f i n a n c i a l c o n t r o l s over planned o p e r a t i o n s exe-  cuted through  the s t a t e b a n k i n g  In 1962  system.  the t r u s t s were a b o l i s h e d i n f a v o u r o f the  uni-  f i e d system o f s t a t e c o n t r o l o v e r a g r i c u l t u r a l o p e r a t i o n s t h a t was  executed  through  the t e r r i t o r i a l p r o d u c t i o n a d m i n i s t r a t i o n s .  body, c a l l e d a t r u s t , f o r c o o r d i n a t i o n and management purposes  71 T h i s r e f o r m had  l i t t l e e f f e c t on the system of c o n t r o l s des-  c r i b e d above, o t h e r than they were now  c a r r i e d out by the  formed a d m i n i s t r a t i v e b o d i e s .  the new  In 1965  newly  leadership  d i s s o l v e d the u n i f i e d system o f s t a t e c o n t r o l o v e r a g r i c u l t u r e and  r e - e s t a b l i s h e d the pre-1962 c o n t r o l a g e n c i e s . The  r e f o r m t h a t was  the g r a d u a l c o n v e r s i o n  i n i t i a t e d i n 1967,  which c a l l e d f o r  of s t a t e farms t o a system o f  financial  s e l f - r e l i a n c e , o s t e n s i b l y reduced the degree o f e x t e r n a l o v e r the i n t e r n a l o p e r a t i o n s arrangement the t r u s t s may p r o f i t i n d i c e s , and construction.  The  of the s t a t e farms.  control  Under the  o n l y m o d i f y the s a l e s , wage f u n d ,  increased  d i s c r e t i o n allowed  p l a n n e d i n d i c e s the t r u s t s can  t o farm managers  i n d i r e c t l y i n f l u e n c e the  from w h i c h t h e s e i n d i c e s are  Agricultural Two  and  s e t l i m i t s f o r w o r k i n g c a p i t a l and c a p i t a l  under t h i s arrangement i s d u b i o u s ; t h r o u g h m o d i f y i n g the  ables  new-  above vari-  derived.  Prices  o b j e c t i v e s were pursued i n the s e t t i n g o f a g r i c u l -  t u r a l p r i c e s , namely t o e s t a b l i s h f a v o u r a b l e  terms o f t r a d e  for  the i n d u s t r i a l s e c t o r of the economy, v i s - a - v i s the a g r i c u l t u r a l s e c t o r , and  to simultaneously  s e t the p r i c e s p a i d f o r a g r i c u l -  t u r a l products at a l e v e l s u f f i c i e n t to provide t i v e s t o encourage p r o d u c t i o n .  Obviously both o b j e c t i v e s  the p r i c i n g s t r a t e g y c o u l d not be s i m u l t a n e o u s l y D u r i n g the p e r i o d b e i n g c o n s i d e r e d , b a l a n c e between these two  adequate  i t w i l l be  incenof  satisfied. shown t h a t  c o n f l i c t i n g o b j e c t i v e s has  the  been p r o -  g r e s s i v e l y s h i f t i n g i n f a v o u r o f p r o v i d i n g adequate p r i c e  72 incentives f o r a g r i c u l t u r a l production creasing to  a t the expense o f i n -  t h e terms o f t r a d e o f t h e a g r i c u l t u r a l s e c t o r , r e l a t i v e  industry. There were f o u r r e l e v a n t p r i c e s t r u c t u r e s f a c e d by c o l -  l e c t i v e farms from 1950 t o 1958:  compulsory d e l i v e r y p r i c e s ;  p r i c e s p a i d by t h e s t a t e f o r d e l i v e r i e s i n excess o f the compulsory  target; state contract prices?  market p r i c e s .  and c o l l e c t i v e farm  S t a t e c o n t r a c t p r i c e s were o n l y r e l e v a n t t o  t h o s e c o l l e c t i v e farms w h i c h s p e c i a l i z e d i n growing t e c h n i c a l crops.  These farms would c o n t r a c t t o s e l l t h e whole o f t h e i r  o u t p u t t o t h e s t a t e a t c o n t r a c t u a l p r i c e s which were depending on t h e o u t p u t a c h i e v e d .  1  progressive,  Throughout most o f t h i s  p e r i o d t h e s e c o n t r a c t u a l p r i c e s were r e l a t i v e l y h i g h e r  than t h e  compulsory d e l i v e r y o r s t a t e purchase p r i c e s i n o r d e r t o p r o v i d e adequate p r o d u c t i o n  i n c e n t i v e s , as these c r o p s were impor-  t a n t as a raw m a t e r i a l base f o r t h e t e x t i l e and food  processing  i n d u s t r i e s , and t h e revenues from t h e s e crops were o f t e n t h e s o l e s o u r c e o f income f o r t h e c o l l e c t i v e farms concerned w i t h t h e i r production.  With regard  t o t h e o t h e r p r i c e s , compulsory  d e l i v e r y p r i c e s were s e t a t t h e l o w e s t l e v e l , p r i c e s f o r del i v e r i e s made above t h e compulsory minimums were h i g h e r ,  while  c o l l e c t i v e farm market p r i c e s were t h e h i g h e s t . The p r i c e s p a i d f o r compulsory d e l i v e r i e s o f farm o u t puts,  and f o r s t a t e p u r c h a s e s above t h e compulsory minimum, were  d i f f e r e n t i a t e d by r e g i o n s ,  and were o s t e n s i b l y based on t h e  "''Generally a c o n t r a c t p r i c e was s e t f o r t h e t a r g e t e d output expected. For o v e r f u l f i l l m e n t of the output plan the s t a t e would pay p r o g r e s s i v e l y h i g h e r p r i c e s .  73 average c o s t o f p r o d u c t i o n region, plus a small  o f t h e commodity w i t h i n the d e f i n e d  ' p r o f i t ' markup.  D e l i v e r i e s o f commodities  above t h e compulsory minimum i n c l u d e d an a d d i t i o n a l p r o f i t markup.  Through  a combination of z o n a l l y d i f f e r e n t i a t i n g the p r i c e s  p a i d f o r c o m m o d i t i e s , and by v a r y i n g t h e compulsory l i m i t s s e t f o r d e l i v e r i e s , t h e s t a t e c o u l d m i t i g a t e , t o some degree, t h e excessive  p r o f i t a b i l i t y o f farms l o c a t e d i n a r e a s o f r i c h  and/or f a v o u r a b l e  climatical conditions.  soils,  High y i e l d i n g farms  c o u l d be g i v e n a r e l a t i v e l y h i g h compulsory d e l i v e r y t a r g e t , f o r which they were p a i d r e l a t i v e l y low p r i c e s , thus l e a v i n g p r o p o r t i o n a t e l y l e s s o f t h e i r t o t a l o u t p u t t h a t c o u l d be marke t e d a t t h e h i g h e r a b o v e - t a r g e t p r i c e s o r the s t i l l h i g h e r l e c t i v e farm market p r i c e s . instrumental  1  col-  The MTS payments i n k i n d were a l s o  i n ' l e v e l i n g ' t h e v a r i a t i o n s i n p r o f i t a b i l i t y among  c o l l e c t i v e farms i n t h a t t h e charges f o r work done were o f t e n e x p r e s s e d as a p e r c e n t a g e o f t h e g r o s s h a r v e s t . manipulation  Through t h e  o f t h e above v a r i a b l e s t h e s t a t e c o u l d , t o some  d e g r e e , c o n t r o l t h e d i s t r i b u t i o n o f p r o f i t s among t h e c o l l e c t i v e farms, as w e l l as d i r e c t l y i n f l u e n c e t h e s u p p l y  o f commodities  on t h e k o l k h o z m a r k e t s , and t h u s the. p r i c e s o b t a i n e d  f o r these  commodities. The above d e s c r i p t i o n g i v e s a t h e o r e t i c a l and r a t h e r D e l i v e r i e s above t h e compulsory minimum were not i n f a c t v o l u n t a r y due t o the f a c t t h a t o u t p u t s i n e x c e s s o f t h e compulsory t a r g e t s c o u l d be s o l d a t t h e h i g h e r c o l l e c t i v e farm market p r i c e s . V a r i o u s inducements, such as g i v i n g p r i o r i t y i n t h e a l l o c a t i o n o f s c a r c e m a t e r i a l s and s e l l i n g c e r t a i n commodities t o t h e farms a t d i s c o u n t p r i c e s , were used t o i n d u c e farms t o meet t h e p l a n n e d d e l i v e r i e s t h a t were i n e x c e s s o f t h e compulsory minimum.  74 i d e a l i z e d account o f t h e p r i c e s t r u c t u r e farms up t o 1958.  From 1950 t o 1952 t h e p r i c e s o f many goods  d e l i v e r e d under t h e compulsory t a r g e t s o f production."'"  f a c e d by t h e c o l l e c t i v e  f a i l e d t o cover the costs  Compulsory d e l i v e r y p r i c e s had remained v i r t u -  a l l y unchanged from t h e i r 1940 l e v e l , w h i l e increased  r e t a i l p r i c e s had 2  1000 p e r c e n t over t h e i r 1940 l e v e l .  Contractual  p r i c e s p a i d f o r t e c h n i c a l c r o p s were g e n e r a l l y able throughout t h i s period  f a r more f a v o u r -  as t h e f r e q u e n t r e v i s i o n s made t o  t h e s e p r i c e s k e p t them more i n l i n e w i t h t h e r i s i n g consumer price levels. A f t e r S t a l i n ' s death t h e r e were a s e r i e s o f p r i c e r e v i s i o n s ; t h e l a r g e s t t a k i n g p l a c e i n 1953, 1954, and 1956. A l though t h e s e upward r e v i s i o n s o f b o t h t h e compulsory d e l i v e r y p r i c e s and s t a t e purchase p r i c e s g r e a t l y i n c r e a s e d r e m u n e r a t i o n f o r farm p r o d u c t i o n , cover production costs  the l e v e l of  they were i n s u f f i c i e n t t o  i n a l l cases, e s p e c i a l l y f o r l i v e s t o c k  p r o d u c t s , and where t h e y d i d c o v e r c o s t s  the l e v e l of p r o f i t -  a b i l i t y v a r i e d g r e a t l y between d i f f e r e n t commodities. f o l l o w i n g table i n d i c a t e s the r a p i d increase  The  i n p r i c e s and t h e  change i n t h e p r i c e s t r u c t u r e t h a t o c c u r r e d d u r i n g  this  period.  In 1958 major changes were c a r r i e d o u t i n t h e government a g r i c u l t u r a l procurement system. pulsory  The d u a l p r i c e system o f com-  d e l i v e r y and s t a t e purchase p r i c e s was a b o l i s h e d and  "''Labour c o s t s f o r c o l l e c t i v e farms a r e imputed c o s t s , u s i n g s t a t e farm wage r a t e s . U n t i l the a b o l i t i o n of the labour day system i n 1966, t h e l e v e l o f r e m u n e r a t i o n was dependent on the r e s i d u a l income o f t h e c o l l e c t i v e farm. 2 M o r r i s B o r n s t e i n , " S o v i e t P r i c e Theory and P o l i c y " , i n New C u r r e n t s i n S o v i e t - T y p e Economies: A Reader, ed. by George F e i w e l , p.238.  75 TABLE X INDICES OF SELECTED SOVIET AGRICULTURAL PROCUREMENT PRICES* (1952=100) Commodity Group A l l a g r i c u l t u r a l products Grain ^ T e c h n i c a l crops Sunflowers Fruits Potatoes Cattle Milk Eggs Wool  1953  1954  1955  1956  1958  154 236 115 528 119 316 385 202 126 10 7  207 739 111 626 135 369 579 289 135 146  209 553 117 987 138 368 585 303 152 158  251 634 147 928 192 814 665 334 155 246  296 695 . 143 774 179 789 1,175 404 297 352  Source: B o r n s t e i n , " S o v i e t P r i c e Theory", p.239. The p r i c e s quoted a r e average s t a t e procurement p r i c e s on a g r i c u l t u r a l products. I n c l u d e s raw c o t t o n , f l a x f i b e r , hemp f i b e r , b e e t s and t o b a c c o .  sugar-  r e p l a c e d by a u n i f i e d s t a t e purchase p r i c e f o r each commodity. Compulsory d e l i v e r i e s were r e p l a c e d by q u o t a s , o r t a r g e t e d s a l e s t o t h e s t a t e , and t h e s a l e s o f quota and above-quota were p a i d f o r a t u n i f o r m p r i c e s .  commodities  A l t h o u g h t h e systems o f r e -  c i p r o c a l s a l e s and s u b - r e t a i l p r i c i n g were a l s o a b o l i s h e d as a means f o r e n c o u r a g i n g above-quota ments were s t i l l still  deliveries,  compulsory, w h i l e above-quota  1  t h e quota  assign-  d e l i v e r i e s were  p l a n n e d and were q u a s i - c o m p u l s o r y i n n a t u r e .  The f i n a l  g e n e r a l a s p e c t o f t h i s r e f o r m was t h e s c r a p p i n g o f t h e Motor T r a c t o r S t a t i o n s and t h e i r c o n v e r s i o n i n t o r e p a i r and s e r v i c i n g depots.  The MTS equipment was s o l d t o c o l l e c t i v e farms w i t h t h e  a i d o f l o n g - t e r m c r e d i t s extended by t h e government. a c q u i s i t i o n o f t h e i r own a g r i c u l t u r a l machinery, """See n. 1, p. 7 3 .  With the  the previous  76  system of payments i n k i n d p a i d t o the MTS was  also  for t h e i r services  abolished. T a b l e X i n d i c a t e s the e x t e n t o f the p r i c e  u n d e r t a k e n i n 1958.  The  revisions  l e v e l o f the p r i c e i n c r e a s e  was  cir-  c u m s c r i b e d by the c o n s t r a i n t t h a t the t o t a l p r i c e p a i d by s t a t e f o r i t s purchases o f a g r i c u l t u r a l commodities was exceed the pre-1958 l e v e l , p l u s the c o s t s of MTS investments.  T h e r e f o r e the o v e r a l l i n c r e a s e  purchase p r i c e s was  the  not  to  operations  in agricultural  t o p r o v i d e a d d i t i o n a l revenues t o the  col-  l e c t i v e farms f o r the purpose of f i n a n c i n g the repayment o f l o n g - t e r m c r e d i t s , extended f o r the a c q u i s i t i o n o f the equipment. t h e r e was  1  and  the  MTS  W i t h i n the o v e r a l l c o n s t r a i n t mentioned above,  s i g n i f i c a n t improvement i n the r e g i o n a l d i f f e r e n t i a -  t i o n o f p r i c e s toward an i n c e n t i v e o r i e n t a t i o n .  Although pro-  curement p r i c e s were s e t h i g h e r f o r h i g h c o s t r e g i o n s , p r o f i t margins i n low c o s t r e g i o n s were t o be h i g h e r , 2 s t i m u l a t i n g r e g i o n a l s p e c i a l i z a t i o n of production. were made a t t h i s time t o a d j u s t v a r i a t i o n s i n gross harvests; y e a r s the p r i c e s were t o be  the thereby Provisions  s t a t e purchase p r i c e s t o  in exceptionally  lowered, while  the  good h a r v e s t  i n poor y e a r s  the  p r i c e s were 'supposed' t o be a d j u s t e d upwards. The increased  p r i c e r e f o r m s u n d e r t a k e n i n 1963  and  1965  further  the g e n e r a l l e v e l o f a g r i c u l t u r a l procurement p r i c e s ,  ^ "''Collective farm revenues were a l s o i n c r e a s e d a t t h i s time b y ^ p e r m i t t i n g the farms t o o b t a i n machinery, t r u c k s , spare parts and^gasoline at s t a t e i n d u s t r i a l wholesale p r i c e s , rather than r e t a i l p r i c e s . ( B o r n s t e i n , " S o v i e t P r i c e Theory", p.239.) 2 Farms c o u l d o n l y respond t o these p r o f i t i n c e n t i v e s a f t e r they had s a t i s f i e d t h e i r q u o t a o b l i g a t i o n s .  77 and  m o d i f i e d t h e r e l a t i v e p r i c e s i n o r d e r t o make p r i c e s  cor-  respond more c l o s e l y t o t h e average c o s t s o f p r o d u c t i o n w i t h i n any  g i v e n p r i c e zone.  I n t h e c o u r s e o f t h e 1965 r e f o r m minor  a l t e r a t i o n s were made i n t h e z o n a l p r i c e b o u n d a r i e s , and t h e supposed f l e x i b i l i t y  i n purchase p r i c e s , v i s - a - v i s t h e v a r i a -  t i o n s i n g r o s s h a r v e s t l e v e l s , was e l i m i n a t e d . above-quota premium p r i c e s were r e i n t r o d u c e d cotton  In addition,  f o r wheat, r y e ,  and sunflowers."'" S i n c e 1965 t h e r e has been no fundamental changes i n t h e  system o f a g r i c u l t u r a l p r i c e s f a c i n g c o l l e c t i v e farms.  Several  a d d i t i o n a l p r i c e a d j u s t m e n t s have t a k e n p l a c e i n r e c e n t y e a r s w h i c h have s e r v e d t o modify t h e r e l a t i v e p r i c e s t r u c t u r e as w e l l as i n c r e a s e  t h e g e n e r a l l e v e l o f purchase p r i c e s ; r e f l e c t i n g t h e  new l e a d e r s h i p ' s  d e s i r e t o c o n t i n u e t o improve t h e terms o f  trade of the a g r i c u l t u r a l sector. The  p r i c e s t r u c t u r e o f a g r i c u l t u r a l p r o d u c t s t h a t was  a p p l i c a b l e t o s t a t e farms was g e n e r a l l y  l o w e r t h a n t h e compar-  a b l e p r i c e s p a i d t o c o l l e c t i v e f a r m s , b u t t h e economic e f f e c t s o f s t a t e farm p r i c e s d i f f e r e d c o n s i d e r a b l y p a i d t o c o l l e c t i v e farms. prises  ' i n the f i e l d ' ,  State  from t h o s e p r i c e s  farms a r e e s s e n t i a l l y e n t e r -  c o n s e q u e n t l y t h e main f u n c t i o n o f s t a t e  farm p r i c e s , l i k e e n t e r p r i s e w h o l e s a l e p r i c e s , i s t o p r o v i d e a means f o r a c c o u n t i n g and c o n t r o l .  State  farm w o r k e r s a r e p a i d  wages on a p i e c e w o r k scheme, and t h e u t i l i z a t i o n o f farm u n t i l r e c e n t l y , has been r i g i d l y c o n t r o l l e d by s u p e r i o r  lands, agencies.  T h e r e f o r e t h e s t r u c t u r e o f t h e r e l a t i v e a g r i c u l t u r a l p r i c e s , and "'"Above-quota premium p r i c e s were extended t o s e v e r a l o t h e r commodities d u r i n g 19 70; see page 158.  78 the l e v e l o f t h e s e p r i c e s , had v e r y l i t t l e t i v e e f f e c t s on s t a t e farm p r o d u c t i o n .  a l l o c a t i v e or  incen-  The p r i c e s p a i d t o s t a t e  farms were based on c o l l e c t i v e farm compulsory d e l i v e r y p r i c e s but were s e t a t a m a r g i n a l l y  l o w e r l e v e l , due t o the f a c t t h a t  s t a t e farms were supposed t o r e p r e s e n t the i d e a l model o f farm organization.  1  The l o s s e s i n c u r r e d by the m a j o r i t y o f the s t a t e  farms under t h i s p r i c i n g arrangement were o f f s e t by  subsidies  from the s t a t e budget. The r e f o r m s u n d e r t a k e n i n the p r i c i n g o f s t a t e farm o u t p u t s between 1950 and 1965 g e n e r a l l y p a r a l l e l e d the r e g i o n a l l y d i f f e r e n t i a t e d price increases  t h a t a p p l i e d t o procurements  from the c o l l e c t i v e farm s e c t o r , b u t t h r o u g h o u t t h i s p e r i o d the s t a t e farm p r i c e s were h e l d c o n s i s t e n t l y below the procurement p r i c e s p a i d t o c o l l e c t i v e f a r m s , f o r the v a s t m a j o r i t y c u l t u r a l products. during  The r a p i d r i s e i n the sovkhoz p r i c e  t h i s p e r i o d s e r v e d t o reduce the l e v e l o f s t a t e  of a g r i level subsidies  p a i d the sovkhozy, b u t average c o s t s s t i l l exceeded average 2 revenues f o r seven o f t h e s e f i f t e e n  years.  In A p r i l , 1967, some 390 s t a t e farms were t r a n s f e r r e d to a system o f ' f u l l economic s e l f - r e l i a n c e ' , s i m i l a r t o the t y p e o f system i n s t i t u t e d i n the i n d u s t r i a l s e c t o r a f t e r the 19 6 5 r e f o r m s . receive  Under t h i s new  system the above farms were t o  long-term c r e d i t s to finance  t h e i r c a p i t a l investments,  A f t e r 1958 s t a t e farm p r i c e s were based on the u n i f i e d s t a t e purchase p r i c e s and were s e t , on an a v e r a g e , 15 p e r c e n t t o 20 p e r c e n t l o w e r t h a n the p r i c e s p a i d t o c o l l e c t i v e farms. (Roger C l a r k e , " S o v i e t A g r i c u l t u r a l Reforms S i n c e Khrushchev", S o v i e t S t u d i e s , Vol.XX ( O c t o b e r , 1968), p.175.) 1  2 p.242.  From f i g u r e s c i t e d i n B o r n s t e i n ,  " S o v i e t P r i c e Theory",  r a t h e r than r e c e i v e n o n - r e p a y a b l e b u d g e t a r y a l l o c a t i o n s f o r c a p i t a l expenditures.  In order to provide  sufficient  t o f i n a n c e t h e repayment o f t h e l o n g - t e r m c r e d i t s ,  revenues  the p r i c e s  p a i d t o t h e sovkhozy t r a n s f e r r e d t o t h e new system were r e a l i g n e d t o e q u a l t h e g e n e r a l l y h i g h e r q u o t a purchase p r i c e s p a i d to c o l l e c t i v e  farms.  By t h e end o f 1969 about 3,800 s t a t e farms  had been t r a n s f e r r e d t o t h e new system o f f i n a n c i a l reliance,  1  to convert  self-  and i t i s t h e e x p r e s s e d i n t e n t i o n o f t h e government a l l s t a t e farms t o t h e new system d u r i n g t h e c o u r s e 2  of t h e n i n t h f i v e - y e a r p l a n .  Thus t h e p r e s e n t s i t u a t i o n i s  t h a t a minor p r o p o r t i o n o f s t a t e farms a r e under t h e new system of f i n a n c i a l s e l f - r e l i a n c e  and a r e p a i d p r i c e s e q u a l t o t h e  quota p r i c e s p a i d t o c o l l e c t i v e the o t h e r grants  farms i n t h e i r r e g i o n ,  s t a t e farms, w h i c h a r e s t i l l  while  r e c e i v i n g budgetary  t o finance t h e i r investments, are paid p r i c e s that are  g e n e r a l l y l o w e r t h a n those p a i d t o t h e c o l l e c t i v e respective  farms i n t h e i r  regions. Incentives  a t The Farm L e v e l  In t h e case o f c o l l e c t i v e  f a r m s , t h e method used t o r e -  munerate members f o r t h e i r work was t o d i s t r i b u t e  the r e s i d u a l  income o f t h e farm among i t s members, i n accordance w i t h t h e quality day  and q u a n t i t y o f t h e i r l a b o u r c o n t r i b u t i o n s .  The l a b o u r  system, w h i c h was used up u n t i l 1966, was d e v i s e d t o  """Schroeder, " S o v i e t Economic Reform a t an Impasse", p. 39. 2 A l e x e i K o s y g i n , D i r e c t i v e s o f t h e F i v e - Y e a r Economic Development P l a n o f t h e U.S.S.R. f o r 1971-1975, p.42.  80 c a l c u l a t e what p r o p o r t i o n each member made t o t h e t o t a l product i v e e f f o r t s o f t h e farm. day  Using c e n t r a l l y e s t a b l i s h e d labour  s c a l e s as a g u i d e , each farm was t o e s t a b l i s h a norm o r  d a i l y expected  achievement f o r each t a s k u n d e r t a k e n on t h e farm.  These t a s k s would then be p l a c e d i n t o one o f n i n e c a t e g o r i e s , depending on t h e e f f o r t and s k i l l r e q u i r e d , and l a b o u r r a n g i n g from o n e - h a l f  t o two and o n e - h a l f  values  l a b o u r days would be  a s s i g n e d t o each j o b category."'" Farm members were a s s i g n e d t o b r i g a d e s o r work teams who were r e s p o n s i b l e f o r w o r k i n g of l i v e s t o c k .  a d e f i n e d s e c t i o n o f l a n d o r number  Each day t h e b r i g a d i e r ( o r team s u p e r v i s o r ) a s -  signed the necessary  t a s k s t o be u n d e r t a k e n among t h e members  r e p o r t i n g f o r work, and a t t h e end o f each day he c r e d i t s t h e members w i t h t h e l a b o u r day v a l u e s o f t h e i r r e s p e c t i v e j o b s , i n a c c o r d a n c e w i t h t h e i r p r o p o r t i o n a l f u l f i l l m e n t o f t h e j o b norm. Bonus payments o f l a b o u r day c r e d i t s were made a t t h e b r i g a d e l e v e l and were c a l c u l a t e d on t h e b a s i s o f o v e r f u l f i l l m e n t o f t h e y i e l d t a r g e t s a s s i g n e d t o t h e b r i g a d e , and t h e r e l a t i v e p e r f o r mance o f t h e b r i g a d e w i t h o t h e r b r i g a d e s r e s p o n s i b l e f o r s i m i l a r t y p e s o f work.  W i t h i n t h e b r i g a d e t h e bonus l a b o u r day c r e d i t s  were a l l o c a t e d among members i n accordance w i t h t h e i r  propor-  t i o n a l c o n t r i b u t i o n t o t h e t o t a l l a b o u r day c r e d i t s amassed by the b r i g a d e .  A t t h e end o f t h e a g r i c u l t u r a l s e a s o n , t h e t o t a l  number o f l a b o u r day c r e d i t s awarded t o farm members were t o t a l e d , and t h e v a l u e o f each l a b o u r day u n i t v;as c a l c u l a t e d by t a k i n g t h e r e s i d u a l income i n cash and i n k i n d o f t h e farm and "'"Spulber, The S o v i e t Economy, p.86.  81 d i v i d i n g t h e s e amounts by the t o t a l l a b o u r day c r e d i t s awarded d u r i n g the y e a r . The  r e s i d u a l income i n k i n d was  commodity o u t p u t s l e f t a f t e r meeting the compulsory the MTS  t a r g e t s (or quotas)  payments i n k i n d ;  1  the f o l l o w i n g d e d u c t i o n s :  a s s i g n e d by the government;  the w i n t e r feed requirements  l i v e s t o c k ; and the s e e d i n g r e q u i r e m e n t s crops.  the amount o f t o t a l  f o r farm  f o r the next y e a r s  In a d d i t i o n , the farm c o u l d d e c i d e t o s e l l a p o r t i o n o f  t h e r e m a i n i n g produce on the k o l k h o z markets t o i n c r e a s e t h e i r monetary revenues.  The r e m a i n i n g amounts o f commodity o u t p u t s  were then d i v i d e d between members, i n accordance w i t h t h e i r r e l a t i v e p r o p o r t i o n s o f the t o t a l l a b o u r day u n i t s .  Out o f the  g r o s s money income r e c e i v e d by the farm f o r the s a l e o f i t s o u t p u t s , d e d u c t i o n s f o r t a x e s , i n s u r a n c e , p r o d u c t i o n and a d m i n i s t r a t i v e expenses,  c a p i t a l fund c o n t r i b u t i o n s , and c u l t u r a l  fund  d e d u c t i o n s were made t o d e r i v e the r e s i d u a l money income, which was  then s u b j e c t t o d i s t r i b u t i o n i n accordance w i t h the l a b o u r 2 day scheme. Thus the v a l u e o f a l a b o u r day u n i t remained  "'"When the MTS was d i s s o l v e d i n 1958 t h e s e payments were eliminated. 2 Taxes were l e v i e d on g r o s s farm revenues, i n c l u d i n g income i n k i n d d i s t r i b u t e d t o the w o r k e r s , v a l u e d a t s t a t e purchase p r i c e s , but e x c l u d i n g a l l o w a n c e s f o r f o d d e r . P r e v i o u s to 1958 the t a x r a t e s were v a r i a b l e , depending on the s o u r c e of income. From 1958 t o 1965 a f l a t r a t e t a x o f 12.5 p e r c e n t was a p p l i e d . C a p i t a l fund c o n t r i b u t i o n s were s t i p u l a t e d by the c e n t r a l a u t h o r i t i e s and up t o 1958 averaged around 16 p e r c e n t o f g r o s s cash revenues. A f t e r 1958 the d e d u c t i o n s approached 30 p e r c e n t of g r o s s cash revenues i n o r d e r t o f i n a n c e the repayment o f l o n g - t e r m c r e d i t s extended f o r the a c q u i s i t i o n o f the MTS equipment. (Nove, The S o v i e t Economy, p. 55. )  82 u n c e r t a i n u n t i l y e a r - e n d c a l c u l a t i o n s were made.  Considerable  v a r i a t i o n s i n l a b o u r day v a l u e s o c c u r r e d from y e a r t o y e a r , the u n i t v a l u e depended on the f a v o u r a b l e n e s s  as  o f the c l i m a t e  and on the t o t a l number o f l a b o u r day u n i t s awarded, as w e l l as the l e v e l o f procurements e x t r a c t e d by the government and p r i c e s p a i d f o r these The  the  procurements.  i n c e n t i v e system used t o remunerate the  managerial  e f f o r t s of c o l l e c t i v e farm chairman d i f f e r e d a p p r e c i a b l y from the method used t o remunerate, l o w e r - l e v e l p e r s o n n e l above.  The  described  base pay o f c o l l e c t i v e farm chairman was  o f two p a r t s :  composed  1) l a b o u r day c r e d i t s , awarded on the b a s i s o f  t h e number o f h e c t a r e s under c u l t i v a t i o n and on the q u a n t i t y and k i n d s o f t h e . v a r i o u s l i v e s t o c k h o l d i n g s o f the farm, as w e l l as a p e r c e n t a g e supplement t o the l a b o u r day c r e d i t s so c a l c u l a t e d based on the l e n g t h o f s e r v i c e ; 2) a monthly r u b l e amount 1  t h a t v a r i e d a c c o r d i n g t o the money income of the farm.  collective  Bonus payments were made f o r o v e r f u l f i l l m e n t o f  crop  y i e l d p l a n s and/or l i v e s t o c k p r o d u c t i o n , p r o v i d i n g t h a t the planned  a s s o r t m e n t o f farm o u t p u t s had been a c h i e v e d .  The  payments were c a l c u l a t e d as a p e r c e n t a g e o f the base pay  bonus and  were p r o g r e s s i v e , r e l a t i v e t o the p e r c e n t a g e i n c r e a s e i n p l a n overfulfillment.  P e n a l t y l e v i e s were made a g a i n s t the base  pay o f the c o l l e c t i v e farm chairman f o r u n d e r f u l f i l l m e n t o f the planned  output t a r g e t s .  The  p e r c e n t a g e u n d e r f u l f i l l m e n t o f the  """A 5 p e r c e n t supplement t o the l a b o u r day c r e d i t s was g i v e n f o r t h r e e y e a r s o f s e r v i c e , up t o a maximum supplement o f 15 p e r c e n t f o r s e r v i c e o f f i v e y e a r s o r more. (Robert S t u a r t , "Managerial Incentives i n Soviet C o l l e c t i v e A g r i c u l t u r e during the Khrushchev E r a " , S o v i e t S t u d i e s , V o l . X X I I ( A p r i l , 1971), p.550.)  83 p l a n n e d o u t p u t f o r each c r o p was summed and an e q u i v a l e n t p e r centage o f t h e chairman's l a b o u r day c r e d i t s was deducted  from  t h a t p o r t i o n o f h i s base pay, up t o a maximum o f 25 p e r c e n t .  1  M i n o r m o d i f i c a t i o n s were made t o t h e l a b o u r day scheme from 1950 t o 1966 b u t t h e b a s i c c h a r a c t e r i s t i c s o f t h e i n c e n t i v e scheme remained unchanged'.  I n 1956 t h e c e n t r a l  authorities  recommended t h a t t h e c o l l e c t i v e farms make advance monthly money payments t o t h e workers and charge t h e advance payments a g a i n s t the f i n a l d i s t r i b u t i o n o f t h e r e s i d u a l farm income. t h e money advances, arrangements were made t o advance  To f i n a n c e payment  t o t h e farms o f up t o o n e - h a l f o f t h e t o t a l v a l u e o f t h e major 2 c r o p s s u b j e c t t o compulsory d e l i v e r i e s . By 1958 95.3 p e r c e n t 3 o f a l l farms had adopted an advance payment scheme.  In addi-  t i o n t o t h e above change, t h e r a p i d i n c r e a s e i n s t a t e purchase p r i c e s a f t e r 1953 s e r v e d t o markedly s h i f t t h e form o f l a b o u r r e m u n e r a t i o n from payments i n k i n d t o c a s h , as w e l l as r a i s e t h e v a l u e o f l a b o u r day u n i t s  appreciably.  The u n c e r t a i n t y as t o t h e v a l u e o f l a b o u r day c r e d i t s , and t h e g e n e r a l inadequacy o f t h e l a b o u r r e m u n e r a t i o n i n p r o v i d i n g s u f f i c i e n t i n c e n t i v e s t o produce, l e a d t o the a b o l i t i o n o f t h e l a b o u r day scheme i n 1966. A decree i s s u e d i n March 1966 o r d e r e d t h e c o l l e c t i v e farms t o r e p l a c e t h e l a b o u r day scheme w i t h a system o f minimum g u a r a n t e e d payments i n cash and k i n d "'"Robert S t u a r t , " M a n a g e r i a l I n c e n t i v e s i n S o v i e t C o l l e c t i v e A g r i c u l t u r e d u r i n g t h e Khrushchev E r a " , S o v i e t S t u d i e s ,• V o l . X X I I ( A p r i l , 1971), p.542. 2 K a r c z and Timoshenko, " S o v i e t A g r i c u l t u r a l P o l i c y " , p.136. 3  Ibid.  84 f o r c o l l e c t i v e farm w o r k e r s .  To a s s i s t t h e farms i n meeting t h e  g u a r a n t e e d wage payments, t h e government c a n c e l l e d t h e o u t s t a n d i n g debts owed by t h e c o l l e c t i v e farms f o r purchases o f t h e MTS equipment,  and extended f i v e - y e a r l o a n s t o t h e p o o r e r c o l l e c t i v e  farms; by e a r l y 1968 some 93 p e r c e n t o f t h e c o l l e c t i v e farms had been c o n v e r t e d t o t h e new scheme."'"  Under t h e new system workers  were t o be p a i d f o r work they had done a t minimum pay r a t e s , w h i c h were t o e q u a l t h o s e p a i d on s t a t e farms f o r s i m i l a r t y p e s and amounts o f work.  The d i s t r i b u t i o n o f l a b o u r payments be-  tween cash and k i n d was l e f t t o t h e d i s c r e t i o n o f t h e i n d i v i d u a l farms.  Income i n k i n d was t o be v a l u e d a t s t a t e purchase p r i c e s  and t h e t o t a l v a l u e o f payments i n cash and k i n d had t o e q u a l the r e m u n e r a t i o n p a i d under s t a t e farm r a t e s ; t h e r e f o r e t h e money payments d i s t r i b u t e d monthly were e q u a l t o t h e p r o p o r t i o n o f t o t a l l a b o u r r e m u n e r a t i o n t o be made i n c a s h .  In order t o  p r o v i d e a guarantee o f t h e payments i n k i n d t h a t were owing t o the workers a t y e a r end, a g u a r a n t e e d fund o f produce,  stipu-  l a t e d as a f i x e d p r o p o r t i o n o f t h e g r o s s h a r v e s t , was t o be s e t 2 a s i d e f o r t h e payments i n k i n d t h a t were o u t s t a n d i n g . M o d i f i c a t i o n s t o farm manager i n c e n t i v e s , t h e f i n a n c i a l p r i o r i t i e s f a c e d by t h e c o l l e c t i v e farm, and t h e system o f bonus payments t o workers were a l s o an i n t e g r a l p a r t o f t h e new t i v e scheme.  incen-  Under t h e new i n c e n t i v e scheme farm managers were  t o r e c e i v e a g u a r a n t e e d monthly s a l a r y .  Supplemental bonus  "'"Clarke, " A g r i c u l t u r a l Reforms S i n c e Khrushchev", p. 160. 2 Cash payments were g u a r a n t e e d i n t h a t payments f o r work done were t o be t h e f i r s t charge on t h e g r o s s cash incomes o f the farms.  85 payments were t o be p a i d on a p r o g r e s s i v e b a s i s , the amounts depending  on the degree o f o v e r f u l f i l l m e n t o f p l a n n e d o u t p u t s .  Payments f o r the l a b o u r s e r v i c e s o f both managers and now  have the h i g h e s t p r i o r i t y on g r o s s revenues,  t a x e s , s o c i a l and comprehensive  f o l l o w e d by  i n s u r a n c e payments, c a p i t a l  fund c o n t r i b u t i o n s , and d e d u c t i o n s t o the c u l t u r a l  fund.  Worker bonuses were t o be l i n k e d t o the q u a n t i t y and o f o u t p u t produced  workers  quality  and were t o be p a i d from the net income  r e m a i n i n g a f t e r the above-noted  d e d u c t i o n s had been made.  Throughout t h e i r h i s t o r y c o l l e c t i v e farms have been competing  w i t h the p r i v a t e h o u s e h o l d p l o t s f o r t h e l a b o u r s e r -  v i c e s o f i t s members.  1  The a t t r a c t i v e n e s s o f t h i s  alternative  s o u r c e o f income f o r the peasants made i t n e c e s s a r y f o r the government t o s t i p u l a t e a n n u a l mandatory minimum l a b o u r day requirements  f o r c o l l e c t i v e farm members.  The minimum r e q u i r e d  l a b o u r days were r e g i o n a l l y d i f f e r e n t i a t e d and by 1954 2 from 100 t o 150 l a b o u r days.  A f t e r 1956,  varied  c o l l e c t i v e farms were  g r a n t e d the a u t h o r i t y o f s t i p u l a t i n g minimum l a b o u r day b u t i o n s s u f f i c i e n t t o c a r r y out the n e c e s s a r y work.  The  contridevolu-  t i o n o f t h i s a u t h o r i t y a p p a r e n t l y has not r e s u l t e d i n d e c r e a s e d 3 minimum r e q u i r e m e n t s .  A l t h o u g h c o l l e c t i v e farm revenues  have  g r e a t l y i n c r e a s e d s i n c e 1953, which c o n s e q u e n t l y has p e r m i t t e d The maximum s i z e o f p r i v a t e p l o t s i s a p p r o x i m a t e l y two and o n e - h a l f a c r e s , but they v a r y up t o t h i s maxima, depending on the q u a l i t y and q u a n t i t y o f l a n d a v a i l a b l e . A l t h o u g h peas a n t s may own l i v e s t o c k up t o s p e c i f i e d numbers, t h e i r r i g h t s t o t h e i r p r i v a t e p l o t s are c o n d i t i o n a l on remaining•members o f the c o l l e c t i v e farm. 2 B e r g s o n , The Economics o f S o v i e t P l a n n i n g , p.223. 3  S e e p. 163.  a marked i n c r e a s e attractiveness  i n the v a l u e o f l a b o u r day payments, the  o f c o l l e c t i v e farm work r e l a t i v e t o the c u l t i v a -  t i o n o f p r i v a t e p l o t s has not shown a c o r r e s p o n d i n g i n c r e a s e because o f the m o d i f i c a t i o n s incentives  made t h a t have a f f e c t e d the l a b o u r  toward p r i v a t e c u l t i v a t i o n .  P r i o r t o 19 53 compulsory d e l i v e r i e s f o r p r i v a t e included  a l l major farm p r o d u c t s .  substantial proportion a r e a s , and were p a i d then i n a f f e c t .  plots  The d e l i v e r y l e v e l s were a  o f the p o t e n t i a l o u t p u t o f the sown f o r a t the n o m i n a l procurement  prices  F a i l u r e t o meet the compulsory d e l i v e r y t a r -  gets r e s u l t e d i n o u t r i g h t  c o n f i s c a t i o n and/or monetary  fines.  A s i d e from the h i g h compulsory d e l i v e r i e s demanded from the p r i v a t e p l o t s , an a g r i c u l t u r a l t a x was income r e c e i v e d and was percent.  from p r i v a t e c u l t i v a t i o n and a n i m a l husbandry,  s u b j e c t t o p r o g r e s s i v e t a x e s r a n g i n g from 12 t o 48 1  I n mid 1953 the compulsory d e l i v e r y t a r g e t s  p r i v a t e p l o t s were c o n s i d e r a b l y larger proportion market s a l e s . was  l e v i e d on the assumed  reduced, thereby f r e e i n g a  o f t h e i r t o t a l o u t p u t s f o r c o l l e c t i v e farm  S e v e r a l months l a t e r the a g r i c u l t u r a l t a x base  s h i f t e d t o a s t r a i g h t l a n d t a x and t a x r a t e s were l e s s e n e d ,  r e s u l t i n g i n an average r e d u c t i o n  i n the t a x burden on proceeds 2  from p r i v a t e c u l t i v a t i o n o f some 58 p e r c e n t . t i v e inducement creasing with  on  The l a s t p o s i -  u n d e r t a k e n by t h e Khrushchev regime toward i n -  the a t t r a c t i v e n e s s  of p r i v a t e c u l t i v a t i o n occurred  the e l i m i n a t i o n o f d e l i v e r y q u o t a s , t h a t took e f f e c t . "'"Nove, The S o v i e t Economy, p. 62. 2 K a r c z and Timoshenko, " S o v i e t A g r i c u l t u r a l P o l i c y " ,  p.133.  87 beginning January, 1958. It i s d i f f i c u l t  1  t o d e t e r m i n e the changes i n the  i n c e n t i v e s of c o l l e c t i v e , versus p r i v a t e labour inputs. government d i d i n s t i g a t e  n e g a t i v e p r e s s u r e s on p r i v a t e  relative The cultiva-  t i o n f o r a l m o s t a decade f o l l o w i n g 19 55 t h r o u g h r e d u c i n g the s i z e o f p r i v a t e p l o t s and 2 to c o l l e c t i v e the  strict  farms.  ' e n c o u r a g i n g ' the s a l e s o f  A f t e r t h e f a l l o f Khrushchev  livestock i n 1964,  enforcement o f the r e g u l a t i o n s r e g a r d i n g the  of the p r i v a t e p l o t s and the amount o f p r i v a t e l i v e s t o c k was  l i f t e d by the new  leaders.  Undoubtedly  size owned  the v a r i o u s a g r i -  c u l t u r a l r e f o r m s t h a t were i n t r o d u c e d between 1953 and changed the r e l a t i v e i n c e n t i v e s o f p r i v a t e v e r s u s  1966  collective  l a b o u r , n e v e r t h e l e s s , on an a b s o l u t e b a s i s , the l e v e l o f remune r a t i o n f o r l a b o u r i n p u t s remained h e a v i l y i n f a v o u r o f p r i v a t e 3 household p l o t s throughout t h i s p e r i o d . g u a r a n t e e d minimum pay f o r c o l l e c t i v e  The i n t r o d u c t i o n o f  farm work, based on s t a t e  farm pay r a t e s , w i l l u n d o u b t e d l y i n c r e a s e the a t t r a c t i v e n e s s of c o l l e c t i v e for collective the  farm l a b o u r .  Whether the i n c r e a s e d r e m u n e r a t i o n  farm l a b o u r i n p u t s w i l l be s u f f i c i e n t t o s h i f t  balance of labour i n c e n t i v e s i n favour of c o l l e c t i v e pro-  d u c t i o n , i s as y e t , u n c e r t a i n . The system o f l a b o u r r e m u n e r a t i o n and i n c e n t i v e s f o r s t a t e farm p e r s o n n e l d i f f e r e d c o n s i d e r a b l y from the methods used "'"Ibid. , p. 134 . 2 Between 1957 and 1960 the average s i z e o f h o u s e h o l d p l o t s were reduced by 9 p e r c e n t w h i l e p r i v a t e h o l d i n g s o f c a t t l e d e c r e a s e d by 19 p e r c e n t . ( I b i d . , p.145.) 3 Nove, The S o v i e t Economy, p.212.  in  the c o l l e c t i v e farm s e c t o r .  S t a t e farm d i r e c t o r s , o t h e r  lower-level administrative personnel,  and  agricultural special-  i s t s were p a i d a b a s i c monthly s a l a r y ; the s a l a r i e s v a r y i n g i n accordance w i t h the r e s p o n s i b i l i t i e s and specific positions. was  s k i l l s i n v o l v e d i n the  Seventy p e r c e n t of the b a s i c y e a r l y s a l a r y  p a i d out a t monthly i n t e r v a l s , w h i l e the r e m a i n i n g 30 p e r -  c e n t was  accumulated and d i s t r i b u t e d a t y e a r end,  i n accordance  w i t h the p r o p o r t i o n a l f u l f i l l m e n t o f the o u t p u t p l a n .  State  1  farm w o r k e r s are p a i d i n accordance w i t h wage r a t e s and norms e s t a b l i s h e d by the c e n t r a l a u t h o r i t i e s . d i f f e r e n t i a t e d i n accordance w i t h the s k i l l and  Pay  output  rates  and e f f o r t  are  involved  the normed d a i l y o u t p u t s e s t a b l i s h e d f o r each t a s k .  Indi-  v i d u a l w o r k e r s are p a i d on a p i e c e w o r k type b a s i s , t h e i r a c t u a l d a i l y wages v a r y i n g i n p r o p o r t i o n t o t h e i r f u l f i l l m e n t o f o u t p u t norm f o r t h e i r P r i o r t o 1961  the  jobs. s t a t e farm w o r k e r s r e c e i v e d t h e i r  p i e c e w o r k wages, r e g a r d l e s s  of year-end plan  D u r i n g t h i s y e a r the wage system was  modified;  full  fulfillment. henceforth  the  w o r k e r s were t o r e c e i v e 80 p e r c e n t o f t h e i r b a s i c piecework wages, the remainder was  t o be p a i d out a t y e a r end,  in  accord2  ance w i t h the p r o p o r t i o n a l f u l f i l l m e n t o f the o u t p u t p l a n . A s i d e from the wages and  s a l a r i e s p a i d , a l l s t a t e farm p e r s o n -  nel  are a l l o t t e d p r i v a t e p l o t s o f a p p r o x i m a t e l y one  put  from t h e s e p l o t s i s f o r p e r s o n a l  acre.  consumption o n l y and  Outcannot  be s o l d on the c o l l e c t i v e farm markets. ''"Allan Gruchy, C o m p a r i t i v e Economic Systems, p. 736 . 2 A l l e n B a l l a r d J r . , "Problems of S t a t e Farm A d m i n i s t r a t i o n " , S o v i e t S t u d i e s , V o l . X V I I (June, 1966), p.350.  89 Bonuses f o r o v e r f u l f i l Intent o f p l a n n e d o u t p u t s f o l l o w e d a system v e r y c l o s e t o t h a t used i n i n d u s t r y p r i o r t o t h e 1965 reforms.  Bonus payments were made by a l l o c a t i n g 5-12 p e r c e n t  o f o v e r - p l a n p r o f i t s t o t h e e n t e r p r i s e fund.  M a n a g e r i a l bonuses  were p a i d from t h i s f u n d , w h i l e worker bonuses f o r o v e r - p l a n f u l f i l l m e n t were l i m i t e d t o t h e bonuses i n k i n d r e c e i v e d from the e n t e r p r i s e fund and t o e x t r a o r d i n a r y bonuses i n c a s h .  1  The g r a d u a l c o n v e r s i o n o f s t a t e farms t o a system o f 'economic s e l f - r e l i a n c e ' , t h a t has been t a k i n g p l a c e s i n c e 1967, i n v o l v e d a r e s t r u c t u r i n g o f t h e i n c e n t i v e system f o r t h e converted enterprises.  Three i n c e n t i v e f u n d s , s i m i l a r t o t h o s e  o r g a n i z e d f o r i n d u s t r i a l e n t e r p r i s e s a f t e r t h e 1965 r e f o r m s were formed t o p r o v i d e bonuses f o r b o t h worker and m a n a g e r i a l nel.  person-  F i n a n c i n g o f t h e i n c e n t i v e funds i s p r o v i d e d by t h e d i s -  t r i b u t i o n o f p l a n n e d n e t p r o f i t , a l l o c a t e d i n t h e f o l l o w i n g manner:  15 p e r c e n t t o t h e m a t e r i a l i n c e n t i v e f u n d s ; 10 p e r c e n t t o  the s o c i a l - c u l t u r a l and h o u s i n g fund; 20 p e r c e n t t o t h e i n s u r a n c e fund; t h e remainder b e i n g used t o repay bank c r e d i t s , 2 w o r k i n g c a p i t a l , and f i n a n c e c e n t r a l i n v e s t m e n t s .  supplement  Over-plan  p r o f i t s a r e d i s t r i b u t e d i n a s i m i l a r manner w i t h lower norms bei n g used f o r a l l o c a t i o n s t o t h e i n c e n t i v e funds t o d i s c o u r a g e F o r each 1 p e r c e n t o f o v e r f u l f i l l m e n t o f t h e p l a n s f o r s a l e s ( p r o d u c t i o n ) , m a n a g e r i a l p e r s o n n e l r e c e i v e d bonuses o f 0.3 p e r c e n t o f t h e i r base annual s a l a r y . ("On t h e S a l a r i e s o f M a n a g e r i a l P e r s o n n e l and S p e c i a l i s t s o f S t a t e Farms and o t h e r S t a t e A g r i c u l t u r a l E n t e r p r i s e s " , P r a v d a , A p r i l 22, 1965. Translated i n the Current Digest of the Soviet Press, Vol.XVII, N o . l , 1965 , p.10. ) 2 C l a r k e , " A g r i c u l t u r a l Reforms S i n c e Khrushchev", pp.163-164. 1  90  farms from s e e k i n g easy a s s i g n m e n t s .  Total a l l o c a t i o n s of pro-  f i t s t o t h e m a t e r i a l i n c e n t i v e fund i s l i m i t e d t o a maximum o f 12 p e r c e n t o f t h e farm's wage f u n d , the  1  b u t u n l i k e i n d u s t r y , where  f r e e remainder o f p r o f i t s i s t r a n s f e r r e d t o t h e budget, a l l  p r o f i t s a r e r e t a i n e d by t h e s t a t e farm. "'"Ibid, p.164.  91  CHAPTER I I I TRADE The  f o l l o w i n g c h a p t e r on t r a d e w i l l be d i v i d e d i n t o  major c a t e g o r i e s ; r e t a i l t r a d e , and  foreign trade.  In the  two study  o f r e t a i l t r a d e t h r e e areas o f i n v e s t i g a t i o n w i l l be p u r s u e d ; the p l a n n i n g and o r g a n i z a t i o n o f t r a d e , r e t a i l p r i c e s , microeconomic f i n a n c i a l c o n t r o l s and i n c e n t i v e s . processes  The  and planning  u t i l i z e d i n l i g h t i n d u s t r y w i l l be d i s t i n g u i s h e d from  those d i s c u s s e d f o r heavy i n d u s t r y , and the m o d i f i c a t i o n s t h a t have o c c u r r e d i n the a l l o c a t i v e mechanics u t i l i z e d f o r r e t a i l t r a d e i n the p a s t two decades w i l l be examined.  I n the s e c t i o n  d e a l i n g w i t h f o r e i g n t r a d e the p l a n n i n g and a d m i n i s t r a t i v e s y s tems used t o d e t e r m i n e and c o n t r o l f o r e i g n t r a d e f l o w s w i l l scrutinized. examination  The  study o f f o r e i g n t r a d e w i l l c o n c l u d e  be  w i t h an  o f the p r i c e s a p p l i e d t o t r a d e d c o m m o d i t i e s , the  methods used t o f i n a n c e t r a d e f l o w s , and the r e c e n t  reforms  u n d e r t a k e n i n the methods used t o f i n a n c e i n t r a - b l o c t r a d e .  R e t a i l Trade P l a n n i n g and o r g a n i z a t i o n o f t r a d e I t was  shown i n the p r e v i o u s d i s c u s s i o n on the  t i o n o f the annual p r o d u c t i o n was  formula-  p l a n t h a t the p l a n n i n g o f consumer goods  an i n t e g r a l p a r t o f t h i s p r o j e c t i n g p r o c e s s .  P r e v i o u s t o the c o m p i l a t i o n o f the annual  production-supply  p l a n , fundamental d e c i s i o n s as t o the d i s t r i b u t i o n o f t h e nat i o n a l income between producer  and consumer i n d u s t r i e s were made  by the P a r t y l e a d e r s on the b a s i s o f t h e i r p o l i t i c a l - e c o n o m i c objectives.  Consequently,  t h e p l a n n i n g and a l l o c a t i o n o f con-  sumer goods i s c i r c u m s c r i b e d by these b a s i c d e c i s i o n s r e g a r d i n g the a l l o c a t i o n o f r e s o u r c e s t o l i g h t i n d u s t r y . p l a n n i n g i s t h e r e f o r e a matter  Retail  trade  o f d e c i d i n g on t h e p r o d u c t i o n  mix w i t h i n t h e c o n f i n e s o f t h e r e s o u r c e s a v a i l a b l e , and d i s t r i b u t i n g the f i n a l products  i n a manner t h a t w i l l b e s t  satisfy  consumer demands. P l a n n i n g t h e p r o d u c t i o n o f consumer goods c l o s e l y r e sembles t h e annual p l a n n i n g t e c h n i q u e s goods i n g e n e r a l .  described f o r i n d u s t r i a l  Consumer goods a r e a l s o e v a l u a t e d w i t h  regard  t o t h e i r i m p o r t a n c e and/or s c a r c i t y and a r e c l a s s i f i e d as funded goods, r e g u l a t e d goods, and n o n - p r i o r i t y o r l o c a l l y goods.  produced  S i m i l a r l y , p l a n n i n g f o r t h e p r o d u c t i o n and a l l o c a t i o n  o f t h e s e goods v a r i e s a c c o r d i n g t o importance. t i e s a r e planned  Funded  commodi-  and a l l o c a t e d by t h e A l l - U n i o n M i n i s t r y o f  Trade and G o s p l a n w h i l e r e g u l a t e d commodities a r e planned a l l o c a t e d by t h e c o r r e s p o n d i n g level.  and  organs a t the u n i o n - r e p u b l i c a n  At these v a r i o u s p l a n n i n g l e v e l s p r e l i m i n a r y p r o d u c t i o n  and a l l o c a t i o n p l a n s a r e drawn up t a k i n g i n t o account o r d e r s r e c e i v e d i n the previous planned c a p a c i t i e s of l i g h t i n d u s t r y . through  y e a r , and p a s t and p r o j e c t e d  The d r a f t p l a n s a r e then passed  t h e h i e r a r c h y o f t r a d i n g o r g a n s , where they a r e p r o -  g r e s s i v e l y disaggregated,  u n t i l they r e a c h the i n d i v i d u a l  retail  outlets. The r e t a i l o u t l e t s then p l a c e p r e l i m i n a r y o r d e r s , based  93 on t h e i r d r a f t a l l o t m e n t s and i n d i v i d u a l e x p e r i e n c e s sales trends  and s e a s o n a l  l o c a l trade organizations  requirements, with t h e i r (torgi).  the o r d e r s o f t h e i r s u b o r d i n a t e  regarding respective  The v a r i o u s t o r g i summate  s t o r e s and pass them back up  t h r o u g h t h e a d m i n i s t r a t i v e h i e r a r c h y , a f t e r h a v i n g made t h e n e c e s s a r y m o d i f i c a t i o n s t o t h e a g g r e g a t e d o r d e r s based on c i t y and a r e a budget s t u d i e s conducted by t h e C e n t r a l  Statistical  Administration.  These a g g r e g a t e d o r d e r s  ning the output,  s t r u c t u r e , and a l l o c a t i o n o f consumer goods.  Within the l i m i t s of the productive  a r e t h e n used i n p l a n -  capacity of l i g h t industry  the v a r i o u s goods a r e a l l o c a t e d by m a t e r i a l b a l a n c e s showing the e x p e c t e d o u t p u t and demands f o r t h e commodity.  Where  supply  i s i n a d e q u a t e r e l a t i v e t o ex ante demand, t h e a l l o c a t i o n s o f goods a r e d i s t r i b u t e d on a p r e - d e t e r m i n e d p r i o r i t y b a s i s , o r the a l l o c a t i o n s a r e p r o - r a t e d and p r i c e a d j u s t m e n t s may be made t o equate ex ante demand and s u p p l y .  The p l a n n i n g methods des-  c r i b e d above a r e o n l y a p p l i c a b l e t o t h e a l l o c a t i v e mechanics u t i l i z e d f o r funded and r e g u l a t e d goods.  N o n - r e g u l a t e d goods  are a l l o c a t e d by means o f d i r e c t c o n t r a c t u a l arrangements between t h e buyer and s e l l e r . N o r m a l l y t h e r e t a i l s t o r e s o r d e r goods, i n accordance w i t h t h e i r approved q u o t a s , from t h e i r t o r g a d m i n i s t r a t i o n which fills  the order  from i t s own s t o c k s .  I n t h e event o f i n s u f f i c i -  ent s t o c k s , t h e o r d e r i s passed up t h e h i e r a r c h y t o whatever l e v e l n e c e s s a r y which f i l l s the r e t a i l o u t l e t .  t h e o r d e r and s h i p s i t d i r e c t l y t o  Each warehouse i n t h e t r a d e h i e r a r c h y r e -  plenishes i t s depleted  s t o c k s by o r d e r i n g t h e r e q u i r e d goods  from i t s s u p e r i o r t r a d e organ.  At the top l e v e l , the wholesale  94 warehouses, r e p l e n i s h t h e i r s t o c k s from o r d e r s  submitted  f a c t o r y v i a the s a l e s a d m i n i s t r a t i o n of the producing  t o the  ministry.  The a d m i n i s t r a t i v e r e o r g a n i z a t i o n o f 1957-1958 had s i g n i f i c a n t e f f e c t s on t h e p l a n n i n g  system d e s c r i b e d above.  The  A l l - U n i o n M i n i s t r y o f Trade was a b o l i s h e d and some o f i t s p l a n n i n g f u n c t i o n s were s h i f t e d down t o t h e r e p u b l i c a n ,  sovnarkhozi,  and o t h e r lower a d m i n i s t r a t i v e l e v e l s , w h i l e G o s p l a n , U.S.S.R., assumed r e s p o n s i b i l i t y f o r t h e p l a n n i n g o f funded commodities and  the o v e r a l l c o o r d i n a t i o n o f the t r a d i n g organs. Large r e d u c t i o n s  i n t h e number o f c e n t r a l l y p l a n n e d and  a l l o c a t e d goods were a l s o c a r r i e d o u t a t t h i s time and have cont i n u e d t o d e c r e a s e i n number up t o t h e p r e s e n t  time.  t i o n o f t h e m a j o r i t y o f consumer goods now t a k e p l a c e  Distributhrough  d i r e c t c o n t r a c t s between t h e p r o d u c e r and v a r i o u s t r a d e  organi-  z a t i o n s , down t o t h e l e v e l o f t h e l a r g e r r e t a i l o u t l e t s .  To  f a c i l i t a t e these d i r e c t c o n t r a c t u a l r e l a t i o n s h i p s , trade for  d i f f e r e n t branches o f l i g h t i n d u s t r y have been h e l d  the summer months i n i n c r e a s i n g numbers s i n c e 1 9 5 7 . t h e s e f a i r s new o r d e r s  1  during  During  a r e p l a c e d by t h e t r a d e organs and l a r g e r  r e t a i l o u t l e t s with producers,  and o l d s t o c k s o f w h o l e s a l e and  r e t a i l o r g a n i z a t i o n s a r e r e a d j u s t e d among t h e m s e l v e s 2 t o t h e i r needs.  fairs  Before  according  the onset o f the next plan year d e t a i l e d  c o n t r a c t s , s p e c i f y i n g a s s o r t m e n t s , method o f payment, and "''The movement toward d i r e c t n e g o t i a t i o n s between p r o d u c e r s and t r a d i n g o r g a n i z a t i o n s was i n t e n s i f i e d a f t e r t h e i n t r o d u c t i o n o f t h e 1965 r e f o r m s . 2 S u r p l u s commodities o f w h o l e s a l e and r e t a i l o u t l e t s a r e s o l d t o o t h e r t r a d e o r g a n i z a t i o n s who have s h o r t a g e s o f those commodities.  d e l i v e r y d a t e s , are drawn up on the b a s i s of the established The  previously  orders. vast majority  the p l a n n i n g and  o f a l l r e t a i l o u t l e t s are s u b j e c t  d i s t r i b u t i o n system d e s c r i b e d  above, the  e x c e p t i o n b e i n g the c o l l e c t i v e farm market o u t l e t s .  major  These  k o l k h o z markets p r o v i d e an o u t l e t f o r the c o l l e c t i v e f a r m s and  i n d i v i d u a l peasants' surplus  foodstuffs, primarily  v e g e t a b l e s , g r a i n p r o d u c t s , meat and supervised  The  and  markets  maintaining  f o r the p e a s a n t s a t a n o m i n a l d a i l y f e e .  markets are  free to vary with  s u p p l y and  government i n d i r e c t l y i n f l u e n c e s  the  are health  necessary  Prices i n  demand, a l t h o u g h  s u p p l y by the  1  fresh  by the government t o the e x t e n t of e n s u r i n g  r e q u i r e m e n t s as w e l l as p r o v i d i n g stalls  milk.  to  the the  procurement  p o l i c i e s i t f o l l o w s , which a f f e c t s the amount of s u r p l u s  pro-  duction  to  o f f e r e d f o r s a l e , and  demand through i t s a b i l i t y  s a t i s f y consumer r e q u i r e m e n t s t h r o u g h s t a t e and retail outlets.  The  f o l l o w i n g t a b l e i n d i c a t e s the  degree o f d i v e r g e n c e between the government s t o r e s  and  cooperative increasing  f i x e d p r i c e s charged by  the  the c o l l e c t i v e farm market p r i c e s .  A comparison o f the  f i g u r e s i n the  f o l l o w i n g t a b l e does  not d i r e c t l y i n d i c a t e the r e a l d i v e r g e n c e o f s t a t e p r i c e s comparable commodities from e q u i l i b r i u m l e v e l s .  Since  on  state  p r i c e s are s e t below the market c l e a r i n g l e v e l s f o r these commodities,  the demand i n the c o l l e c t i v e farm markets i s l a r g e l y  a r e s i d u a l demand which tends t o i n f l a t e c o l l e c t i v e farm market p r i c e s above what the e q u i l i b r i u m p r i c e would be i f a l l nonp r o c e s s e d foods were a l l o c a t e d i n a f r e e market. p r i c e s are  Since  state  f i x e d , what a comparison of r e l a t i v e p r i c e s does  96 p r o v i d e i s a rough i n d i c a t o r o f the d i f f e r e n c e s i n r e p r e s s e d i n f l a t i o n a r y p r e s s u r e s o p e r a t i v e i n the economy a t d i f f e r e n t p o i n t s i n time.  TABLE XI INDICES OF SOVIET STATE RETAIL PRICES AND COLLECTIVE FARM MARKET PRICES FOR SELECTED YEARS, 1958-1964* (1950=100) 1958 1963 1964 State C o l l e c t i v e State C o l l e c t i v e State Collect; Farm Farm Farm  Commodity Group Food Meat Bread p r o d u c t s Potatoes Vegetables Vegetable o i l Butter *  73 66 59 92 88 65 65  107 105 67 119 131 70 87  75 85 59 112 90 65 83  129 121 100 170 158 68 102  75 85 59 110 83 65 83  135 151 119 159 161 75 131  Compiled from f i g u r e s c i t e d i n B o r n s t e i n , " S o v i e t P r i c e pp.248-251.  Theory",  The r e l a t i v e i m p o r t a n c e o f c o l l e c t i v e farm markets as r e t a i l o u t l e t s has s t e a d i l y d e c l i n e d t h r o u g h o u t t h e 1950's and 1960's, and by 1965 accounted retail sales.  1  f o r o n l y 3 p e r c e n t o f the t o t a l  However t h i s f i g u r e tends t o d i m i n i s h t h e i r t r u e  i m p o r t a n c e , i n 19 6 5 t h e s e markets p r o v i d e d more than 10 p e r c e n t 2 of  t h e r e t a i l s a l e s o f f o o d s t u f f s t o t h e c o u n t r y as a whole.  The d e c l i n i n g importance o f the k o l k h o z markets can i n p a r t be S p u l b e r , The S o v i e t Economy, p.105.  See Table X I I ,  p. 98. 2  Ibid. C o l l e c t i v e farm markets v a r y c o n s i d e r a b l y i n imp o r t a n c e depending on t h e i r l o c a t i o n . I n 1955 they accounted f o r 60 p e r c e n t o f t h e s a l e s o f r e t a i l f o o d s t u f f s i n Odessa. ( M a r s h a l l Goldman, " R e t a i l i n g i n the S o v i e t Union", J o u r n a l o f M a r k e t i n g , Vol.XXIV ( A p r i l , 1960), p.12.)  97 e x p l a i n e d by t h e i n c r e a s i n g number o f consumer cooperatives"'", and p a r t i c u l a r l y by t h e d e c i s i o n o f t h e c e n t r a l a u t h o r i t i e s i n 1953  t o a l l o w t h e c o o p e r a t i v e s t o a c c e p t produce from t h e c o l -  l e c t i v e farms and p e a s a n t s t o s e l l on a commission b a s i s . c o o p e r a t i v e s s o l d these consignment goods through shops as w e l l as through  t h e i r own  s t a l l s rented i n the c o l l e c t i v e  m a r k e t s , r e c e i v i n g a 10 p e r c e n t 2  The  farm  commission on t h e s e l l i n g  prxce. Consumer c o o p e r a t i v e s a r e p r e d o m i n a n t l y  located i n rural  a r e a s and a r e t h e s o l e r e t a i l o u t l e t s i n many s p a r s e l y regions of the country.  populated  In a d d i t i o n t o the non-processed  s t u f f s s o l d on consignment t h e c o o p e r a t i v e s t o r e s r e t a i l  foodcon-  sumer s t a p l e s , f o r example, s o a p s , c i g a r e t t e s , k e r o s e n e , and matches o b t a i n e d through  t h e government w h o l e s a l e s .  The ma-  j o r i t y o f c o o p e r a t i v e o u t l e t s c o n s i s t o f a s m a l l shop, b u t i n populated  r u r a l r e g i o n a l c e n t e r s t h e c o o p e r a t i v e s may be l a r g e  enough t o p r o v i d e w i d e r r e t a i l i n g s e r v i c e s such as s p e c i a l i z e d food s t o r e s , i n d u s t r i a l goods s t o r e s o r s m a l l department s t o r e s . O s t e n s i b l y consumer c o o p e r a t i v e s a r e s e l f - g o v e r n i n g e n t i t i e s w i t h o f f i c i a l s b e i n g e l e c t e d by t h e members.  In a c t u a l i t y the  degree o f autonomy e x e r c i s e d by t h e i n d i v i d u a l c o o p e r a t i v e i s "'"Approximately 49 t o 51 p e r c e n t o f t h e r u r a l p o p u l a t i o n b e l o n g e d t o consumer c o o p e r a t i v e s i n 1965, v e r s u s 30 p e r c e n t i n 1950. (Nancy N i m i t z , "Consumption C o o p e r a t i o n i n R u r a l Areas i n the U.S.S.R.: A Comment", Rand Paper, P-3674, p.4.) P a r t o f the d e c l i n e i n t h e volume o f t h e k o l k h o z markets can a l s o be a t t r i b u t e d t o t h e i n c r e a s i n g p r i c e s p a i d by t h e s t a t e p r o c u r e ment a g e n c i e s which i n c r e a s e d t h e i n c e n t i v e s f o r farms t o s e l l more o f t h e i r above-quota o u t p u t s t o t h e government. I n a d d i t i o n , t h e s i z e o f t h e p r i v a t e p l o t s were reduced d u r i n g t h i s period. 2 Goldman, S o v i e t M a r k e t i n g , p.43.  98 l i m i t e d , due t o t h e f a c t t h a t c o o p e r a t i v e  d i r e c t o r s , as w e l l as  s t o r e a l l o t m e n t s o f goods and the s a l e s p r i c e s o f t h e s e goods, are d e t e r m i n e d above the l e v e l o f the membership.  A l l coopera-  t i v e w h o l e s a l e s o b t a i n t h e i r goods t h r o u g h government w h o l e s a l e o r g a n s , and t h e d i s t r i b u t i o n o f t h e s e goods must be made i n accordance w i t h the a l l o c a t i o n p l a n s and s t i p u l a t e d p r i c e s t h a t have been approved by t h e government.  C o n s e q u e n t l y t h e amount  o f c o n t r o l t h e government e x e r t s o v e r c o o p e r a t i v e l y p a r a l l e l s the l e v e l achieved  outlets close  o v e r t h e i r own r e t a i l o u t l e t s .  State r e t a i l o u t l e t s are e x c l u s i v e l y l o c a t e d t o serve the urban p o p u l a t i o n .  The f o l l o w i n g t a b l e i n d i c a t e s t h e domi-  nant r o l e o f government s t o r e s i n r e t a i l  sales.  TABLE X I I PERCENTAGE SHARE OF TOTAL RETAIL SALES BY THE THREE MAIN TRADE NETWORKS FOR SELECTED YEARS, 1950-1965* State r e t a i l o u t l e t s Cooperative stores C o l l e c t i v e farm markets  *  1950 63.9 24.1 12.0  1955 63.2 28.1 8.7  1960 66.8 28.8 4.4  1962 67.3 28.4 4.3  1965 68.0 28.0 4.0  Adapted from f i g u r e s c i t e d i n J e r e L. F e l k e r , S o v i e t Economic C o n t r o v e r s i e s , p.132, and Goldman S o v i e t M a r k e t i n g , p.46. I n a d d i t i o n t o the above networks s p e c i a l r e t a i l o u t l e t s f o r example, worker s u p p l y shops i n i n d u s t r i a l e n t e r p r i s e s , a l s p l a y a minor r o l e i n t h e d i s t r i b u t i o n o f some goods and a r e i n c l u d e d i n t h e f i g u r e s g i v e n f o r government s t o r e s . P r o d u c e r c o o p e r a t i v e s a l e s a r e i n c l u d e d i n t h e f i g u r e s l i s t e d f o r cooper ative stores.  From the above t a b l e i t i s e v i d e n t t h a t the government and  cooperative  t r a d e networks a r e a c c o u n t i n g  f o r an i n c r e a s i n g  p r o p o r t i o n o f t h e t o t a l r e t a i l t r a d e o v e r time. government and c o o p e r a t i v e  Since  both  o u t l e t s , a s i d e from the l a t t e r ' s  commission s a l e s , a r e s u b j e c t t o s i m i l a r c o n t r o l s r e g a r d i n g t h e p l a n n i n g procedures  f o l l o w e d i n t h e a l l o c a t i o n o f consumer goods  and t h e p r i c e s a t which these goods a r e s o l d , i t can be seen t h a t t h e p r o p o r t i o n o f t o t a l r e t a i l t r a d e s u b j e c t t o government c o n t r o l s exceeds 95 p e r c e n t o f t h e t o t a l r e t a i l t r a d e t u r n o v e r . Retail prices The  p r i c i n g o f consumer goods i s c a r r i e d o u t w i t h t h e  o v e r a l l o b j e c t i v e o f a b s o r b i n g t h e t o t a l d i s p o s a b l e income o f t h e p o p u l a t i o n minus s a v i n g s , t h e r e b y c r e a t i n g a b a l a n c e between the s u p p l y and demand f o r consumer goods i n a macro sense. b a s i s o f r e t a i l s e l l i n g p r i c e s i s t h e branch wholesale p r i c e s .  The  average e n t e r p r i s e  P r o f i t markups o f t h e d i s t r i b u t i o n  agencies,"'"  v a r y i n g l e v e l s o f t u r n o v e r t a x e s , and t r a n s p o r t a t i o n charges a r e added t o t h e e n t e r p r i s e w h o l e s a l e p r i c e t o a r r i v e a t t h e r e t a i l selling prices.  Of t h e t o t a l v a l u e o f r e t a i l s a l e s i n 1965,  e n t e r p r i s e wholesale p r i c e s accounted over t a x e s accounted  f o r 50 p e r c e n t w h i l e t u r n -  f o r 40 p e r c e n t , t h e r e m a i n i n g 10 p e r c e n t 2  b e i n g t a k e n up by t h e two t r a d e margins.  The d i s t r i b u t i o n o f  c o s t s and t a x e s has v a r i e d w i d e l y among i n d i v i d u a l items as t h e turnover t a x a p p l i e d i s u t i l i z e d to manipulate  the r e l a t i v e  p r i c e s o f consumer goods. The  t u r n o v e r t a x p l a y s f o u r major r o l e s i n t h e S o v i e t  economic system: revenues;  3  i t p r o v i d e s t h e major source o f budgetary  i t p r o v i d e s a ' c u s h i o n ' so t h a t p r i c e changes may  "'"Industry and r e t a i l t r a d e s a l e s o r g a n i z a t i o n s add p r o f i t markups. 2 B o r n s t e i n , " S o v i e t P r i c e Theory", p.250. 3 Turnover t a x as a percentage o f t o t a l budget revenues  100 be made i n d e p e n d e n t l y a t e i t h e r the r e t a i l o r w h o l e s a l e without n e c e s s i t a t i n g other p r i c e adjustments;  level  i t i s used as  an  i n s t r u m e n t i n b a l a n c i n g the o v e r a l l p u r c h a s i n g power o f the p o p u l a t i o n w i t h the s u p p l y o f goods a v a i l a b l e ; and i t i s the p r i m a r y t o o l used t o r e g u l a t e demand p r e s s u r e s f o r s p e c i f i c goods.  The  r e g u l a t i o n o f demand p r e s s u r e s i s done by v a r y i n g  the t u r n o v e r t a x a p p l i e d e i t h e r t o c u r t a i l o r s t i m u l a t e demand i n accordance  w i t h market p r e s s u r e s , o r a l t e r n a t i v e l y t o i m p l e -  ment d e s i r e d s o c i a l p o l i c y .  When p r i c e s are found t o be above  market c l e a r i n g l e v e l s , the t a x may  be reduced t o s t i m u l a t e  demand, o r c o n v e r s e l y , when p r i c e s are below c l e a r i n g the t u r n o v e r t a x may  levels,  be i n c r e a s e d t o c u r t a i l e x c e s s i v e demand.  1  In o t h e r cases t h e t a x r a t e s a r e s e t p u r p o s e l y low t o e s t a b l i s h r e l a t i v e l y low r e t a i l p r i c e s , f o r example, i n t h e case o f c h i l d r e n ' s c l o t h i n g and r e a d i n g m a t e r i a l s , t o encourage t h e f u l f i l l m e n t of d e s i r e d s o c i a l The  objectives.  f i n a l c o n s i d e r a t i o n t a k e n i n t o account i n r e t a i l  p r i c e s e t t i n g i s t r a n s p o r t a t i o n charges. charges  Average t r a n s p o r t a t i o n  are a s s e s s e d a g a i n s t c e r t a i n goods, f o r example such  commodities as shoes, t e x t i l e s , l i q u o r , and t o b a c c o , f a c i l i t a t e s uniform countrywide  prices.  which  For most o t h e r commodi-  t i e s , e s p e c i a l l y f o r a r t i c l e s whose t r a n s p o r t a t i o n c o s t s are e q u a l e d 55.8 p e r c e n t i n 1950, 43 p e r c e n t i n 1955, 40 p e r c e n t i n 1961 and 34.2 p e r c e n t i n 1968. (Edward Ames, S o v i e t Economic P r o c e s s e s , p.161. The 1968 f i g u r e i s c i t e d i n S p u l b e r , The S o v i e t Economy, p.184.) '''Underpricing o f some mass consumption goods i s t o l e r a t e d t o reduce the d i f f e r e n t i a l s i n r e a l income t h r o u g h i n f o r m a l r a t i o n i n g (quequing) which causes d e f l e c t i o n o f demand o f t h e h i g h income e a r n e r s t o l u x u r y goods.  101 h i g h , the p r i c e s are v a r i e d a c c o r d i n g t o the a r e a o f consumption.  Most p r o d u c t s are c l a s s i f i e d i n t o one o f t h r e e  g e n e r a l l y zone one  zones;  i n c l u d e s d i s t r i c t s where a g i v e n a r t i c l e i s  produced, zone two p r i c e areas are those i n t o which g i v e n a r t i c l e s are i m p o r t e d , w h i l e zone t h r e e u s u a l l y c o v e r s remote a r e a s o f the c o u n t r y .  The  p o l i c y of uniform zonal p r i c e s c r e -  a t e s u n i f o r m p r i c e s f o r a l l areas o f consumption d e s i g n a t e d  as  h a v i n g the same z o n a l c l a s s i f i c a t i o n f o r any p a r t i c u l a r commodity.  Ostensibly, zonal p r i c e v a r i a t i o n s r e f l e c t  differing  t r a n s p o r t a t i o n c o s t s , but they are a l s o u t i l i z e d t o a d j u s t r e g i o n a l demand p r e s s u r e s t o the a v a i l a b l e s u p p l y , and t o en1  courage economic aims. The  concept  o f u n i f o r m z o n a l p r i c e s f o r consumer goods  presents a r a t h e r exaggerated ing practices.  image o f t i d e n e s s t o S o v i e t p r i c -  In a c t u a l p r a c t i c e the p r i c e s charged  f o r a wide  v a r i e t y o f goods s o l d i n r u r a l c o o p e r a t i v e o u t l e t s were, on average,  an  7 p e r c e n t h i g h e r than the p r i c e s o f s i m i l a r commodities 2 s o l d i n urban a r e a s , r e g a r d l e s s o f the z o n a l d i s t i n c t i o n s . In In many remote areas o f development h i g h money wages are o f f e r e d t o l u r e the n e c e s s a r y l a b o u r f o r c e t o these a r e a s . High money wages are reduced i n r e a l terms and demand i s c u r t a i l e d by the i n o r d i n a t e l y h i g h z o n a l c l a s s i f i c a t i o n s p l a c e d on many o f the consumer goods s o l d i n these a r e a s . Goldman c i t e s the example o f food p r o d u c t s i n Uzbeckstan b e i n g c l a s s i f i e d as zone one even though most f o o d i s i m p o r t e d . The government s u b s i d i z e s food p r i c e s t o d i s c o u r a g e peasants from growing t h e i r own f o o d , a l l o w i n g them more time t o c o n c e n t r a t e on growing c o t t o n . (Goldman, S o v i e t M a r k e t i n g , p.93.) 2 The goods which had premium p r i c e s a t t a c h e d t o them amounted t o a p p r o x i m a t e l y 40 p e r c e n t o f the c o o p e r a t i v e t u r n over i n the l a t e 1950's. Hence the r u r a l p r i c e l e v e l as a whole was 2.8 p e r c e n t h i g h e r than the urban p r i c e l e v e l . ( N i m i t z , "Consumption i n R u r a l A r e a s " , p.2.)  102 a d d i t i o n the p r i c e s of commodities under the j u r i s d i c t i o n s republican  and o t h e r  of  l o w e r - l e v e l a d m i n i s t r a t i o n s v a r i e d con-  s i d e r a b l y between l o c a t i o n s , as d i d the p r i c e s of p r o d u c t s which were a l t e r e d i n response t o s e a s o n a l  f l u c t u a t i o n s o r end-of-  season i n v e n t o r y g l u t s . The  major economic reforms u n d e r t a k e n i n 1957  had  sev-  e r a l s i g n i f i c a n t e f f e c t s on the p r i c i n g o f consumer goods. Previous  t o 1957  a p p r o x i m a t e l y 80 p e r c e n t o f a l l r e t a i l  were s e t by the A l l - U n i o n M i n i s t r y o f Trade and G o s p l a n . the a b o l i t i o n of the M i n i s t r y of Trade d u r i n g the a l i z a t i o n of the s o v n a r k h o z i  prices 1  With  institution-  system of a d m i n i s t r a t i o n p r i c e  making a u t h o r i t y f o r a p p r o x i m a t e l y 45 p e r c e n t o f a l l consumer 2 goods was  d e c e n t r a l i z e d t o the r e p u b l i c a n l e v e l .  During t h i s  p e r i o d z o n a l p r i c e d i f f e r e n t i a t i o n s were a l s o reduced and  rural  premiums were e l i m i n a t e d on a number o f commodities. The s i n c e 1957,  system of consumer goods p r i c i n g has w i t h the e x c e p t i o n  o f the a b o l i t i o n o f r u r a l prem-  iums on consumer goods u n d e r t a k e n d u r i n g the 1965 general during  remained s t a b l e  reforms.  The  r e v i s i o n of i n d u s t r i a l wholesale p r i c e s undertaken 1966  and  1967  engendered the r a i s i n g o f the f a c t o r y p r i c e  o f most consumer goods. p r i c e s was  The  increase i n enterprise wholesale  n e c e s s i t a t e d by the i n c l u s i o n o f c a p i t a l c h a r g e s ,  w h i c h were deducted from e n t e r p r i s e o p e r a t i n g turn necessitated a higher  p r o f i t s , which i n  gross p r o f i t l e v e l to enable  v a r i o u s e n t e r p r i s e s t o absorb the c a p i t a l charges w h i l e  the main-  t a i n i n g a net p r o f i t . R e t a i l p r i c e s remained unchanged as 1 Nove, The S o v i e t Economy, p.152. 2Ibid.  the  103 increase  i n e n t e r p r i s e - w h o l e s a l e p r i c e s was  responding reduction various  o f f s e t by a c o r -  i n the t u r n o v e r t a x e s a p p l i e d a g a i n s t  the  consumer goods.  F i n a n c i a l c o n t r o l s and The  various  incentives  p h y s i c a l and  f i n a n c i a l targets  assigned  and/or approved by the c e n t r a l a u t h o r i t i e s f o r s t a t e and operative  co-  t r a d e o u t l e t s were s i m i l a r t o the c o n t r o l mechanisms  used f o r i n d u s t r i a l e n t e r p r i s e s .  Both government and  coopera-  t i v e s t o r e s o p e r a t e on a k h o z r a s c h e t b a s i s and were a s s i g n e d a l l o c a t i o n s of various reductions,  goods as w e l l as t a r g e t s f o r s a l e s ,  i n v e n t o r i e s , c r e d i t and  t r o l s f a c e d by b o t h the s t a t e and  profit."'"  cooperative  Generally trade  cost  the  con-  networks  2 were s x m i l a r .  T h e r e f o r e the systems o f c o n t r o l s and  incentives  t o be d e s c r i b e d  below r e f e r s s p e c i f i c a l l y t o s t a t e r e t a i l  out-  l e t s a l t h o u g h i t i s g e n e r a l l y a p p l i c a b l e t o b o t h government cooperative  retail outlets.  A s i d e from the p h y s i c a l i n d i c a t o r s a s s i g n e d t o o u t l e t s , the f i n a n c i a l p l a n d e r i v e d provide  and  retail  from t h e s e p h y s i c a l i n d i c e s  the main source of c o n t r o l o v e r r e t a i l o p e r a t i o n s .  The  s a l e s i n d i c e s a s s i g n e d f o r i n d i v i d u a l p r o d u c t s are used t o "'"Smaller r e t a i l o u t l e t s o f t e n d i d not o p e r a t e i n d i v i d u a l l y on a k h o z r a s c h e t b a s i s but were grouped w i t h the f i n a n c i a l p l a n s o f s u p e r i o r a d m i n i s t r a t i v e and o p e r a t i o n a l o r g a n i z a t i o n s . 2 • S p e c i f i c d i f f e r e n c e s d i d e x i s t i n the c o n t r o l s f a c e d by the two r e t a i l t r a d e systems, f o r example, c o o p e r a t i v e s were a s s i g n e d t a r g e t s f o r commission s a l e s and were a l s o a l l o w e d t o d i s t r i b u t e a maximum o f 20 p e r c e n t o f t h e i r p r o f i t s as ' d i v i dends' t o t h e i r members. In a d d i t i o n , the s p e c i f i c r u l e s a p p l y i n g t o the c a l c u l a t i o n o f worker bonuses were d i f f e r e n t f o r consumer c o o p e r a t i v e s but the g e n e r a l p r i n c i p l e s a p p l i e d i n the c a l c u l a t i o n of these bonuses were s i m i l a r t o those used f o r state r e t a i l outlets.  104 c a l c u l a t e the percentage rebates t h a t the o u t l e t s r e c e i v e f o r the  sale of t h e i r products.  The r e b a t e s r e c e i v e d v a r y f o r i n -  d i v i d u a l p r o d u c t s , and between s i m i l a r p r o d u c t s , depending on the  geographic region of s a l e .  To s i m p l i f y p l a n n i n g p r o c e d u r e s  an average r e b a t e i s used t o c a l c u l a t e g r o s s p r o f i t from g r o s s s a l e s revenues.  Net p r o f i t i s t h e n d e t e r m i n e d by s u b t r a c t i n g  e s t i m a t e d d i s t r i b u t i o n expenses  from t h e g r o s s p r o f i t e s t i m a t e .  R e c e i p t s from t h e s a l e o f goods are d e p o s i t e d d a i l y and payments f o r goods and s e r v i c e s r e c e i v e d a r e a l l t r a n s a c t e d t h r o u g h Gosbank u s i n g s i m i l a r methods t o t h o s e d e s c r i b e d f o r industrial enterprises.  Payments f o r i n v e n t o r y p u r c h a s e s a r e  made t h r o u g h book account t r a n s f e r s , p r i m a r i l y by means o f t h e a c c e p t a n c e method, o r , i n u n u s u a l c i r c u m s t a n c e s , by l e t t e r s o f credit.  1  Cash d i s b u r s e m e n t s a r e l i m i t e d t o t h e payment o f wages  and v e r y s m a l l expenses p a i d from p e t t y c a s h . Working c a p i t a l r e q u i r e m e n t s needed t o f i n a n c e i n v e n t o r y r e q u i r e m e n t s cannot n o r m a l l y be met from t h e i n t e r n a l r e 2 sources of the r e t a i l o u t l e t s . to  A d d i t i o n a l c r e d i t s necessary  f i n a n c e s e a s o n a l needs a r e a l l o c a t e d t o t h e f i r m by Gosbank,  i n accordance w i t h t h e c r e d i t p l a n approved f o r t h e r e t a i l Subsequent a c c e p t a n c e methods a r e used so t h e r e t a i l e r may r e j e c t u n s u i t a b l e o r shoddy merchandize w i t h r e l a t i v e ease. P r i o r a c c e p t a n c e methods were t r i e d f o r a p e r i o d o f time t o speed up c l e a r i n g p r o c e d u r e s and thus reduce t h e l e v e l o f funds at t h e d i s p o s a l o f t h e f i r m . These methods were found t o encourage s u b - s t a n d a r d d e l i v e r i e s , which were h a r d e r t o r e t u r n once payment t r a n s a c t i o n s had been c a r r i e d o u t , and thus were r e p l a c e d i n f a v o u r o f subsequent a c c e p t a n c e methods. 2 For consumer c o o p e r a t i v e s s h o r t - t e r m bank l o a n s a r e used t o f i n a n c e 85 t o 90 p e r c e n t o f t h e i r i n v e n t o r y h o l d i n g s . ( A l l a k h u e r d y a n , S o v i e t F i n a n c i a l System, p.169.)  105 outlet.  The  funds a t the d i s p o s a l o f the r e t a i l  are s e g r e g a t e d i n t o two  accounts:  a r e g u l a r t r a n s a c t i o n account. ing  enterprises  a s p e c i a l l o a n account  A p o r t i o n of the i n t e r n a l work-  c a p i t a l i s a l l o c a t e d t o the l o a n account and  i s supplemented  by p l a n n e d c r e d i t a l l o w a n c e s g r a n t e d by Gosbank. merchandise s a l e s are d e p o s i t e d are used t o pay  outstanding  for  Proceeds from  d a i l y i n the l o a n a c c o u n t  bills  c r e d i t s extended by the bank. i s debited  The  from s u p p l i e r s and  and  r e g u l a r t r a n s a c t i o n account  i s r e p l e n i s h e d by f r e q u e n t  payments  t r a n s f e r s of r e -  b a t e s on goods s o l d from the s p e c i a l l o a n a c c o u n t . segregation  and  outstanding  f o r o t h e r expenses such as wage payments and  utilities,  and  Through the  of a c c o u n t s , d e v i a t i o n s from p l a n n e d p r o f i t s can  a s s e s s e d from the b a l a n c e of the t r a n s a c t i o n a c c o u n t w h i l e o p e r a t i o n a l a c t i v i t i e s o f the r e t a i l e n t e r p r i s e can be  be  the  scru-  t i n i z e d by movements i n the s p e c i a l l o a n a c c o u n t . The  i n c e n t i v e scheme used t o encourage p l a n  up u n t i l 1967  was  s i m i l a r t o the one  e n t e r p r i s e s p r i o r t o the 1965  operating  reforms.  fulfillment  in industrial  Managerial personnel  s t o r e c l e r k s were g u a r a n t e e d a minimum o f 90 p e r c e n t o f  their  b a s i c monthly s a l a r y , the r e m a i n d e r b e i n g p a i d a t month end accordance w i t h t h e i r p r o p o r t i o n a l f u l f i l l m e n t s of t h e i r and  sales plans.  targeted  and  in  profit  Bonuses were p a i d f o r o v e r f u l f i l l m e n t o f t h e s e  indices i n progressive  amounts, depending on the  level  of o v e r f u l f i l l m e n t . The  bonus system d e s c r i b e d  d i s t o r t i o n s of assigned o u t l e t s , due  above l e d t o u n f a v o u r a b l e  p l a n s , e s p e c i a l l y i n the l a r g e r r e t a i l  t o the c o n f l i c t o f i n t e r e s t between m a x i m i z a t i o n  106 o f m a t e r i a l rewards and f u l f i l l i n g many o f t h e p l a n  indices.  1  C o n s e q u e n t l y a new bonus system modeled on t h e same g e n e r a l p r i n c i p l e s as t h e i n c e n t i v e system i n t r o d u c e d i n i n d u s t r y a f t e r the 1965 reforms  has been implemented i n both s t a t e and coopera 2 t i v e t r a d i n g networks. F o r e i g n Trade The o r g a n i z a t i o n and p l a n n i n g of f o r e i g n trade S i n c e t h e end o f World War I I S o v i e t f o r e i g n t r a d e w i t h b o t h E a s t e r n - b l o c c o u n t r i e s and 'Western' c o u n t r i e s has grown r a p i d l y , n o t o n l y i n r e l a t i v e terms o f p a s t t r a d e b u t a l s o i n r e l a t i o n t o i t s gross n a t i o n a l product.  The growth o f S o v i e t  t r a d e can be a t t r i b u t e d t o an i n c r e a s e d r e c o g n i t i o n o f comparat i v e advantage, e s p e c i a l l y among E a s t e r n - b l o c c o u n t r i e s , as w e l as t o t h e r e d u c t i o n o f i n t e r n a t i o n a l h o s t i l i t i e s s i r e t o o b t a i n economic i n f l u e n c e over tries.  and t h e i r de-  'underdeveloped' coun-  The i n c r e a s i n g l e v e l o f e x t e r n a l t r a d e has n e c e s s i t a t e d  c e r t a i n changes i n t h e i r a d m i n i s t r a t i v e o r g a n i z a t i o n o f t r a d e Due t o t h e h i g h p r o g r e s s i v e bonuses p a i d f o r o v e r f u l f i l l i n g t h e s a l e s p l a n , a p p r e c i a b l e rewards c o u l d be o b t a i n e d through attempting t o minimize the s a l e s t a r g e t assigned. Through a r t i f i c i a l l y m a n i p u l a t i n g s a l e s r e c o r d s , by d e f l a t i n g s a l e s i n c e r t a i n months and i n f l a t i n g them i n o t h e r months, h i g h p r o g r e s s i v e premiums would be p a i d f o r t h e o v e r f u l f i l l m e n t o f c e r t a i n monthly s a l e s p l a n s , w h i c h would more than o f f s e t the p e n a l t i e s l e v i e d f o r p l a n u n d e r f u l f i l l m e n t i n o t h e r months. 2 The new i n c e n t i v e system has a l s o been i n t r o d u c e d i n t o r e s t a u r a n t s and consumer s e r v i c e e s t a b l i s h m e n t s as w e l l as r e t a i l o u t l e t s f o r consumer goods. (Robert C a m p b e l l , "Economic Reform i n t h e U.S.S.R.", papers and p r o c e e d i n g s o f t h e 8 1 s t annual meeting o f t h e American Economic A s s o c i a t i o n , American Economic Review, V o l . L V I I I (May, 1968), p.550.)  107  as w e l l as i n t h e p l a n n i n g and f i n a n c i n g o f t r a d e  flows.  F o r e i g n t r a d e i n t h e S o v i e t Union i s a s t a t e monopoly w h i c h , up u n t i l r e c e n t t i m e s , was c a r r i e d o u t s o l e l y through the M i n i s t r y o f F o r e i g n T r a d e , U.S.S.R.  The t r a d e m i n i s t r y i s  p r i m a r i l y an a d m i n i s t r a t i v e body whose c e n t r a l f u n c t i o n s i n c l u d e the f o r m u l a t i o n o f i m p o r t and e x p o r t p l a n s , as w e l l as s u p e r v i s i n g and c o o r d i n a t i n g t h e a c t i v i t i e s o f s u b o r d i n a t e involved i n conducting  the o p e r a t i o n a l a c t i v i t i e s  agencies  associated  with foreign trade. Implementing t h e f o r e i g n t r a d e p l a n i s t h e r e s p o n s i b i l i t y o f t h e t h i r t y - f i v e t r a d e associations.''"  Each a s s o c i a t i o n  i s r e s p o n s i b l e f o r t h e i m p o r t i n g and e x p o r t i n g o f a d e f i n e d .  .  .  .  2  number o f commodities t h a t a r e under i t s j u r i s d i c t i o n .  Within  i t s area of a u t h o r i t y the a s s o c i a t i o n i s r e s p o n s i b l e f o r the c o n t r a c t u a l n e g o t i a t i o n s , t h e p u r c h a s e s and s a l e s o f i m p o r t s and e x p o r t s , and t h e arrangements f o r e x p o r t p r o d u c t i o n ,  trans-  p o r t a t i o n , and f i n a n c i n g o f t h e s e goods.  import-  Formally  these  e x p o r t a s s o c i a t i o n s a r e i n d e p e n d e n t l e g a l e n t i t i e s and a r e thus i n d i v i d u a l l y r e s p o n s i b l e f o r t h e i r own c o n t r a c t u a l o b l i g a t i o n s , although and  i n a c t u a l i t y t h e y a r e w h o l l y owned by t h e government  a r e under t h e j u r i s d i c t i o n o f t h e M i n i s t r y o f F o r e i g n  Trade,  U.S.S.R. The M i n i s t r y o f F o r e i g n Trade m a i n t a i n s  a v a r i e t y of  "'"Alec F l e g o n , S o v i e t F o r e i g n Trade T e c h n i q u e s , p. 44. The a u t h o r n o t e s t h a t t h e above number i s a p p r o x i m a t e and can vary over time. 2  I n some cases f o r e i g n t r a d e a s s o c i a t i o n s may s p e c i a l i z e i n t h e e x p o r t i n g o r i m p o r t i n g o f a d e f i n e d group o f comm o d i t i e s b u t i n t h e m a j o r i t y o f c a s e s one a s s o c i a t i o n i s r e s p o n s i b l e f o r both a c t i v i t i e s .  108 c o n t r o l s o v e r the a c t i v i t i e s o f i t s f o r e i g n t r a d e a s s o c i a t i o n s . D i r e c t c o n t r o l i s p r o v i d e d by a s s i g n i n g o p e r a t i o n a l p l a n s f o r each agency; p l a n f u l f i l l m e n t i s observed  i n t e r n a l l y by a n e t -  work o f f o r e i g n t r a d e c o m m i s s i o n e r s , and e x t e r n a l l y by d e l e g a t i o n s attached to overseas  e m b a s s i e s , who  oversee  a c t i v i t i e s o f the f o r e i g n agents o f the i m p o r t - e x p o r t tions.  trade the  associa-  Commissioners are l o c a t e d i n main c e n t r e s o f e x p o r t  pro-  d u c t i o n as w e l l as i n i m p o r t a n t p o r t c i t i e s and t r a n s p o r t a t i o n centers.  W i t h i n t h e i r a r e a s t h e y check on the f u l f i l l m e n t o f  e x p o r t and i m p o r t o r d e r s , and a t t e m p t t o ensure t h a t the and t i m e l i n e s s o f t r a d e o r d e r s are i n accordance w i t h plans.  quality  specified  In a d d i t i o n t o t h e s e p h y s i c a l c o n t r o l s , f i n a n c i a l con-  t r o l s o v e r the f o r e i g n t r a d e a s s o c i a t i o n s are m a i n t a i n e d  by  Gosbank and the f o r e i g n t r a d e bank. D u r i n g the y e a r s f o l l o w i n g 1955, t e r n a l t r a d e through In 1956  the monopoly o f  a s i n g l e m i n i s t r y was  rapidly  ex-  splintered.  the C o u n c i l o f M i n i s t e r s , U.S.S.R., c r e a t e d a S t a t e  Committee f o r F o r e i g n Economic R e l a t i o n s , w h i c h i t p l a c e d under i t s own  c o n t r o l , and i n t u r n t h i s committee formed a number o f  subordinate  f o r e i g n trade organizations.  t r a d e o r g a n i z a t i o n s was  t o arrange  The  f u n c t i o n of  these  f o r the e x p o r t o f c o n s t r u c t i o n  equipment and machinery i n a c c o r d a n c e w i t h the f o r e i g n - a i d and t e c h n i c a l a s s i s t a n c e agreements u n d e r t a k e n by the c e n t r a l g o v e r n ment.  By 1959  seven o t h e r s t a t e o r g a n i z a t i o n s were a u t h o r i z e d t o  conduct f o r e i g n t r a d e o p e r a t i o n s through foreign trade agencies.  1  Although  t h e i r own  newly c r e a t e d  these newly c r e a t e d t r a d e  ''"Flegon, S o v i e t F o r e i g n T r a d e ,  p.23.  109  agencies  d i d n o t f a l l under t h e a u t h o r i t y o f t h e M i n i s t r y o f  Foreign Trade, the m i n i s t r y s t i l l  retained overall  i t y f o r d r a f t i n g t h e annual and l o n g - t e r m  responsibil-  foreign trade  plans  o f t h e economy. The f o r e i g n t r a d e p l a n i s an i n t e g r a l p a r t o f t h e a n n u a l and  long-term  economic p l a n s .  The framework o f t h e f o r e i g n  t r a d e p l a n i s c o n s t r u c t e d i n t h e c o n t r o l f i g u r e s c a l c u l a t e d by Gosplan during i t s p r e l i m i n a r y f o r m u l a t i o n of the n a t i o n a l economic p l a n . imports  These h i g h l y a g g r e g a t e d c o n t r o l f i g u r e s f o r  and e x p o r t s a r e b a s e d on p r e f e r e n c e s  i n d i c a t e d by t h e  p o l i t i c a l l e a d e r s , and t h e p r e l i m i n a r y m a t e r i a l b a l a n c e s f o r the d o m e s t i c economy, i . e . t h e d e f i c i t and s u r p l u s and c u r r e n t l o n g - t e r m  trade agreements.  1  balances,  These c o n t r o l f i g u r e s  are t h e n handed down t o t h e M i n i s t r y o f F o r e i g n T r a d e , U.S.S.R., which i n t u r n a l l o c a t e s the appropriate p r e l i m i n a r y t a r g e t s to the r e l e v a n t t r a d e o r g a n i z a t i o n s . The a c t u a l f o r m u l a t i o n o f t h e i m p o r t and e x p o r t  plans  are c a r r i e d o u t by t h e v a r i o u s t r a d e a s s o c i a t i o n s f o r t h e p r o ducts w i t h i n t h e i r v a r i o u s j u r i s d i c t i o n s .  The i m p o r t p l a n s o f  the t r a d e a s s o c i a t i o n s a r e c o n s t r u c t e d on t h e b a s i s o f e s t i m a t e s o f i m p o r t needs o f t h e economy, w h i c h i n t u r n a r e d e r i v e d from e n t e r p r i s e import o r d e r s , placed w t i h trade a s s o c i a t i o n s v i a t h e i r r e s p e c t i v e m i n i s t r i e s , and t h e i m p o r t o r d e r s p l a c e d by ' d e s i g n ' o r g a n i z a t i o n s , t h e v a r i o u s G o s p l a n i and o t h e r s t r a t i v e organs o f t h e c e n t r a l government.  The t r a d e  adminiorganiza-  """Long-term t r a d e agreements w i t h o t h e r c o u n t r i e s u s u a l l y run f o r a f i v e y e a r p e r i o d and s t i p u l a t e minimum t r a d e f l o w s f o r key c o m m o d i t i e s , s u b j e c t t o a n n u a l r a t i f i c a t i o n .  110 t i o n s are responsible f o r checking i t y o f t h e commodities o r d e r e d ,  on t h e p r i c e s and a v a i l a b i l -  obtaining detailed specifica-  t i o n s o f n o n - s t a n d a r d i m p o r t commodities and t h e terms and mediums o f payment r e q u i r e d .  W i t h t h e above i n f o r m a t i o n t h e  various trade o r g a n i z a t i o n s construct t h e i r r e s p e c t i v e import p l a n s i n p h y s i c a l terms ( c a t e g o r i z e d i n t o funded and non-funded commodities), the s p e c i f i c a t i o n s r e l e v a n t to these commodities, and  the corresponding  f i n a n c i a l p l a n w h i c h r e l a t e s t h e p r i c e and  payment p r o c e d u r e s r e q u i r e d f o r t h e p l a n n e d i m p o r t s . ning of exports  The p l a n -  i n v o l v e s many o f t h e same p r o c e d u r e s f o l l o w e d  i n the planning of imports.  E x p o r t a v a i l a b i l i t i e s a r e based on  the s u r p l u s m a t e r i a l b a l a n c e s and a r e c a t e g o r i z e d on t h e b a s i s o f funded and non-funded c o m m o d i t i e s ; s p e c i f i c a t i o n s g e n e r a l l y are o m i t t e d w i t h t h e e x c e p t i o n o f t h o s e e x p o r t s l o n g - t e r m b i l a t e r a l t r a d e agreements.  s t i p u l a t e d under  The c o r r e s p o n d i n g  finan-  c i a l p l a n i s d e r i v e d from s t u d i e s o f t h e e x p o r t p o t e n t i a l o f v a r i o u s p r o d u c t s by c o u n t r y ,  as w e l l as t h e e s t i m a t e d  and means o f payment t h a t can be o b t a i n e d  f o r these  prices products.  Once t h e d r a f t p l a n s o f t h e v a r i o u s t r a d e a s s o c i a t i o n s have been c o m p l e t e d they a r e f o r w a r d e d t o t h e M i n i s t r y o f T r a d e , U.S.S.R. The  m i n i s t r y must then c o m p i l e a c o n s i s t e n t  foreign trade plan.  consolidated  The i n i t i a l c o n s o l i d a t i o n i s i n v a r i a b l y i n -  c o n s i s t e n t w i t h t h e f i n a n c i a l and, t o a l e s s e r d e g r e e , t h e physi c a l c o n s t r a i n t s imposed on t h e f o r e i g n t r a d e p l a n .  The f i n a n -  c i a l b a l a n c e s o f t h e numerous t r a d e a s s o c i a t i o n d r a f t p l a n s show v a r y i n g degrees o f o v e r a l l d e f i c i t s  (or surpluses)  as w e l l as  i n d i v i d u a l i m b a l a n c e s among t h e v a r i o u s t r a d i n g c o u n t r i e s ; t h e s e a r e dependent upon t h e o v e r a l l t r a d e b a l a n c e f o r t h e range o f  Ill  commodities h a n d l e d t h r o u g h t h e t r a d e o r g a n i z a t i o n and t h e b a l ance o f t r a d e a c h i e v e d countries.  During  i n t h e s e commodities w i t h  individual  the c o n s o l i d a t i o n o f trade p l a n s , the t o t a l  t r a d e f l o w s w i t h each t r a d i n g p a r t n e r must be b a l a n c e d b i l a t e r a l b a s i s i n most c a s e s , and an o v e r a l l b a l a n c e must a l s o be a c h i e v e d .  1  on a of trade  Through n e g o t i a t i o n p r o c e d u r e s w i t h  i n d i v i d u a l trade o r g a n i z a t i o n s , t h e i r d r a f t plans are r e v i s e d and a c o n s i s t e n t c o n s o l i d a t e d d r a f t p l a n f o r f o r e i g n t r a d e i s e v e n t u a l l y achieved  and s u b m i t t e d  t o Gosplan.  Gosplan i n c o r p o r a t e s the c o n s o l i d a t e d d r a f t p l a n o f f o r e i g n t r a d e i n t o t h e v a r i o u s m a t e r i a l and f i n a n c i a l  balances  that are u t i l i z e d i n c o n s t r u c t i n g the f i n a l d r a f t o f the n a t i o n a l economic p l a n .  I n many cases t h e o r i g i n a l b a l a n c e s  on w h i c h  t h e i n i t i a l c o n t r o l f i g u r e s were based d e v i a t e from t h e f i n a l 'corrected' balances  used i n t h e f i n a l d r a f t o f t h e a n n u a l p l a n .  The d r a f t p l a n o f f o r e i g n t r a d e i s s u b s e q u e n t l y i n the import  a l t e r e d , both  and e x p o r t f a c t o r s , i n o r d e r t o a c h i e v e 2  a con-  sistent national plan. A f t e r a p p r o v a l o f t h e f o r e i g n t r a d e p l a n , fondy f o r funded e x p o r t s a r e d i s t r i b u t e d t o t h e v a r i o u s t r a d e  organiza-  t i o n s who i n t u r n use t h e fondy t o p l a c e d e t a i l e d o r d e r s  with  "'"See n. 1, p. 112 . 2 In v a r y i n g t h e p l a n n e d i m p o r t s and e x p o r t s , Gosplan must a l s o s i m u l t a n e o u s l y m a i n t a i n an o v e r a l l b a l a n c e o f t r a d e , u n l e s s f i n a n c i n g f o r p l a n n e d d e f i c i t s has been o b t a i n e d . F o r example, i f c e r t a i n i m p o r t s must be i n c r e a s e d t o o f f s e t d e f i c i t s i n c e r t a i n m a t e r i a l balances, the i n c r e a s e i n imports w i l l i n t u r n n e c e s s i t a t e an i n c r e a s e i n e x p o r t s . This s i t u a t i o n i n t u r n w i l l n e c e s s i t a t e an i n c r e a s e i n t h e demand f o r f a c t o r i n p u t s o f t h e s e e x p o r t s , u n l e s s new e x p o r t r e s e r v e s have become apparent i n the r e v i s e d balances o r other p r e v i o u s l y planned imports are decreased.  the s a l e s a d m i n i s t r a t i o n s o f t h e p r o d u c i n g  m i n i s t r i e s . The  m i n i s t r i e s i n t u r n a l l o c a t e t h e s e o r d e r s among t h e i r enterprises.  producing  The f o r e i g n t r a d e a s s o c i a t i o n s may a t any time  1  d u r i n g the planned year modify o r c a n c e l t h e i r o r d e r s , i n accordance w i t h t h e i r success i n n e g o t i a t i n g the s a l e o f planned e x p o r t s , and t h e s p e c i f i c a t i o n s c o n t a i n e d tracts.  i n t h e c o m p l e t e d con-  I n t h e case o f i m p o r t s , t h e r e c i p i e n t o r g a n i z a t i o n s  are a l l o t t e d fondy f o r t h e i r i m p o r t o r d e r s w h i c h have been approved.  The fondy p e r m i t s  the r e c i p i e n t o r g a n i z a t i o n s t o place  d e t a i l e d s p e c i f i c orders with the appropriate tions.  On t h e bases o f t h e o r d e r s  trade  organiza-  received, the trade  organiza-  t i o n s commence a p p r o p r i a t e n e g o t i a t i o n s w i t h f o r e i g n p r o d u c e r s t o purchase t h e r e q u i r e d  imports.  The p r i c i n g and f i n a n c i n g of f o r e i g n trade The  d o m e s t i c p r i c e s t r u c t u r e o f t h e S o v i e t Union i s n o t  based on r e l a t i v e s c a r c i t y r a t i o s , and t h e r e f o r e cannot be used to determine comparitive  advantages; f o r t h i s r e a s o n  p r i c e s a r e n o t used as a b a s i s f o r d e t e r m i n i n g the p r e v i o u s  comparitive  trade flows.  In  d i s c u s s i o n on t h e c o n s t r u c t i o n o f t h e i m p o r t p l a n ,  i t was shown t h a t d e c i s i o n s t o i m p o r t were made on t h e bases o f i n s u f f i c i e n t d o m e s t i c s u p p l i e s and/or t h e l a c k o f a v a i l a b l e technology  t o produce t h e s u p p l i e s n e c e s s a r y f o r f u l f i l l i n g t h e  economic p l a n .  The p r i m a r y f u n c t i o n o f e x p o r t s  i s to provide  "'"During t h e p e r i o d o f r e g i o n a l economic c o u n c i l s , t h e s p e c i f i c a t i o n s f o r funded and c e n t r a l l y planned e x p o r t s were s e n t t o a c o o r d i n a t i n g body, who i n t u r n d i s t r i b u t e d t h e o r d e r s among t h e v a r i o u s s o v n a r k h o z i , who i n t u r n d i s t r i b u t e d them among t h e i r s u b o r d i n a t e e n t e r p r i s e s .  113  the n e c e s s a r y f o r e i g n exchange needed t o pay imports.  S i n c e the b u l k o f e x p o r t s are  h a v i n g low m a r g i n a l use v a l u e , w h i l e ginal u t i l i t y , provide  f o r the  'surplus'  planned  production  i m p o r t s have a h i g h mar-  the d i f f e r e n c e s i n t h e i r r e l a t i v e u t i l i t i e s  a r a t h e r l o o s e s u b s t a n t i a t i o n o f the b e n e f i t s o f  foreign  trade. The  p r i c e s charged and  p a i d f o r e x p o r t and  g e n e r a l l y approximate the e s t i m a t e d c u r r e n t  imports  competitive  'world  p r i c e ' f o r the commodity.  Most o f the t r a d e w i t h Western  countries  'world p r i c e s ' w h i l e  i s transacted  at  t r a d e p r i c e s are based on years to adjust When t r a d e was  intra-bloc  'world p r i c e s ' averaged o v e r  f o r f l u c t u a t i o n s a r i s i n g out o f  several  'market anarchy'.  c a r r i e d out on a b a r t e r b a s i s , the terms o f  e s t a b l i s h e d the r e l a t i v e p r i c e s p a i d f o r the commodities changed.  I n the case o f commodities t h a t c o u l d not be  trade  ex-  compared  t o 'world p r i c e s ' because o f t h e i r p e c u l i a r i t i e s o r unique a t t r i b u t e s , f o r example i n the case o f s h i p s o r complex e l e c t r o n i c equipment, then a b a r g a i n e d p r i c e i s e s t a b l i s h e d . The  s o l e f u n c t i o n o f the S o v i e t commercial exchange r a t e  i s t o f a c i l i t a t e the a c c o u n t i n g o f t r a d e t i o n w h a t s o e v e r t o the Foreign  no  rela-  i n t e r n a l p r i c e l e v e l o f the country."'"  t r a d e a s s o c i a t i o n s buy  sales administrations  f l o w s ; i t has  e x p o r t commodities from p r o d u c e r  at o f f i c i a l  i n t e r n a l p r i c e s , net o f  turn-  """The S o v i e t Union has a d u a l system o f exchange r a t e s , one r a t e f o r commercial t r a n s a c t i o n s and the o t h e r r a t e f o r non-commercial t r a n s a c t i o n s . O s t e n s i b l y the non-commercial exchange r a t e i s supposed t o r e f l e c t the r e l a t i v e p u r c h a s i n g power d i f f e r e n t i a l s between c o u n t r i e s , but i n r e a l i t y i s h i g h l y f a v o u r a b l e t o the S o v i e t Union.  114 over t a x .  Revenues from e x p o r t r e c e i p t s a r e c o n v e r t e d by t h e  f o r e i g n t r a d e bank i n t o domestic change r a t e .  c u r r e n c y a t t h e o f f i c i a l ex-  Payments f o r i m p o r t s a r e made by t h e f o r e i g n t r a d e  a s s o c i a t i o n s c o n v e r t i n g the necessary  amounts o f domestic  cur-  r e n c y needed t o pay f o r i t s purchases  at the o f f i c i a l rate of  exchange.  Imported commodities a r e then s o l d t o t h e domestic  purchasers  at the o f f i c i a l i n t e r n a l p r i c e .  By m o n o p o l i z i n g a l l  f o r e i g n trade the import-export agencies e f f e c t i v e l y i n t e r n a l domestic  p r i c e s from e x t e r n a l p r i c e s .  separate  The o n l y e f f e c t  t h a t t h e o f f i c i a l exchange r a t e h a s , i s t h a t i t d e t e r m i n e s t h e s i z e o f t h e l o c a l c u r r e n c y e q u i v a l e n t s o f e x p o r t s and i m p o r t s , which a f f e c t s the t r a n s a c t i o n balances  r e q u i r e d by t h e t r a d e  associations. The n o n - c o n v e r t i b i l i t y o f t h e r u b l e r e s t r i c t e d t h e methods a v a i l a b l e f o r f i n a n c i n g t r a d e f l o w s .  Up u n t i l 1964 t h e  methods used f o r f i n a n c i n g i n t e r - b l o c and i n t r a - b l o c t r a d e f l o w s were s i m i l a r ; t h e b u l k o f a l l t r a d e was conducted  under b i l a t e r a l  t r a d e agreements between t h e t r a d i n g p a r t n e r s t h a t p r o v i d e d f o r an ex ante b a l a n c e o f t r a d e .  C l e a r i n g accounts were opened a t  the c e n t r a l banks i n t h e names o f t h e t r a d i n g p a r t n e r s and a system o f swing c r e d i t s was o r g a n i z e d t o f a c i l i t a t e  clearing  when i m p o r t r e c e i p t s from t h e s p e c i f i c c o u n t r y d i d n o t b a l a n c e w i t h e x p o r t payments a t a p o i n t i n t i m e . p o s t imbalance  o f t r a d e a t y e a r end t h e most common method o f  o b t a i n i n g a b a l a n c e was t o a r r a n g e imbalance  I f t h e r e was an ex  f o r an o f f s e t t i n g ex ante  f o r the f o l l o w i n g year.  The method d e s c r i b e d above was used t o f i n a n c e a l l i n t r a - b l o c t r a d e f l o w s as w e l l as t h e m a j o r i t y o f t r a d e  115 agreements n e g o t i a t e d w i t h the governments of and d e v e l o p e d ( i . e . , W e s t e r n - b l o c ) c o u n t r i e s .  'underdeveloped' The  remainder  of i n t e r - b l o c trade i s financed through d i r e c t b a r t e r t r a n s a c t i o n s , and payment of a c c e p t a b l e imports  received or exports s o l d .  convertible currencies for In the case o f payment i n  c o n v e r t i b l e c u r r e n c i e s , the f o r e i g n t r a d e p l a n a c c o u n t e d f o r t h e amounts and t i m i n g of i m p o r t s  paid i n convertible curren-  c i e s , as w e l l as f o r the a c c u m u l a t i o n  o f the n e c e s s a r y  foreign  exchange t h r o u g h the t i m e l y s a l e o f a p p r o p r i a t e q u a n t i t i e s o f exports.""" S o v i e t t r a d e w i t h d e v e l o p e d Western n a t i o n s , whose c u r r e n c i e s were c o n v e r t i b l e , o n l y n e c e s s i t a t e d an o v e r a l l  balance  o f t r a d e w i t h those n a t i o n s , as i n d i v i d u a l t r a d e d e f i c i t s be o f f s e t w i t h s u r p l u s t r a d e b a l a n c e s t h i s group o f n a t i o n s .  with other countries i n  I n the case o f a l l i n t r a - b l o c t r a d e ,  w h i c h a c c o u n t e d f o r the major p r o p o r t i o n o f S o v i e t t r a d e , e q u i l i b r i u m balance country.  could  an  o f t r a d e had t o be n e g o t i a t e d w i t h each  T h i s c r e a t e d a s i t u a t i o n where i m p o r t s  from a s p e c i -  f i c E a s t e r n - b l o c c o u n t r y were l i m i t e d t o the v a l u e o f d e s i r e d by t h a t c o u n t r y  and c o n v e r s e l y .  exports  With, t h e g r o w i n g volume  o f i n t r a - b l o c t r a d e the problems a s s o c i a t e d w i t h b a l a n c e d b i l a t e r a l c l e a r i n g became more e x a g g e r a t e d ; the c r e a t i o n o f I n t e r n a t i o n a l Bank f o r Economic C o o p e r a t i o n  (IBEC) was  tempt t o i n s t i t u t e an i n t r a - b l o c system o f m u l t i l a t e r a l  the  an a t clearing.  "'"The S o v i e t purchases o f Canadian wheat i n 1963 were of an unplanned n a t u r e and t h e r e f o r e were not p r o v i d e d f o r i n t h e i r f o r e i g n exchange p l a n s . A l t h o u g h l a r g e c r e d i t s were p r o v i d e d , the a d d i t i o n a l c o n v e r t i b l e c u r r e n c y needed f o r the p u r c h a s e s was p a r t l y o b t a i n e d t h r o u g h the s a l e of g o l d i n Western markets.  116 In l a t e 1963  Bulgaria, Czechoslovakia,  Hungary, M o n g o l i a , P o l a n d , Romania and agreement w h i c h c r e a t e d three  representatives  C o u n c i l was  the IBEC.  the U.S.S.R. s i g n e d  Member c o u n t r i e s  an  appointed  each t o the C o u n c i l of the bank, and  the  t o have u l t i m a t e a u t h o r i t y o v e r the bank's a f f a i r s .  Each member c o u n t r y had c i l were t o be A new  one  v o t e and  a l l d e c i s i o n s o f the  Coun-  unanimous. monetary u n i t c a l l e d the t r a n s f e r a b l e r u b l e  created  t o f a c i l i t a t e a c c o u n t i n g and  bank.  The  1  E a s t Germany,  to provide  bank's s t a t u t o r y c a p i t a l was  t r a n s f e r a b l e r u b l e s and each member was  was  capital for  s e t a t 300  the  million  allocated a subscription  quota p r o p o r t i o n a l to i t s t o t a l trade turnover w i t h p a r t i c i p a 2 t i n g member c o u n t r i e s . In 1964 each c o u n t r y p a i d 20 p e r c e n t o f i t s s u b s c r i p t i o n q u o t a , w i t h 20 p e r c e n t p a y a b l e each f o l l o w i n g 3 y e a r u n t i l the bank's c a p i t a l was  f u l l y subscribed.  Subscrip-  t i o n s were p a y a b l e i n g o l d , c o n v e r t i b l e c u r r e n c i e s  and  ferable rubles.  by h a v i n g a  Transferable  r u b l e s were o b t a i n e d  net c r e d i t b a l a n c e of payments w i t h o t h e r t r a d i n g  trans-  partners.  The d e c l a r e d v a l u e o f the t r a n s f e r a b l e r u b l e was 0.9874 grams of pure g o l d . (L. S u i l i a e v a , "Currency and F i n a n c i a l C o o p e r a t i o n Among Comecon Members", i n Contemporary S o v i e t Economics, ed. by Murray Y a n o w i t c h , p.158. 2 The s u b s c r i p t i o n q u o t a s , i n m i l l i o n s o f t r a n s f e r a b l e r u b l e s , of the p a r t i c i p a t i n g c o u n t r i e s were as f o l l o w s : Buig a r i a , s e v e n t e e n ; C z e c h o s l o v a k i a , f o r t y - f i v e ; E a s t Germany, f i f t y - f i v e ; Hungary, twenty-one; M o n g o l i a , t h r e e ; P o l a n d , t w e n t y - s e v e n ; Rumania, s i x t e e n ; U.S.S.R., 116. ("Agreement C o n c e r n i n g M u l t i l a t e r a l S e t t l e m e n t s i n T r a n s f e r a b l e Rubles and the O r g a n i z a t i o n of the I n t e r n a t i o n a l Bank f o r Economic Cooperat i o n " , American Review o f S o v i e t and E a s t European T r a d e, V o l . 1 1 ( J a n u a r y - F e b r u a r y , 1966), p.11.) 3 L. B a b i t c h e v , "The I n t e r n a t i o n a l Bank f o r Economic C o o p e r a t i o n " , i n Money and P l a n , ed. by Gregory Grossman, p.148. c  117 Since i t i s mathematically  impossible f o r a l l of the Eastern-  b l o c c o u n t r i e s t o have a n e t c r e d i t p o s i t i o n v i s - a - v i s each o t h e r , i t i s t h o u g h t t h a t t h e U.S.S.R. p r o v i d e d most o f t h e necessary  c a p i t a l by r u n n i n g  d e f i c i t s w i t h each o f i t s t r a d i n g  1 partners. The mechanics o f c l e a r i n g t a k e t h e f o l l o w i n g form. A l l payments f o r goods and s e r v i c e s as w e l l as e x t e r n a l c r e d i t s o r l o a n s a r e made by book e n t r y a t t h e IBEC, o r w i t h i t s c o n s e n t , i n t h e banks o f t h e c o n t r a c t i n g p a r t i e s . bank o f t h e e x p o r t i n g c o u n t r y  I n t h e l a t t e r case t h e  sends t h e a p p r o p r i a t e  payment  forms and t i t l e - t o - g o o d s documents d i r e c t l y t o t h e bank o f t h e importing country.  These banks a r e o b l i g e d t o p r o v i d e  daily  i n f o r m a t i o n t o t h e IBEC o f t h e t r a n s a c t i o n s u n d e r t a k e n f o r t h e i r import  and e x p o r t a g e n c i e s .  A l l r e p o r t e d t r a n s a c t i o n s among  member c o u n t r i e s a r e r e c o r d e d by t h e IBEC a t t h e end o f each w o r k i n g day and t h e d a i l y n e t p o s i t i o n s o f each member c o u n t r y are d e t e r m i n e d , i . e . , a l l b i l a t e r a l b a l a n c e s one m u l t i l a t e r a l b a l a n c e obtained.  a r e combined i n t o  and a n e t p o s i t i o n w i t h t h e bank i s  2  Member c o u n t r i e s who have a s h o r t o r l o n g - t e r m s u r p l u s may p l a c e t h e i r e x p o r t e a r n i n g s time d e p o s i t s .  trade  i n e i t h e r current or  I n t e r e s t on c u r r e n t accounts i s 0.25 p e r c e n t  p e r annum, w h i l e i n t e r e s t on time d e p o s i t s range from 0.5-1.5 ''"Ibid, p.136. 2 The p r i m a r y method o f payment used i s t h e subsequent a c c e p t a n c e method which p e r m i t s immediate book account t r a n s f e r s once t h e goods have been s h i p p e d , t h e r e b y r e d u c i n g t h e need f o r trade c r e d i t s .  118 p e r c e n t p e r annum, depending on t h e d u r a t i o n o f t h e d e p o s i t . The bank a l s o extends  1  s e a s o n a l and c l e a r i n g c r e d i t s t o c o u n t r i e s  e x p e r i e n c i n g temporary d e f i c i t b a l a n c e s beyond t h e i r quota  con-  t r i b u t i o n s ; these c r e d i t s are provided i n t e r e s t - f r e e i f the t o t a l c r e d i t o u t s t a n d i n g does n o t exceed 2.5 p e r c e n t o f t h e i r 2 o v e r a l l trade turnover.  I n t e r e s t charges  a r e l e v i e d on o u t -  s t a n d i n g c r e d i t s beyond t h i s amount, t h e r a t e on s e a s o n a l and c l e a r i n g c r e d i t s b e i n g 1.5 p e r c e n t and 2.0 p e r c e n t per.annum r e s p e c t i v e l y , w h i l e a p e n a l t y r a t e o f 3.0 p e r c e n t p e r annum i s 3  l e v i e d a g a i n s t overdue c r e d i t s .  Member c o u n t r i e s may a l s o ob-  t a i n c r e d i t i n c o n v e r t i b l e c u r r e n c i e s from t h e bank, up t o a maximum e q u a l t o t h e i r quota c o n t r i b u t i o n s t h a t were p a i d w i t h gold. Under t h e new system o f s e t t l i n g a c c o u n t s , t h e b i l a t e r a l b a l a n c i n g o f t r a d e w i t h each member c o u n t r y i s no l o n g e r o b l i g a t o r y ; each c o u n t r y ' s f o r e i g n t r a d e b a l a n c e  for i n t r a - b l o c trade  w i l l be s a t i s i f e d i f t h e r e i s a n e t o v e r a l l b a l a n c e o f t r a d e w i t h o t h e r member c o u n t r i e s . "'""Agreement C o n c e r n i n g M u l t i l a t e r a l S e t t l e m e n t s , " p. 14. 2 S u l i a e v a , "Currency and F i n a n c i a l C o o p e r a t i o n Among Comecon Members", p.162. 3 B a b i t c h e v , "The I n t e r n a t i o n a l Bank f o r Economic Coopera t i o n " , pp.138-139.  119  CHAPTER IV AN EVALUATION OF THE ECONOMIC REFORMS UNDERTAKEN IN INDUSTRY, AGRICULTURE, AND TRADE, 1950-1970 The p r e v i o u s t h r e e c h a p t e r s have been concerned examining  with  t h e m o d i f i c a t i o n s made i n t h e a l l o c a t i o n mechanics  u t i l i z e d i n i n d u s t r y , a g r i c u l t u r e , and t r a d e i n t h e p a s t two decades.  The f o l l o w i n g c h a p t e r w i l l a n a l y s e t h e d e f i c i e n c i e s  o f t h e S t a l i n i s t forms o f a l l o c a t i o n mechanics u t i l i z e d i n t h e above-mentioned s e c t o r s o f t h e economy, and w i l l a s s e s s t h e successes  and shortcomings  r e s p e c t i v e guidance  o f t h e m o d i f i c a t i o n s made i n t h e i r  systems t o t h e p r e s e n t t i m e .  The c h a p t e r  w i l l c o n c l u d e w i t h a d i s c u s s i o n o f t h e c o n f l i c t between c e n t r a l p l a n n i n g and t h e market, and t h e i n h e r e n t d e f i c i e n c i e s i n t h e S o v i e t forms o f a l l o c a t i o n .  Industry Evaluation of the production-supply planning system and t h e reforms undertaken i n t h a t system In  t h e S o v i e t Union t h e d e s i r e f o r d i r e c t  centralized  c o n t r o l o v e r economic a c t i v i t i e s has r e s u l t e d i n t h e e l i m i n a t i o n o f market mechanisms f o r p r o d u c e r The  goods and i n t e r m e d i a t e p r o d u c t s .  a l t e r n a t i v e form o f a l l o c a t i o n mechanics chosen as a sub-  s t i t u t e f o r market forms o f a l l o c a t i o n i s p r o v i d e d by t h e cent r a l i z e d p l a n n i n g o f p r o d u c t i o n and d i s t r i b u t i o n d e c i s i o n s . The c r i t e r i a used t o e v a l u a t e t h e p r o d u c t i o n - s u p p l y p l a n n i n g system  120  w i l l be the f o l l o w i n g :  g i v e n t h a t t h e r e are c e n t r a l i z e d expec-  t a t i o n s as t o the q u a n t i t y and q u a l i t y o f goods d e s i r e d , r e a l i s t i c are these e x p e c t a t i o n s , and how planning  system ' f u l f i l l '  how  e f f i c i e n t l y does the  t h e s e ex ante e x p e c t a t i o n s .  In  e v a l u a t i o n I w i l l f i r s t examine the b a s i c m e t h o d o l o g i c a l  my de-  f i c i e n c i e s t h a t were i n h e r e n t i n the p l a n n i n g system t h r o u g h o u t the p e r i o d b e i n g c o n s i d e r e d ,  because i t i s i n t h i s a r e a  the fundamental d e f i c i e n c i e s o f the system are found.  that The  eval-  u a t i o n w i l l then c o n s i d e r the r e f o r m s t h a t the system has  under-  gone i n a t t e m p t s t o remedy the b a s i c d e f i c i e n c i e s w h i c h are c o n s t i t u e n t t o S o v i e t p l a n n i n g methodology. The  s o u r c e of many o f the d i f f i c u l t i e s t h a t the  Union has e x p e r i e n c e d  Soviet  i n i t s system o f a l l o c a t i o n mechanics  lies  i n the methods used t o d e t e r m i n e i n d u s t r i a l o u t p u t p o t e n t i a l , and i n the a l l o c a t i o n o f the n e c e s s a r y s u p p l i e s t o the a t t a i n m e n t  of production  targets.  r e a l i s t i c and i n c o n s i s t e n t p l a n s may factors:  S p e c i f i c a l l y , the be a t t r i b u t e d t o  1) e x a g g e r a t e d e x p e c t a t i o n s  taut planning;  facilitate un-  five  of p o t e n t i a l outputs or  2) the methods of a g g r e g a t i n g  and  disaggregating  economic i n f o r m a t i o n ; 3) the methods used i n m a t e r i a l  balancing;  4) the sequence o f p l a n f o r m u l a t i o n ; 5) the d e f i c i e n c i e s i n the supply  system. The  b a s i c p r o p o r t i o n s o f aggregate p r o d u c t i o n  mined by P a r t y and government l e a d e r s .  Basing  are  deter-  their decisions  on an a n a l y s i s of a g g r e g a t e d d a t a on the p a s t and  projected  y e a r - e n d performance o f the v a r i o u s s e c t o r s o f the economy, the degree of c a p a c i t y u t i l i z a t i o n and o t h e r r e l e v a n t f a c t o r s , d i r e c t i v e s are i s s u e d d e t a i l i n g s p e c i f i c o u t p u t t a r g e t s f o r  121 p r i o r i t y s e c t o r s and t h e d e s i r e d growth r a t e o f t h e economy as a whole.  These d i r e c t i v e s then form t h e b a s i s o f Gosplan's t a s k ,  which i s t o formulate s p e c i f i c p r o d u c t i o n goals t o f u l f i l l centralized expectations.  these  The problem t h a t a r i s e s i s t h a t b o t h  the c e n t r a l d i r e c t i v e s p e r t a i n i n g t o t h e d e s i r e d growth r a t e s , and t h e r e s u l t i n g c o n t r o l f i g u r e s e s t a b l i s h e d , a r e u n r e a l i s t i c i n terms o f t h e r e s o u r c e s a v a i l a b l e and t h e f e a s i b l e improvements i n l a b o u r p r o d u c t i v i t y . a r i s e out of a combination  These e x a g g e r a t e d  expectations  o f i m p e r f e c t l y aggregated  informa-  t i o n , w h i c h g i v e s a d i s t o r t e d p i c t u r e o f t h e p r o d u c t i v e capab i l i t i e s o f t h e economy, and t h e d e s i r e o f t h e l e a d e r s t o a c h i e v e maximum growth r a t e s t h r o u g h productive resources.  1  the ' f u l l '  u t i l i z a t i o n of  T h i s p r o p e n s i t y f o r o v e r - f u l l employ-  ment p l a n n i n g c o n t i n u e s and i n c r e a s e s a t each l e v e l o f d i s a g g r e g a t i o n as t h e c o n t r o l f i g u r e s a r e d i s s e m i n a t e d  down  through 2  the a d m i n i s t r a t i v e h i e r a r c h y t o the l e v e l o f the e n t e r p r i s e . A s i d e from t h i s tendency o f f o r m u l a t i n g t a u t e x p e c t a t i o n s o f r e s o u r c e usage, u n r e a l i s t i c c o n t r o l f i g u r e s o r i g i n a t e from t h e methods o f a g g r e g a t i o n used t o c a l c u l a t e t h e v a r i o u s p a s t and p r o j e c t e d i n p u t s and o u t p u t s o f t h e p r e v i o u s p l a n n e d The  period.  r e s u l t i n g d i s t o r t e d d a t a a r e used t o p r o v i d e t h e f o u n d a t i o n  f o r t h e c e n t r a l government d i r e c t i v e s , and t h e r e s u l t i n g c o n t r o l f i g u r e s c a l c u l a t e d by  Gosplan.  In o r d e r t o a l l o w f o r t h e a g g r e g a t i o n o f t h e m u l t i t u d e of separate  i n p u t s t h a t a r e needed t o produce a g i v e n q u a n t i t y  """To a v o i d u n d e r u t i l i z a t i o n o f r e s o u r c e s , t a u t p l a n n i n g p r a c t i c e s are, t o a l i m i t e d extent, necessary. See n.1, p.3.  of o u t p u t ,  and t o c o o r d i n a t e t h e s e q u a n t i t i e s a t a l l t h e v a r i o u s  stages of production  i n t o an i n t e g r a t e d system, t e c h n i c a l -  economic i n d i c e s o r norms a r e c a l c u l a t e d .  Essentially  these  norms a r e i n d i c e s o f i n p u t s p e r u n i t o f o u t p u t o r t h e r e c i p r o cal calculation.  Three t y p e s o f norms a r e p r e v e l a n t i n t h e  planning process;  a r i t h m e t i c a l norms, p r o g r e s s i v e - a v e r a g e  and t e c h n i c a l l y e s t a b l i s h e d norms.  Some examples w i l l  norms  help  e x p l i c a t e t h e d e r i v a t i o n o f t h e above norms and t h e problems i n h e r e n t i n t h e i r use. i n the chemical  The a r i t h m e t i c a l i n p u t norm f o r l a b o u r  i n d u s t r y would be d e r i v e d by t h e summation o f  e m p i r i c a l labour i n p u t s f o r every  chemical  by t h e summed g r o s s o u t p u t o f t h e s e  firms.  enterprise, divided The p r o g r e s s i v e -  average i n p u t norm f o r l a b o u r i n t h e above example i s c a l c u l a t e d as t h e average o f t h e l o w e s t i n p u t norm o f t h e b e s t p r i s e , and t h e a r i t h m e t i c a l i n p u t norm.  enter-  Technically established  norms a r e d e r i v e d from e m p i r i c a l r e s e a r c h , i n t h i s example, l a b o u r time s t u d i e s , as t o t h e t e c h n i c a l l y f e a s i b l e minimum labour inputs.  To c o n t i n u e  t h e example f u r t h e r , suppose t h a t  the a r i t h m e t i c a l norm f o r l a b o u r i n p u t s p e r r u b l e o f o u t p u t i s c a l c u l a t e d f o r one c h e m i c a l production  f i r m and t h e f i r m wants t o i n c r e a s e  i n one o f i t s o u t p u t s  put by 5 p e r c e n t .  so as t o r a i s e i t s g r o s s  To i n c r e a s e i t s l a b o u r f o r c e by 5 p e r c e n t t o  a l l o w f o r t h e r e q u i r e d i n c r e a s e i n one o f i t s o u t p u t s over o r understate product. norms.  out-  the necessary  may w e l l  labour requirements f o r that  T h i s i s p r e c i s e l y t h e problem i n h e r e n t i n t h e use o f As t h e l e v e l o f a g g r e g a t i o n  i n c r e a s e s t h e l e v e l o f gen-  e r a l i z a t i o n i n c r e a s e s , which consequently  increases the l e v e l  123  of d i s t o r t i o n . " ' "  At each l e v e l o f a g g r e g a t i o n  heterogeneous o u t p u t assumes homogeneity.  g r e a t e r amounts o f  At the Gosplan l e v e l  the h i g h l y a g g r e g a t e d norms r e p r e s e n t i n a c c u r a t e t e c h n i c a l coe f f i c i e n t s as a r e s u l t o f the c u m u l a t i v e process  of aggregation.  The  e r r o r s made i n the  v a s t m a j o r i t y o f the norms a t t h i s  l e v e l are s y n t h e t i c c o e f f i c i e n t s r e l a t i n g i n p u t s t o o u t p u t s wide groups o f e n t e r p r i s e s .  Only a f r a c t i o n o f the  for  aggregated  norms are s y s t e m a t i c a l l y b u i l t up from t h e i r o u t p u t - w e i g h t e d components.  I t i s these t e c h n i c a l c o e f f i c i e n t s t h a t f u r n i s h  the i n f o r m a t i o n used by government l e a d e r s i n d e c i d i n g t h e i r d i r e c t i v e s , and t o G o s p l a n , who s t r u c t a ' r a t i o n a l ' balanced  u t i l i z e s t h e s e norms t o con-  plan.  I n the l a s t two decades t h e r e has been an i n c r e a s i n g tendency f o r G o s p l a n t o r e p l a c e a r i t h m e t i c a l norms by  average-  p r o g r e s s i v e o r t e c h n i c a l l y e s t a b l i s h e d a t t a i n a b l e norms i n the c o n s t r u c t i o n of t h e i r c o n t r o l f i g u r e s .  The  o b j e c t i v e of  l o w i n g such a p r a c t i c e i s t o p r o v i d e an a p p r o p r i a t e f o r i n c r e a s i n g p r o d u c t i v i t y by t e c h n o l o g i c a l advances.  fol-  stimulus  ' f o r c i n g ' the d i s s e m i n a t i o n  Although  t h i s p r a c t i c e may  l a t e d i n n o v a t i o n o r the a d o p t i o n o f new s t a n c e s , the more f r e q u e n t r e s u l t was  techniques  of  have s t i m u i n some i n -  t o i n c r e a s e the  tautness  and the l e v e l o f u n d e r f u l f i l l m e n t o f p l a n n e d e x p e c t a t i o n s . O b t a i n i n g c o n s i s t e n t p l a n s i s f u r t h e r a g g r a v a t e d by  the  method o f b a l a n c i n g used t o o b t a i n e q u i l i b r i u m i n the ex ante supply  and demand of r e s o u r c e s .  M a t e r i a l balances  are drawn up  """The o u t p u t mix o f some i n d u s t r i e s i s so complex t h a t i n p u t s can be d e t e r m i n e d o n l y i n r e l a t i o n t o the g r o s s v a l u e o f o u t p u t r a t h e r t h a n each s e p a r a t e p r o d u c t .  f o r wide groups o f m a t e r i a l s and equipment. balances  Thousands o f  these  are drawn up d u r i n g the c o n s t r u c t i o n o f the a n n u a l p l a n  and the o b j e c t i v e i s t o s i m u l t a n e o u s l y i n t e r m e d i a t e , and  c l o s e a l l the  f i n a l demand and s u p p l y b a l a n c e s .  The  m i t y o f such a t a s k , under the methods used, r e n d e r s possible.  Due  primary, enor-  success  im-  t o the h i g h degree o f i n t e r r e l a t e d n e s s among the  v a r i o u s b a l a n c e s , when a commodity has  a d e f i c i t balance  an i n -  c r e a s e i n p r o d u c t i o n o f the commodity i s o n l y u t i l i z e d as a r e s o r t t o c l o s e the d e f i c i t b a l a n c e . used i n c l o s i n g d e f i c i t b a l a n c e s  The  1  last  most f r e q u e n t method  i s t o d e c r e a s e the consumption  o f t h e d e f i c i t commodity t h r o u g h r e d u c i n g t h e i n p u t norms o f consumers o f t h a t commodity.  the  Thus the t a u t n e s s o f the p l a n i s  i n c r e a s e d i n o r d e r t o o b t a i n a p p a r e n t c o n s i s t e n c y i n demand and supply.  When d e f i c i t b a l a n c e s  are c l o s e d by an i n c r e a s e i n p r o -  d u c t i o n , a l l o f the r e l a t e d b a l a n c e s  c o n t a i n i n g the i n p u t s o f  the d e f i c i t commodity must be a l t e r e d a c c o r d i n g l y . makes f o r r e c a l c u l a t i o n s o f the b a l a n c e s  This i n turn  c o n t a i n i n g the  o f the i n p u t s o f t h e i n i t i a l d e f i c i t commodity t o be and so on.  These n e c e s s a r y  not c a r r i e d out due m i s t A.N.  iterations,  t o the e n o r m i t y  directly  r e l a t e d t o the o r i g i n a l  increased,  i n a c t u a l p r a c t i c e , are  of.the task.  E f i m o v s t a t e s , " . . . r e c a l c u l a t i o n s may  p r a c t i c e to balances  inputs  G o s p l a n econobe l i m i t e d i n  e f f e c t e d by the changes.  change by second, t h i r d ,  Balances  fourth, etc., 2  o r d e r l i n k a g e s are o n l y a l t e r e d where changes are  significant".  "'"See n. 2 , p. 5 . 2 John M o n t i a s , " P l a n n i n g W i t h M a t e r i a l B a l a n c e s i n S o v i e t - T y p e Economies", American Economic Review, V o l . X L I X (December, 1959), p.976.  125 The  r e s u l t s of the above p r a c t i c e s are c o n c e a l e d  balances.  The  inconsistent  consequences o f the i n c o n s i s t e n c i e s are t h a t even  i f a l l the i n p u t norms are met de f a c t o d e f i c i t b a l a n c e s ,  by the f i r m s a f f e c t e d by  these  a number o f these f i r m s w i l l  have  i n a d e q u a t e i n p u t s t o meet t h e i r o u t p u t t a r g e t s .  The  u n f u l f i l l e d o u t p u t p l a n s w i l l have r e p e r c u s s i o n s  on the  t i v e c a p a b i l i t i e s o f those f i r m s which u t i l i z e the f i r m s i n i t i a l l y a f f e c t e d , and  e f f e c t s of  the o u t p u t s of  so on t h r o u g h o u t the  I n r e a l i t y the e f f e c t s o f d e f i c i t b a l a n c e s ,  produc-  system.  and/or u n r e a l i s t i c  i n p u t and o u t p u t t a r g e t s , can be m i t i g a t e d by the i n v e n t o r i e s , or  'government r e s e r v e s ' , h e l d a t v a r i o u s l e v e l s i n the  strative hierarchy.  admini-  A d e t e r m i n e d e f f o r t i s made t o ensure  o r i t y s e c t o r s are a d e q u a t e l y s u p p l i e d ; c o n s e q u e n t l y the  pri-  enter-  p r i s e s t h a t produce l o w - p r i o r i t y o u t p u t bear the b r u n t of i n adequate s u p p l i e s . I t can be assumed t h a t the problem o f i n c o n s i s t e n t m a t e r i a l b a l a n c e s has been i n c r e a s i n g w i t h the development of the economy.  I n the c o u r s e of economic development the p r o p o r -  t i o n of f i n a l  demand t o t o t a l o u t p u t can be e x p e c t e d t o  w h i l e the number o f f i r m s consuming each o t h e r s o u t p u t s , d i r e c t l y or i n d i r e c t l y , w i l l  increase.  Therefore  any  either  T h i s w i l l have the  e f f e c t o f s l o w i n g down the convergence p r o c e s s o f any o f i t e r a t i o n used.  fall,  g i v e n number o f  method  iterations  w i l l produce l a r g e r e r r o r s w i t h the growth o f the economy o v e r time. The  i n c r e a s i n g use o f i n p u t - o u t p u t  techniques  during  recent years i n plan formulation, e s p e c i a l l y i n checking consistency of m a t e r i a l balances,  may  eventually o f f e r a  the  126 s o l u t i o n t o plan imbalances a r i s i n g out of i n s u f f i c i e n t e r a t i o n o f t h e l i n k a g e s among t h e m a t e r i a l b a l a n c e s . output techniques  consid-  Input-  l e n d t h e m s e l v e s t o computer c a l c u l a t i o n s w h i c h  e n a b l e s u f f i c i e n t c a l c u l a t i o n s t o ensure t h e i n t e r n a l c o n s i s t ency o f t h e p l a n .  1  Although  input-output  techniques  can t h e o r -  e t i c a l l y enable the c a l c u l a t i o n of a c o n s i s t e n t p l a n ,  inherent  l i m i t a t i o n s i n these techniques 2  make them unusable as a i d s f o r  constructing a rational plan.  An i n t e r n a l l y c o n s i s t e n t ex ante  p l a n would o n l y reduce t h e l e v e l o f e r r o r i n p l a n  formulation  under c u r r e n t p l a n n i n g p r a c t i c e s ; so l o n g as p l a n n i n g i s maintained  t h r o u g h t h e use o f u n r e a l i s t i c i n p u t  tautness  coefficients,  t h e r e w i l l be ex p o s t d e v i a t i o n s from t h e p l a n . F u r t h e r d e f i c i e n c i e s i n t h e S o v i e t form o f a l l o c a t i o n are e v i d e n t i n the s e q u e n t i a l p l a n n i n g p a t t e r n and t h e s p e c i f i c a t i o n of gross output t a r g e t s i n t o d e t a i l e d o r d e r s .  Once t h e  e n t e r p r i s e r e c e i v e s i t s o u t p u t t a r g e t s and i n p u t a l l o c a t i o n s , i t s p e c i f i e s the exact requirements o f i t s gross input a l l o c a t i o n s on t h e b a s i s o f i t s approved t e n t a t i v e p l a n .  The t r a n s f o r m a t i o n  of o u t p u t t a r g e t s i n t o s p e c i f i c c o n t r a c t s o c c u r s a f t e r t h e f i r m has s u b m i t t e d  s e v e r a l months  i t s d e t a i l e d l i s t of required  ^ I f u n r e a l i s t i c i n p u t c o e f f i c i e n t s a r e used i n formul a t i n g t h e p l a n , t h e 'mathematical c o n s i s t e n c y ' o f t h e p l a n i s o n l y t h e o r e t i c a l and i t w i l l prove t o be i n c o n s i s t e n t on an applied level. 2 The l i m i t a t i o n s i n h e r e n t i n i n p u t - o u t p u t t e c h n i q u e s a r e the f o l l o w i n g : 1) they assume c o n s t a n t c o e f f i c i e n t s , i n d e p e n d ent o f t h e l e v e l o f p r o d u c t i o n ; 2) they cannot account f o r t e c h n o l o g i c a l change; 3) they cannot account f o r s u b s t i t u t i o n p o s s i b i l i t i e s ; 4) c a p i t a l equipment cannot be t a k e n i n t o account. ( H e r b e r t L e v i n e , " C e n t r a l i z e d P l a n n i n g o f Supply i n S o v i e t I n d u s t r y " , i n The S o v i e t Economy: A Book o f R e a d i n g s, ed. by M o r r i s B o r n s t e i n and D a n i e l F u s f e l d , p.64.)  127 inputs. with  C o n s e q u e n t l y , when d e t a i l e d i n p u t s  the s p e c i f i c a t i o n s of i n d i v i d u a l c o n t r a c t s ,  plans  must be  supplies  tween  1957  and had  changed  reforms that and  1964  little  took p l a c e  influence  economic  than economic, combined  The  system  on  the fundamental  The  c o u n c i l s was  criteria.  The  division  c h a r a c t e r i s t i c s of  o f t h e economy i n t o  b a s e d on a d m i n i s t r a t i v e , sovnarkhozy  and were t o o s m a l l  t o be  creation of republican  g o v e r n m e n t and viable  sovnarkhozy  the  problem o f c o o r d i n a t i n g The  large  coordination, also  production The  sible  had  number o f a d m i n i s t r a t i v e research  lax i n instituting  system  planning.  the  sovnarkhoz  set  up  under  units  from  to  solve  economic  lacked  programs,  technological  1961,  adequate  and  were  advances  under system,  the  into  complex  Under the m i n i s t e r i a l s y s t e m  f o r the d i s t r i b u t i o n o f major  enterprises  of those  further complicated  a main a d m i n i s t r a t i o n  all  attempts  the  processes.  sovnarkhozy  system of supply ministry  the a c t i v i t i e s  especially in their  f o u n d t o be  their  were s u c c e s s i v e  and  in  o f t h e number o f s o v n a r k h o z y  i n 1963,  to  party  i n 1960,  by  to forty-seven  rather  administrative  followed 104  104  e i t h e r conformed  of the country i n t o seventeen l a r g e regions the reduction  be-  i n nature  division  units.  the  induced to accept  i n the planning  e x i s t i n g d i v i s i o n s of l o c a l  organizations units.  either  were e s s e n t i a l l y a d m i n i s t r a t i v e  p r e - e x i s t i n g system.  regional  or  o r t h e b u y e r s must be  matched  t h a t were n o t i n a c c o r d a n c e w i t h s p e c i f i c a t i o n s . The  the  c a n n o t be  of supply materials  the j u r i s d i c t i o n  and  respon-  supplies  o f the m i n i s t r y .  a number o.f s u p p l y  the j u r i s d i c t i o n  w h i c h was  each  Under  administrations  o f Gosplan, each  to  responsible  were for  128  a s p e c i f i c group o f m a t e r i a l s u p p l i e s .  I f an e n t e r p r i s e  q u i r e d f i v e funded commodities f o r i t s o p e r a t i o n s , p o s s i b l y be f i v e s u p p l y o f t h e s e goods.  re-  t h e r e would  departments i n v o l v e d i n the a l l o c a t i o n  Under t h i s arrangement, a c h i e v i n g  consistency  i n the a l l o c a t i o n o f r e q u i r e d goods became a l l the more difficult.  1  In summary the main d e f i c i e n c i e s i n the supply  planning  production-  system r e s u l t from the e x a g g e r a t e d and  unreal-  i s t i c p l a n t a r g e t s , which g i v e r i s e t o i n c o n s i s t e n t p l a n s . These e x a g g e r a t e d e x p e c t a t i o n s  a r i s e out o f the  c a l c u l a t i o n o f i n p u t norms and  can o n l y be s o l v e d t h r o u g h r e -  f i n i n g the a g g r e g a t i n g  p r o c e s s and by g i v i n g i n d i v i d u a l f i r m s  more a u t h o r i t y i n d e c i d i n g t h e i r i n p u t norms. c o n s i s t e n t , r e a l i s t i c p l a n s , and inventory  theory  unrealistic  I t i s only  with  the a p p l i c a t i o n o f an optimum  on a n a t i o n a l l e v e l , t h a t the f r e q u e n t l y  voiced  c r i t i c i s m s o f h o a r d i n g and m a l d i s t r i b u t e d i n v e n t o r i e s , b l a c k m a r k e t s , and e n t e r p r i s e e x p e d i t e r s  can be  cured.  E v a l u a t i o n o f the f i n a n c i a l system and i n d u s t r i a l w h o l e s a l e p r i c e s The  need f o r f i n a n c i a l p l a n n i n g  a r i s e s out o f the  s i t y o f u s i n g a system o f monetary a c c o u n t i n g a c t i v i t i e s o f e n t e r p r i s e s and  neces-  t o c o n t r o l the  a g e n c i e s i n the c a r r y i n g out  of  A f t e r the 1965 r e f o r m s the a d m i n i s t r a t i v e system r e v e r t e d back t o the b r a n c h o f i n d u s t r y ( m i n i s t e r i a l ) system t h a t had e x i s t e d p r i o r t o 1957. The m a t e r i a l s u p p l y f u n c t i o n s c a r r i e d out by the m i n i s t r i e s under the pre-1957 system were a b o l i s h e d t o a v o i d the p r e v i o u s t e n d e n c i e s toward m i n i s t e r i a l self-sufficiency. Under the new arrangements, m a t e r i a l s u p p l y i s c a r r i e d out by Gosplan and a newly formed S t a t e Committee for M a t e r i a l T e c h n i c a l Supply.  129 t h e i r economic f u n c t i o n s .  Through f o r m u l a t i n g a p r i c e system  and making economic e n t i t i e s pay f o r a l l o f t h e goods and s e r v i c e s i t u t i l i z e s , t h e m u l t i t u d e o f heterogeneous i n p u t s and outputs  can be g i v e n s y n t h e t i c e x p r e s s i o n by a s s i g n i n g a p r i c e  t o each good.  P r i c e s become a common measure by w h i c h means  heterogeneous i n p u t s and o u t p u t s  can be a g g r e g a t e d , thus a l l o w -  i n g the c e n t r a l a u t h o r i t i e s t o e x e r t simultaneous the v a s t a r r a y o f economic e n t i t i e s .  c o n t r o l over  Monetary a c c o u n t i n g  with  c o n s t a n t p r i c e s a l s o f a c i l i t a t e s i n t e r - t e m p o r a l comparisons o f the performance o f economic u n i t s , which r e f l e c t t h e r e l a t i v e e f f i c i e n c y o f t h e i r operations during s p e c i f i c p o i n t s i n time. I t i s t h e n e c e s s i t y o f h a v i n g a monetary system o f a c c o u n t i n g f o r t h e purposes o f c o n t r o l and a c c u m u l a t i o n  that gives r i s e to  the demand f o r f i n a n c i a l p l a n n i n g i n t h e S o v i e t Union. F i n a n c i a l p l a n n i n g n e i t h e r precedes n o r d i r e c t l y mines t h e f o r m u l a t i o n o f p h y s i c a l p l a n s f o r t h e economy.  deterRather,  the f i n a n c i a l p l a n s a r e a r e f l e c t i o n o f t h e monetary e q u i v a l e n t s o f t h e p h y s i c a l v a r i a b l e s t h a t compose t h e p h y s i c a l economic plans.  Although  f i n a n c i a l equivalents of p h y s i c a l plans are  used t o check t h e coherency o f t h e p h y s i c a l p l a n s and t h e f u n c t i o n a l r e l a t i o n s h i p s between v a r i o u s p h y s i c a l p l a n s they a r e seldom used as t h e p r i n c i p a l i n d i c a t o r as t o how p h y s i c a l i m b a l ances i n t h e s e p l a n s may be r e c t i f i e d .  The l a c k o f r e l i a n c e on  f i n a n c i a l c r i t e r i a i n economic p l a n n i n g stems from t h e f a c t t h a t the p r i c e system, which p r o v i d e s t h e means f o r a l l f i n a n c i a l c a l c u l a t i o n s , i s c o m p a r t m e n t a l i z e d and l a c k s coherency.  Only a  p r i c e system which r e f l e c t s t h e t r u e s c a r c i t y o f r e s o u r c e s , v i s - a - v i s t h e demands o f t h e c e n t r a l a u t h o r i t i e s , o r a l t e r n a -  130  t i v e l y o f consumers, can p r o v i d e magnitudes can be used t o p r o v i d e u t i l i z a t i o n o f resources The  a b a s i s on which  financial  d i r e c t i v e g u i d a n c e as t o t h e  i n t h e economy.  p r i c e system i n t h e S o v i e t Union does n o t e x h i b i t  the above c h a r a c t e r i s t i c s . P r i c e s a r e n o t formed by t h e i n t e r a c t i o n s o f supply  and demand which equates t h e s c a r c i t y o f a  good w i t h t h e o v e r a l l demand f o r t h a t good by a r r i v i n g a t an appropriate  value  i n t h e market.  t h r o u g h t h e i n t e r a c t i o n o f t h e s e two f o r c e s  Market mechanisms i n t h e S o v i e t Union have been  l a r g e l y r e p l a c e d by an a l l o c a t i v e system which u t i l i z e s s t r a t i v e apportioning demand.  admini-  t o a c h i e v e a b a l a n c e between s u p p l y and  Where markets a r e u t i l i z e d as an a l l o c a t i v e mechanism,  f o r example i n t h e d i s t r i b u t i o n o f consumer goods, i t f u n c t i o n s under r e s t r i c t e d c o n d i t i o n s where t h e r e l a t i v e p r i c e s a r e s e t and  i n f l e x i b l e , thus e l i m i n a t i n g any r e a c t i v e feedback t h r o u g h  the p r i c e mechanism. The general  b a s i s of the p r i c e s t r u c t u r e i s provided  by t h e  p r i n c i p l e that p r i c e s a t the e n t e r p r i s e wholesale  r e f l e c t t h e average c o s t o f p r o d u c t i o n p l u s a p r o f i t markup.  f o r t h e good i n q u e s t i o n  The S o v i e t methods o f c a l c u l a t i n g c o s t s  are i n c o m p l e t e i n t h e sense t h a t l a n d c o s t s , d e p l e t i o n and  level  costs,  u n t i l r e c e n t l y c a p i t a l c o s t s were a l l e x c l u d e d from c o s t  c a l c u l a t i o n s , and d e p r e c i a t i o n c o s t s were u n d e r v a l u e d i n r e l a t i o n t o the true r a t e of d e t e r i o r a t i o n of c a p i t a l assets.  The  r e s u l t o f t h e above exemptions i s t h a t t h e economic c o s t s attached  t o t h e u t i l i z a t i o n o f c a p i t a l , l a n d , and t h e d e p l e t i o n  of n a t u r a l resources had  were n o t a c c o u n t e d f o r .  These o m i s s i o n s  the e f f e c t of d i s t o r t i n g r e l a t i v e costs i n favour of the  131 c a p i t a l i n t e n s i v e and e x t r a c t i v e branches o f i n d u s t r y . ignores  t h e above d e f i c i e n c i e s t h e r e  I f one  i s a tendency toward r a -  t i o n a l r e l a t i v e c o s t s f o r p r o d u c e r goods i n t h a t t h e l a b o u r c o s t s , which account f o r t h e major p r o p o r t i o n o f t o t a l are d e r i v e d  from t h e p r i c e s p a i d f o r l a b o u r .  costs,  A l t h o u g h wages  are s e t by t h e s t a t e , t h e f o r m u l a t i o n o f l a b o u r wage r a t e s a r e a r r i v e d a t t h r o u g h a de f a c t o l a b o u r market.  Due t o t h e occupa-  t i o n a l freedom t h a t now e x i s t s i n t h e c o u n t r y ,  wages a r e s e t t o  a c h i e v e t h e d e s i r e d d i s t r i b u t i o n o f l a b o u r , t a k i n g i n t o account the e d u c a t i o n a l  l e v e l s and r e q u i r e d s k i l l s as w e l l as t h e geo-  g r a p h i c a l l o c a t i o n o f areas o f demand. Within the realm of i n d u s t r i a l wholesale p r i c e s f o r p r o d u c e r goods m o d i f i c a t i o n s a r e made i n t h e r e l a t i v e  prices  o f c l o s e s u b s t i t u t e s i n an attempt t o a d j u s t t h e s e p r i c e s toward t h e i r r e l a t i v e s c a r c i t i e s , thereby achieving appropriate stitution  ratios.  sub-  1  The p r e v i o u s  d i s c u s s i o n on t h e r o l e o f p r i c e s i n t h e  S o v i e t economy noted t h a t p r i c e s p r o v i d e  a guide t o p l a n n e r s  i n the s e l e c t i o n of s u b s t i t u t e s to close d e f i c i t m a t e r i a l b a l ances, i n t h e c h o i c e o f a l t e r n a t i v e i n v e s t m e n t s , and a l s o i n decisions regarding  the d e t a i l e d production  f u n c t i o n s o f new  e n t e r p r i s e s and t h e b e n e f i t s o f m o d e r n i z i n g o l d f a c i l i t i e s . C l o s i n g m a t e r i a l b a l a n c e s by t h e s u b s t i t u t i o n o f l e s s  scarce  c o m m o d i t i e s , as shown by t h e i r r e l a t i v e p r i c e s , p r o b a b l y does not r e s u l t i n s e r i o u s s u b - o p t i m i z a t i o n  of resource  use as  """It was p r e v i o u s l y n o t e d t h a t the 1963 p r i c e r e v i s i o n was p r i m a r i l y d i r e c t e d toward r e f l e c t i n g s t r u c t u r a l changes i n the economy, v i s - a - v i s t h e e x t r a c t i v e i n d u s t r i e s and t h e nation's 'fuel balance . 1  132 c o n s i d e r a t i o n i s g i v e n t o s c a r c i t y f a c t o r s i n s e t t i n g the t i v e p r i c e s of c l o s e s u b s t i t u t e s .  Consideration  o f the  rela-  level  of t o t a l c o s t s t h a t i n f l u e n c e d e c i s i o n s r e g a r d i n g a l t e r n a t i v e i n v e s t m e n t s and  production  in considerable  sub-optimal resource  p r i c e s considered  deviate  f u n c t i o n s of firms undoubtedly r e s u l t use  i n t h a t the  relative  f u r t h e r from t h e i r s c a r c i t y v a l u e s .  R e g a r d l e s s o f what r e l a t i v e p r i c e s o r groups of p r i c e s considered,  being  i f p r i c e s are used f o r d i r e c t i v e c r i t e r i a i n the  a l l o c a t i o n of resources  sub-optimal resource  usage w i l l  result.  Even i n the case o f c l o s e l y s u b s t i t u t a b l e p r o d u c t s where r e l a t i v e s c a r c i t i e s are c o n s i d e r e d  i n f i x i n g t h e i r p r i c e s , the  S o v i e t p r a c t i c e of f i x i n g p r i c e s f o r extended p e r i o d s  o f time  does not a l l o w f o r s t r u c t u r a l changes i n the economy t o be  re-  f l e c t e d i n p r i c e s d u r i n g the time p e r i o d between p r i c e r e v i s i o n s . The  i r r a t i o n a l i t y of i n d u s t r i a l wholesale p r i c e s ,  s p e c i f i c a l l y t h o s e f o r p r o d u c e r goods, has  assumed  d i m e n s i o n s w i t h the i n t r o d u c t i o n o f p r o f i t  (profitability)  the p r i n c i p a l s u c c e s s i n d i c a t o r t h a t o c c u r r e d reforms.  R e l a t i v e c o s t - p r i c e r a t i o s now  greater  a f t e r the  1965  assume paramount  p o r t a n c e t o the e n t e r p r i s e s i n t h e i r attempt t o f u l f i l l p r o f i t p l a n , but t h e s e c o s t - p r i c e r a t i o s i n no way  im-  their  reflect  r e l a t i v e s c a r c i t i e s of the goods produced by the f i r m .  as  the  Under  t h e s e c i r c u m s t a n c e s the p h y s i c a l s t i p u l a t i o n of o u t p u t a s s i g n ments must remain and  flourish.  1  ''"Without p h y s i c a l a s s o r t m e n t t a r g e t s , e n t e r p r i s e s would a v o i d the p r o d u c t i o n of l o w - p r o f i t commodities even though the u t i l i t y of t h e s e goods may be v e r y h i g h . A similar situation e x i s t s w i t h the a l l o c a t i o n of i n p u t s t o i n d u s t r i a l f i r m s ; the u n d e r - p r i c i n g o f p r o d u c e r goods n e c e s s i t a t e s the a d m i n i s t r a t i v e a l l o c a t i o n of many m a t e r i a l s and equipment t o p r i o r i t y areas of  The g r e a t e s t m o d i f i c a t i o n s t o e n t e r p r i s e w h o l e s a l e p r i c e s o c c u r w i t h t h e a d d i t i o n o f t u r n o v e r t a x e s t o consumer goods.  The f o l l o w i n g t a b l e shows t h e degree o f m o d i f i c a t i o n  1  i n consumer goods p r i c e s from t h e a p p l i c a t i o n o f t u r n o v e r t a x e s  TABLE X I I I COMPOSITION OF INDUSTRIAL WHOLESALE PRICES, 1964* P r o d u c t i o n and Marketing Costs P r o d u c e r goods Consumer goods  81.6% 66.5%  Profit 11.5% 8.2%  Turnover Tax 6.9% 25.3%  *  Source:  B o r n s t e i n , " S o v i e t P r i c e Theory and P o l i c y " ,  p.227. Turnover  t a x e s a r e one o f t h e p r i n c i p a l s o u r c e s o f a c 2  cumulation f o r the s t a t e .  A l l p r o d u c t i v e processes both  and o u t s i d e t h e s t a t e s e c t o r g e n e r a t e income which s p e n t o r saved.  xnside  i s either  Through c a l c u l a t i n g d r a f t b a l a n c e s o f incomes  and e x p e n d i t u r e s o f t h e p o p u l a t i o n , d i s p a r i t i e s between t h e amount o f d i s p o s a b l e income spent on consumer goods and t h e p l a n n e d volume o f consumer goods a v a i l a b l e a r e made e v i d e n t . A l t h o u g h v a r i o u s a l t e r n a t i v e s may be f o l l o w e d t o m i t i g a t e t h e expansion 1 E l e c t r i c i t y and f o s s i l f u e l s a r e t h e o n l y p r o d u c e r goods t h a t have a t u r n o v e r t a x a p p l i e d t o them. 2 P r o f i t deductions,- income t a x e s and o t h e r t y p e s o f d e d u c t i o n s , p r o v i d e a d d i t i o n a l budgetary r e v e n u e s , b u t t u r n o v e r t a x e s up t o 1965 p r o v i d e d t h e main source o f unencumbered budg e t a r y revenue. The r e a s o n f o r a d u a l source o f income from p r o d u c t i v e a c t i v i t i e s i s t h a t p r o f i t s a r e n o t a s s u r e d by t h e f u l f i l l m e n t o f t h e o u t p u t p l a n s w h i l e t u r n o v e r t a x revenue i s a s s u r e d and can be e x t r a c t e d more r a p i d l y .  134 disequilibrium,  f o r example r a i s i n g p r i c e s , l o w e r i n g wages o r  increasing  income t a x e s , the p r i m a r y method used t o equate  s u p p l y and  demand i s t o a p p l y h i g h t a x r a t e s on new  entering  the market.  In a p p l y i n g  t u r n o v e r t a x e s to consumer  goods the c e n t r a l a u t h o r i t i e s g e n e r a l l y of a p p l y i n g  r e l a t i v e l y high tax rates  r e l a t i v e l y low  products  f o l l o w the  to l u x u r y  practice  goods  r a t e s t o most mass consumption goods.  p r a c t i c e s e r v e s to equate ex ante s u p p l y and  and This  demand f o r  f i c goods as w e l l as reduce d i s p a r i t i e s i n the  l e v e l of r e a l  income between d i f f e r e n t o c c u p a t i o n a l groups i n the  society.  I t becomes o b v i o u s from the p r e c e d i n g a n a l y s i s price structure  i n the S o v i e t  speci-  that  Union i s g r e a t l y i n f l u e n c e d  by  the deployment of the p r i c e system to a c h i e v e a d e s i r a b l e t r i b u t i o n o f the n a t i o n a l income. u t i l i z e d indirect taxation and  i n the  The  the  dis-  c e n t r a l p l a n n e r s have  forms o f the t u r n o v e r t a x e s  p r o f i t d e d u c t i o n s t o p r o v i d e the b u l k of b u d g e t a r y r e v e n u e s ,  rather  than r e s o r t i n g to d i r e c t t a x a t i o n  saving.  as a means f o r  forced  In e s s e n c e , the t u r n o v e r t a x system i s an i n d i r e c t ,  p r o g r e s s i v e system o f t a x a t i o n . structure  of the S o v i e t  The  compartmentalized p r i c e  Union i s l a r g e l y a r e s u l t o f the  z a t i o n o f the p r i c e system i n d i s t r i b u t i n g the n a t i o n a l  utiliincome  i n a manner a p p r o p r i a t e t o the aims o f the c e n t r a l a u t h o r i t i e s . I t was the  previously  f i n a n c i a l system was  t i o n o f p h y s i c a l and  stated  to f a c i l i t a t e c o n t r o l o v e r the  f i n a n c i a l plans.  v i d e s a s y n t h e t i c measure of the o t h e r p l a n s w h i c h are wholly or i n part.  t h a t the p r i m a r y f u n c t i o n  incorporated  of  execu-  Thus the cash p l a n p r o -  f u l f i l l m e n t of a v a r i e t y i n t o the cash p l a n ,  of  either  S p e c i f i c a l l y , the degree of f u l f i l l m e n t o f  the c a s h p l a n r e f l e c t s the degree o f f u l f i l l m e n t o f the t i o n plan  ( v i a wages), the p l a n f o r r e t a i l t r a d e , the  p l a n , and  the p l a n f o r a g r i c u l t u r a l  the  procurements.  produccredit  Similarly,  f u l f i l l m e n t o f p l a n n e d b u d g e t a r y revenues f o r t u r n o v e r  p r o f i t taxes provide production  and  an a d d i t i o n a l check on the f u l f i l l m e n t  of  plans.  A t the m i c r o l e v e l , c o n t r o l o v e r e n t e r p r i s e a c t i v i t i e s i s provided and  by a c o m b i n a t i o n o f p h y s i c a l and  targets,  s e v e r e r e s t r i c t i o n s on the u t i l i z a t i o n o f the monetary funds  a v a i l a b l e t o the e n t e r p r i s e .  The  monetary funds a v a i l a b l e t o  the e n t e r p r i s e are h e l d by the s t a t e bank and and  financial  book a c c o u n t b a l a n c e s .  Generally  be u t i l i z e d f o r wage payments and  c o n s i s t of  cash b a l a n c e s may  'cash' only  cash d i s b u r s e m e n t s f o r t h e s e  purposes must be w i t h i n the l i m i t s a s s i g n e d by the wage fund f o r the e n t e r p r i s e .  S i n c e ' f r e e ' cash p r o v i d e s a h i g h  degree  o f freedom t o the e n t e r p r i s e , movements of cash b a l a n c e s appropriate  s c r u t i n y by the bank o f f i c i a l s .  goods r e c e i v e d by an e n t e r p r i s e and  The  a l l receipts  receive  payments f o r obtained  t h r o u g h the s a l e of t h e i r o u t p u t are made by a t r a n s f e r o f bank b a l a n c e s between v a r i o u s manner a l l payments and  b r a n c h banks of the Gosbank.  In  r e c e i p t s of an e n t e r p r i s e can be  f o r p r o p r i e t y w i t h the e n t e r p r i s e p r o d u c t i o n - s u p p l y p l a n w i t h the s t a t e p r i c e  enterprise a c t i v i t i e s .  c r e d i t between e n t e r p r i s e s on c r e d i t  provided  checked and  lists.  C r e d i t arrangements p r o v i d e controlling  this  and  an a d d i t i o n a l means f o r By banning a l l commercial  making each e n t e r p r i s e  dependent  by the s t a t e bank f o r f i n a n c i n g a p o r t i o n  t h e i r n e c e s s a r y w o r k i n g c a p i t a l , the i d l e bank b a l a n c e s  are  of  reduced t o a minimum and are s u b j e c t e d  to  the d a i l y o p e r a t i o n s  ' c o n t r o l by the r u b l e ' .  d i t s are a l l o c a t e d t o the e n t e r p r i s e accordance w i t h assigned quotas.  o f the  enterprise  Working c a p i t a l c r e -  f o r planned tasks  and  in  Repayment o f t h e s e c r e d i t s  can o n l y t a k e p l a c e t h r o u g h revenues accumulated from the c a r r y i n g out o f p l a n n e d p r o d u c t i v e  processes.  Therefore  the  f u l f i l l m e n t of the c r e d i t p l a n r e f l e c t s the f u l f i l l m e n t o f production  p l a n o f the  The amortization  enterprise.  t u r n o v e r t a x c o l l e c t i o n s made by the  bank i n i t s c a p a c i t y as the must p r o v i d e ity.  1  above monetary c o n t r o l s , i n a d d i t i o n t o the and  the  f i s c a l agent f o r the  profit,  state  government,  r a t h e r s t r i n g e n t r e g u l a t i o n over e n t e r p i s e a c t i v -  From the numerous a r t i c l e s p e r t a i n i n g t o the l a r g e hoards  of m a t e r i a l and valence of  equipment k e p t i n e n t e r p r i s e basements and  'procurers'  on e n t e r p r i s e p a y r o l l s i t i s  t h a t the c o m b i n a t i o n o f p h y s i c a l and  p r o b a b l e t h a t the above t r a n s g r e s s i o n s  evident  financial controls 2  t o the e n t e r p r i s e are not e n t i r e l y comprehensive.  pre-  applied  It is  o c c u r p r i m a r i l y out  the i n g e n i o u s f a l s i f i c a t i o n s p e r p e t r a t e d  of  by e n t e r p r i s e managers  i n t h e i r attempt t o overcome the d e f i c i e n c i e s o f the  material  s u p p l y system (which would o t h e r w i s e reduce t h e i r m a t e r i a l r e w a r d s ) , r a t h e r than from any  g r o s s d e f i c i e n c i e s i n the  Soviet  f i n a n c i a l - c o n t r o l system. '''The i n c r e a s e d use o f mutual o f f s e t c l e a r i n g b a l a n c e s a f t e r 1960 was a r e f i n e m e n t t o o t h e r c l e a r i n g p r o c e s s e s i n t h a t c o n t r o l l e d commercial c r e d i t was s u b s t i t u t e d f o r bank b a l a n c e s t h a t would o t h e r w i s e have been n e c e s s a r y . 2 For example, see M a r g a r e t M i l l e r , "Markets i n R u s s i a " , i n Communist Economy Under Change, ed. by A. D e u t s c h , pp.25-28, and Nove, The S o v i e t Economy, pp.42, 223-227.  E v a l u a t i o n of microeconomic p l a n n i n g : i n c e n t i v e s , t a r g e t s , and c o n t r o l s The fillment  i n c e n t i v e system was  o f the t a r g e t e d  supposed t o encourage the  i n d i c e s assigned  v i d i n g m a t e r i a l rewards; u n t i l the 1965  t o the f i r m by  reforms i t was  e d l y the weakest l i n k i n the system o f c o n t r o l s o v e r execution  of the p l a n .  R a t h e r than encourage p l a n  the i n c e n t i v e system o n l y s e r v e d  t o encourage the  pro-  undoubtthe  fulfillment fulfillment  or o v e r f u l f i l l m e n t of those t a r g e t e d v a r i a b l e s to which i n c e n t i v e system was  ful-  the  r e l a t e d , o f t e n t o the d e t r i m e n t of t h o s e  t a r g e t s w h i c h were not r e l a t e d t o the m a t e r i a l rewards p r o f e r r e d t o the e n t e r p r i s e manager. Up t o 1958  the p r i n c i p a l  m a n a g e r i a l bonuses was  c r i t e r i o n used t o  the degree o f f u l f i l l m e n t o f the  value of output t a r g e t .  gross  Other i n d i c e s t h a t a f f e c t e d m a n a g e r i a l  bonuses, such as c o s t r e d u c t i o n and i n such a way  evaluate  a s s o r t m e n t mix,  were r e l a t e d  t h a t the t r a d e - o f f between the v a r i a b l e s f a v o u r e d  the m a x i m i z a t i o n o f o u t p u t .  The  consequences of b a s i n g  rewards  p r i m a r i l y on the v a l u e of o u t p u t r e s u l t e d i n the f o l l o w i n g d i s economies i n r e s o u r c e  usage:  1) P r o g r e s s i v e  rewards f o r the  degree of f u l f i l l m e n t o f the g r o s s v a l u e o f o u t p u t t a r g e t vided s u f f i c i e n t  i n c e n t i v e f o r managers t o d e f l a t e t h e i r  t i v e c a p a c i t i e s and bargaining  produc-  i n f l a t e m a t e r i a l r e q u i r e m e n t s i n the  o f p l a n t a r g e t s w i t h s u p e r i o r a u t h o r i t i e s t o ensure  f u l f i l l m e n t of t h e i r assigned t a r g e t was  pro-  targets.  2) The  gross output  e i t h e r expressed i n p h y s i c a l u n i t s or i n value  terms,  depending on the s t a n d a r d i z a t i o n o f p r o d u c t i o n .  Whatever the  method o f s p e c i f i c a t i o n  type of  used, i t l e a d t o i t s own  138 d i s t o r t i o n o f p l a n f u l f i l l m e n t , f o r example, when o u t p u t o f sheet m e t a l was s p e c i f i e d i n t o n s , e x t r a - t h i c k s h e e t s were p r o duced, when t h e t a r g e t was s p e c i f i e d i n square m e t r e s , e x t r a t h i n s h e e t s were produced.  When o u t p u t was s p e c i f i e d i n v a l u e  terms, i t r e s u l t e d i n d i s t o r t i o n s o f t h e p r o d u c t mix i n f a v o u r of  h i g h p r i c e d v a r i a n t s and t h e o r d e r i n g o f t h e most e x p e n s i v e  m a t e r i a l i n p u t s t o i n c r e a s e the value o f the f i n a l  output.  1  3) I m p l e m e n t a t i o n o f c e n t r a l l y s p e c i f i e d t e c h n o l o g i c a l i n n o v t i o n s was a v o i d e d as much as p o s s i b l e and i n n o v a t i o n a t t h e l e v e l o f t h e e n t e r p r i s e was s t i f l e d because t h e problems a s s o c i a t e d w i t h new p r o d u c t i o n t e c h n i q u e s j e o p a r d i z e d f u l f i l l m e n t o f the o u t p u t t a r g e t s . The above problems a s s o c i a t e d w i t h u s i n g g r o s s o u t p u t as t h e p r i n c i p a l d e t e r m i n a n t o f m a n a g e r i a l bonuses l e a d t o a r e v i s i o n o f t h e bonus c r i t e r i o n i n 1959. H e n c e f o r t h bonuses were t o be d e t e r m i n e d by t h e f u l f i l l m e n t o f t h e c o s t r e d u c t i o n t a r g e t as w e l l as t h e g r o s s o u t p u t and l a b o u r p r o d u c t i v i t y indices.  The new c r i t e r i a  distribution.  l e a d t o i t s own v a r i e t i e s o f p l a n  Lower q u a l i t y work and lower c o s t v a r i a n t s o f  the o u t p u t mix were f a v o u r e d a t t h e expense o f h i g h - c o s t 'mix' targets.  T e c h n o l o g i c a l i n n o v a t i o n was s t i f l e d t o an even  g r e a t e r degree t h a n b e f o r e and t h e p r a c t i c e o f d e f l a t i n g  plant  c a p a c i t y c o n t i n u e d t o be p r o f i t a b l e . V a r i o u s o t h e r t e c h n i q u e s were t r i e d between 1958-1965 such as t y i n g t h e t a r g e t f o r i m p l e m e n t a t i o n o f t e c h n o l o g y t o For example, spare p a r t s were f r e q u e n t l y u n d e r v a l u e d r e l a t i v e t o t h e v a l u e o f t h e s e p a r t s i n f i n i s h e d u n i t s . The consequence o f t h i s p r i c i n g p o l i c y was an acute s h o r t a g e o f spare p a r t s and v a s t amounts o f broken down, unusable equipment,  139 the m a n a g e r i a l bonus scheme and u s i n g (standard  1  normed v a l u e o f o u t p u t '  c o s t i n g ) , b u t as r e a l c o s t s d i v e r g e d  from normed c o s t s  the system produced i t s own v a r i e t y o f d i s t o r t i o n s . the problems c r e a t e d  A s i d e from  t h r o u g h t h e m a n a g e r i a l bonus scheme, t h e  i n c e n t i v e funds f o r w o r k e r s had l i t t l e o r no e f f e c t on encouraging plan f u l f i l l m e n t . adequate and d i d l i t t l e  The i n c e n t i v e funds were g r o s s l y i n t o s t i m u l a t e worker i n i t i a t i v e .  In  19 55 t h e amount o f money deducted t o t h e i n c e n t i v e funds amounted t o 0.5 p e r c e n t o f t h e t o t a l wage fund f o r industry."'" S e v e r a l o t h e r p r a c t i c e s t h a t were f o l l o w e d i n e v a l u a t i n g and  c o n t r o l l i n g e n t e r p r i s e performance a l s o r e s u l t e d i n c r e a t -  ing  i n e f f i c i e n c i e s a t the e n t e r p r i s e l e v e l .  The e v a l u a t i o n o f  e n t e r p r i s e performance v i s - a - v i s t h e i r p l a n n e d t a r g e t s by monthly,  q u a r t e r l y , and y e a r l y time p e r i o d s  lead to production  'storming'  near t h e end o f t h e performance p e r i o d i n an attempt  to f u l f i l l  the output requirements.  had  The s t o r m i n g t e c h n i q u e s  consequent e f f e c t s on o r d e r l y p r o d u c t i o n  q u a l i t y o f t h e commodities produced.  runs and on t h e  The p r a c t i c e o f d i v i d i n g  the a m o r t i z a t i o n d e d u c t i o n s between t h e budget and t h e e n t e r p r i s e and a l l o w i n g t h e e n t e r p r i s e t o u t i l i z e i t s p o r t i o n for  c a p i t a l r e p a i r s i n d u c e d many e x p e n s i v e r e p a i r s o f o b s o l e t e  equipment.  The o b j e c t i v e o f t h i s s t i p u l a t i o n on d e p r e c i a t i o n  funds was t o m i t i g a t e a tendency f o r f i r m s t o n e g l e c t and  only  r e q u e s t new equipment.  repairs  The o v e r c o n t r o l o f d e p r e c i a t i o n  expenses and t h e u n d e r c o n t r o l  of c a p i t a l investment grants  to expensive r e p a i r s of obsolete  equipment f o l l o w e d by  "'"Nove, The S o v i e t Economy, p. 34.  lead  requests  140 f o r c a p i t a l g r a n t s t o purchase new machinery i n t h e f o l l o w i n g period.  S i n c e c a p i t a l g r a n t s were o s t e n s i b l y  enterprise  f r e e from t h e  p o i n t o f view many u n n e c e s s a r y r e q u e s t s f o r such  g r a n t s were made which had t h e consequences o f c r e a t i n g arrays of u n u t i l i z e d or underutilized prise  vast  equipment a t t h e e n t e r -  level. The  major r e f o r m o f 1965 c e n t r e d on t h e p r e - e x i s t i n g  problems o f microeconomic c o n t r o l and attempted t o r e v i s e t h e structure  of controls  s o u r c e use.  to stimulate  The i n t r o d u c t i o n  greater e f f i c i e n c y of r e -  o f a c a p i t a l charge and t h e  r e l a t i o n s h i p o f m a n a g e r i a l and w o r k e r bonuses t o e n t e r p r i s e p r o f i t a b i l i t y should contribute  t o r e d u c i n g some o f t h e a b s u r d -  i t i e s t h a t were c h a r a c t e r i s t i c o f t h e p r e - r e f o r m system.  The  c a p i t a l c h a r g e , t o g e t h e r w i t h t h e repayment o f c e n t r a l i z e d i n v e s t m e n t c r e d i t s i s supposed t o c r e a t e d i s i n c e n t i v e s f o r o v e r c a p i t a l i z a t i o n and e x c e s s i v e i n v e s t m e n t r e q u e s t s .  Although  the c a p i t a l c h a r g e , which averages 6 p e r c e n t f o r i n d u s t r y whole, may be s u f f i c i e n t t o p r o v i d e an adequate  as a  disincentive  f o r o v e r c a p i t a l i z a t i o n , t h e i n t e r e s t charges on c e n t r a l i z e d investment c r e d i t s are t o t a l l y inadequate. ment c r e d i t s must be r e p a i d , directed  Centralized  invest-  but current p r o f i t s are only  toward repayment o f c r e d i t s a f t e r a l l d e d u c t i o n s have  been made t o t h e e n t e r p r i s e  incentive  funds.  Since  centralized  i n v e s t m e n t s a r e exempted from t h e c a p i t a l charge u n t i l t h e repayment o f t h e c r e d i t s has been completed, t h e o n l y tive  ( i n t h e s h o r t run)  disincen-  against applying for investment c r e d i t s  i s t h e n e g l i g i b l e i n t e r e s t charge o f 0.5 p e r c e n t . ''"Nove, The S o v i e t Economy, p. 200.  1  141  C r e a t i n g a new i n c e n t i v e system based on p r o f i t and p r o f i t a b i l i t y has a l l o w e d assigned  indices.  f o r a huge r e d u c t i o n i n c e n t r a l l y  The p r o f i t m o t i v e i s supposed t o p r o v i d e  s u f f i c i e n t i n c e n t i v e s t o maximize t h e o b j e c t i v e s sought by t h e assignment o f t h e v a s t a r r a y o f t a r g e t s t h a t were c h a r a c t e r i s t i c of the pre-reform era.  I n p r o v i d i n g a common i n c e n t i v e system  for managerial-administrative  p e r s o n n e l and w o r k e r s , t h e p r e -  v i o u s tendency o f managers t o maximize t h e i r own bonuses t o t h e e x c l u s i o n o f worker i n c e n t i v e schemes has been r e c t i f i e d . Worker i n c e n t i v e funds a r e now based on t h e same c r i t e r i a used to evaluate  m a n a g e r i a l bonuses, t h e r e b y c r e a t i n g a common i n -  terest i n f u l f i l l i n g the incentive r e l a t e d targets. Under t h e p o s t - r e f o r m  system o f a d m i n i s t r a t i o n i t i s no  l o n g e r b e n e f i c i a l f o r e n t e r p r i s e managers t o u n d e r s t a t e productive  their  p o t e n t i a l t o t h e same degree and o p t f o r an easy  w h i c h can be o v e r f u l f i l l e d .  plan  The n o r m a t i v e r a t e s a p p l i e d t o n e t  p r o f i t s a r e r e g r e s s i v e f o r b o t h under and o v e r f u l f i l l m e n t o f p l a n n e d p r o f i t , w h i c h c r e a t e s some i n c e n t i v e f o r r e a l i s t i c put p l a n n i n g . from r e d u c i n g  The p o t e n t i a l b e n e f i t s t h a t c o u l d be d e r i v e d t h e i n c e n t i v e d e d u c t i o n norms f o r under and o v e r -  f u l f i l l m e n t of the sales diminished  ( p r o f i t a b i l i t y ) targets are p a r t l y  by t h e methods used t o c a l c u l a t e i n c e n t i v e  Taut p l a n n i n g  out-  deductions.  by e n t e r p r i s e managers i s d i s c o u r a g e d by t h e  u n c e r t a i n t y o f the m a t e r i a l supply  system and by t h e f a c t t h a t  d e d u c t i o n s t o t h e e n t e r p r i s e i n c e n t i v e funds a r e dependent on the i n c r e a s e i n t h e l e v e l o f s a l e s  ( p r o f i t ) achieved.  By  g r e a t l y i n c r e a s i n g t h e p l a n n e d s a l e s o r p r o f i t t a r g e t s f o r any one  year,  subsequent i n c r e a s e s  i n t h e s e i n d i c e s become  142  correspondingly  more d i f f i c u l t  ( i . e . , the base f i g u r e used t o  determine p r o f i t or s a l e s increases The devolution  p r o f i t i n c e n t i v e has  becomes l a r g e r ) .  also allowed  ostensible  o f a u t h o r i t y t o the e n t e r p r i s e o f the p r e p a r a t i o n  i t s production-financial plans. o f freedom i s s e v e r e l y  I n a c t u a l i t y the f i r m ' s  of  degree  r e s t r i c t e d by the c e n t r a l l y a s s i g n e d  i n d i c e s o f p l a n n e d p r o f i t s and m a t e r i a l s the  the  a l l o c a t i o n s and  f a c t t h a t a l l p l a n s o r i g i n a t i n g a t the e n t e r p r i s e  by  level  must be approved by h i g h e r a u t h o r i t i e s . The  above o b s e r v a t i o n s  have c e n t e r e d on the more p o s i -  t i v e a s p e c t s o f the r e f o r m i n e l i m i n a t i n g a number of c i e n c i e s t h a t were c h a r a c t e r i s t i c o f the p r e - r e f o r m In reducing the new regard  ineffi-  period.  the e f f e c t o f a number o f t h e s e o l d d e f i c i e n c i e s  system has  also created  new  t o the i n c e n t i v e system and  sources of c o n f l i c t  with  the d e s i r e d o b j e c t i v e s  the p l a n t a r g e t s , as w e l l as l e a v i n g s e v e r a l o l d  of  administrative  f a u l t s untouched. The  n o r m a t i v e r a t e s a p p l i e d t o the f i r m ' s net  profit  f o r d e d u c t i o n s t o the m a t e r i a l i n c e n t i v e and s o c i a l - c u l t u r a l funds are r e l a t e d t o the s i z e o f the e n t e r p r i s e wage fund f o r the purpose o f i n t e r c o n n e c t i n g t o the s i z e o f the work f o r c e . there  payments t o the i n c e n t i v e funds The  problem t h a t a r i s e s i s t h a t  i s a d i s i n c e n t i v e t o remove redundant l a b o u r  work f o r c e , even i f i t w i l l i n c r e a s e  enterprise  because the e n t e r p r i s e i s s i m u l t a n e o u l s y  reducing  used t o c a l c u l a t e the i n c e n t i v e p a y m e n t s .  1  from  the  profitability, the magnitude  S i m i l a r l y , with  the  "'"An a d d i t i o n a l d i s i n c e n t i v e i s t h a t the e n t e r p r i s e i s r e s p o n s i b l e f o r f i n d i n g a l t e r n a t i v e employment.  143  development fund t h e r e i s a d i s i n c e n t i v e f o r e c o n o m i z i n g on c a p i t a l because by d o i n g so t h e e n t e r p r i s e reduces t h e magnitude used t o base d e d u c t i o n s i n t o t h i s  fund.  The use o f p e r c e n t a g e i n c r e a s e s i n s a l e s as one o f t h e p r i n c i p a l s u c c e s s i n d i c a t o r s w i l l  (output sold) undoubtedly  c r e a t e d i s t o r t i o n s o f t h e p r o d u c t mix t a r g e t s i n f a v o u r o f h i g h v a l u e items to  ( w i t h i n t h e l i m i t e d d i s c r e t i o n a r y range  t h e e n t e r p r i s e ) , as w e l l as c r e a t e a tendency  granted  t o use expen-  s i v e m a t e r i a l s i n t h e development o f new models o r p r o d u c t s . A l t h o u g h t h e marketed o u t p u t t a r g e t i s a s i g n i f i c a n t  improve-  ment o v e r t h e g r o s s v a l u e o f o u t p u t t a r g e t , i n t h a t i t makes p r o d u c e r s more r e s p o n s i v e t o customer r e q u i r e m e n t s , t h e degree of  r e s p o n s i v e n e s s i s somewhat m i t i g a t e d by t h e p l a n n e d  alloca-  t i o n o f many m a t e r i a l s u p p l i e s and t h e p r e v a l e n c e o f o v e r t a u t p l a n s , w h i c h c r e a t e a s e l l e r ' s market."'" E f f i c i e n c y i n the u t i l i z a t i o n of c a p i t a l should  improve  somewhat because o f t h e c a p i t a l charges imposed upon t h e average annual s t o c k o f f i x e d and 'own' w o r k i n g c a p i t a l .  I t i s ques-  t i o n a b l e whether t h e average r a t e o f 6 p e r c e n t w i l l  provide  s u f f i c i e n t i n c e n t i v e s t o reduce e n t e r p r i s e c a p i t a l t o a minimum 2  necessary f o r production.  A s i d e from t h e i n c e n t i v e p r o v i d e d  "'"The c o m b i n a t i o n o f t a u t s u p p l y p l a n s and t h e a d m i n i s t r a t i v e d e s i g n a t i o n o f s u p p l y s o u r c e s g u a r a n t e e s a market f o r a l a r g e p r o p o r t i o n o f o u t p u t s a l e s and reduces t h e b a r g a i n i n g power o f consuming e n t e r p r i s e s i n r e j e c t i n g m a r g i n a l l y s u i t a b l e commodities. 2  The a c t u a l c a p i t a l charges f a c e d by an e n t e r p r i s e a r e d e t e r m i n e d by t h e i r m i n i s t r y ( i n accordance w i t h t h e i r a b i l i t y co pay under t h e average g r o s s p r o f i t margins e s t a b l i s h e d f o r the b r a n c h o f i n d u s t r y d u r i n g t h e r e c e n t p r i c e r e f o r m s ) . I n many i n s t a n c e s , t h e c a p i t a l c h a r g e s w i l l be l e s s than t h e 6 p e r c e n t average.  1 4 4  by u s i n g t h e l e v e l o f c a p i t a l as a b a s i s f o r development fund d e d u c t i o n s , r e q u e s t s f o r l o n g - t e r m i n v e s t m e n t c r e d i t s w i l l und o u b t e d l y be h i g h e r than n e c e s s a r y due t o f a c t t h a t c a p i t a l so a c q u i r e d i s exempt from c a p i t a l charges u n t i l such time as t h e credit i s repaid.  T h e r e f o r e d u r i n g t h e repayment p e r i o d t h e  e f f e c t on p r o f i t s a v a i l a b l e f o r d i s t r i b u t i o n t o i n c e n t i v e  funds  i s o n l y reduced by i n t e r e s t charges e q u a l i n g 0.5 p e r c e n t  (plus  1  whatever e f f e c t t h e new i n v e s t m e n t has on t h e r a t e o f p r o f i t ability) .  Repayment o f l o n g - t e r m c r e d i t s a r e o n l y made from  that p o r t i o n of the p r o f i t remaining a f t e r deductions t o i n c e n t i v e funds have been made.  Another f a c e t o f the investment  dilemma f a c i n g t h e c e n t r a l p l a n n e r s i s t h e u t i l i z a t i o n o f t h e development funds by t h e e n t e r p r i s e . of  O s t e n s i b l y t h e purpose  t h e d e c e n t r a l i z e d i n v e s t m e n t funds was t o a l l o w f i r m s g r e a t e r  autonomy and f l e x i b i l i t y  i n a d j u s t i n g t o t h e b o t t l e n e c k s mani-  f e s t e d i n t h e i r output assignments.  In a c t u a l f a c t the develop-  ment funds cannot be used f o r autonomous e x p a n s i o n s o f c a p a c i t i e s under t h e p r e s e n t i r r a t i o n a l p r i c e system.  F o r t h e above  r e a s o n , and because most r e s o u r c e s used i n c o n s t r u c t i o n a r e c e n t r a l l y a l l o c a t e d , t h e e n t e r p r i s e cannot command r e a l r e s o u r c e s f o r any s u b s t a n t i a l e x p a n s i o n w i t h o u t h a v i n g i t s p l a n s and e s t i m a t e s approved and i n c l u d e d i n t h e n a t i o n a l i n v e s t m e n t plan.^  Thus t h e i n c r e a s e d f l e x i b i l i t y  introduced i n t o the i n -  vestment p r o c e d u r e t h r o u g h t h e c r e a t i o n o f e n t e r p r i s e d e v e l o p 2 ment funds i s m a r g i n a l . "'"Nove, The S o v i e t Economy, p. 200. 2 In c a r r y i n g o u t i t s ' d e c e n t r a l i z e d i n v e s t m e n t s t h e e n t e r p r i s e must f i r s t g e t t h e p r o j e c t l i s t e d i n t h e o f f i c i a l 1  145 In the a r e a o f e n t e r p r i s e autonomy the b a s i c t h r u s t o f the r e f o r m was  p u r p o r t e d l y t o p e r m i t the e n t e r p r i s e g r e a t e r  freedom i n p l a n n i n g i t s own  o u t p u t s and f i n a n c i a l t a r g e t s as  w e l l as i n c r e a s i n g the scope o f d e c e n t r a l i z e d i n v e s t m e n t . though the e n t e r p r i s e may  d r a f t i t s own  p r o d u c t i o n and  p l a n s , they are f o r m u l a t e d w i t h i n the c o n f i n e s o f the a s s i g n e d i n d i c e s f o r g r o s s s a l e s , p r o f i t and  Al-  financial centrally  profitability,  m a t e r i a l s u p p l y , e t c . , and i n the c o u r s e o f g e t t i n g t h e s e  draft  p l a n s approved any r e v i s i o n s deemed n e c e s s a r y by the h i g h e r a d m i n i s t r a t i v e l e v e l s are c a r r i e d out b e f o r e the p l a n s approved. t h e i r own  I t i s t r u e t h a t producers assortment  o f consumer goods can p l a n  mix on the b a s i s o f o r d e r s from r e t a i l e r s  but t h e r e a g a i n the a c t u a l freedom i s c i r c u m s c r i b e d by m a t e r i a l a l l o c a t i o n s made t o t h e s e The  1965  are  the  firms.  reforms d i d not s i g n i f i c a n t l y a l t e r the system  o f m a t e r i a l s u p p l y a l l o c a t i o n , and u n t i l such time as the system i s a b o l i s h e d i n f a v o u r o f f r e e w h o l e s a l e t r a d e , where p r i c e s r e f l e c t s c a r c i t y v a l u e s , t h e r e can be no m e a n i n g f u l  decentrali-  z a t i o n o f d e c i s i o n making t o the e n t e r p r i s e l e v e l .  Agriculture A g r i c u l t u r e l e n d s i t s e l f the l e a s t o f a l l t y p e s o f economic a c t i v i t i e s t o the S o v i e t form o f q u a n t i t a t i v e p l a n n i n g . Q u a n t i t a t i v e p l a n n i n g i s most e f f e c t i v e i n a s t a b l e ,  controlled  l i s t o f p r o j e c t s t o be u n d e r t a k e n , and o b t a i n the n e c e s s a r y c o s t e s t i m a t e s and b l u e p r i n t s . On p r e s e n t a t i o n o f these forms t o S t r o i b a n k , the e n t e r p r i s e i s a l l o w e d t o u t i l i z e the approved sums i n i t s development fund.  environment  where economic a c t i v i t i e s are d i r e c t e d toward  p r o d u c t i o n o f r e l a t i v e l y homogeneous o u t p u t s .  the  Under t h e s e  c o n d i t i o n s i n c r e a s e d o u t p u t can be a s s u r e d by p r o p o r t i o n a l i n c r e a s e s i n i n p u t s , w h i l e t h e r e l a t i v e e f f i c i e n c y o f the p r o d u c t i o n p r o c e s s can be improved  t h r o u g h s c r u t i n i z i n g and  s t i t u t i n g i d e n t i f i a b l e inputs.  A g r i c u l t u r e does not l e n d i t s e l f  w e l l t o t h i s t y p e o f a l l o c a t i o n mechanics.  sub-  The y i e l d s o f c r o p s  a r e l a r g e l y dependent on a p r o p i t i o u s c l i m a t e , and t h e  infinite  v a r i e t i e s and p e c u l i a r i t i e s o f l o c a l s o i l c o n d i t i o n s g r e a t l y r e s t r i c t the r a t i o n a l f e a s i b i l i t y o f c e n t r a l l y t a r g e t i n g  input-  o u t p u t c o e f f i c i e n t s and/or c u l t i v a t i o n p a t t e r n s f o r a v a s t number o f p r o d u c i n g u n i t s . U n t i l e a r l y 1955  t h e c o l l e c t i v e farm u n i t s had  virtually  no c o n t r o l o v e r the p l a n n i n g o f a c t i v i t i e s t h a t were t o be u n d e r t a k e n by the farms.  The c e n t r a l government  determined  g r o s s o u t p u t and procurement quotas f o r a l l major c r o p s livestock production.  and  The g r o s s o u t p u t t a r g e t s were i n t u r n  d i s a g g r e g a t e d and a l l o c a t e d t o t e r r i t o r i a l d i v i s i o n s where the p r o c e s s was  r e p e a t e d , and a l l o c a t i o n s were g i v e n t o r e g i o n a l ,  and i n t u r n t o l o c a l a g r i c u l t u r a l o r g a n s .  The  local  authorities  would then use t h e s e c e n t r a l l y s e t i n d i c e s t o f o r m u l a t e d e t a i l e d o u t p u t p l a n s f o r each o f t h e i r s u b o r d i n a t e c o l l e c t i v e  farms,  s p e c i f y i n g acreages under v a r i o u s c r o p s , the t y p e s and numbers o f a n i m a l s t o be r a i s e d , the sequence o f c r o p r o t a t i o n s , such l i k e .  and  These o u t p u t p l a n s which were a s s i g n e d t o the i n -  d i v i d u a l farms were not o n l y based on u n r e a l i s t i c c e n t r a l l y s e t i n d i c e s but t h e i r d e t a i l e d s p e c i f i c a t i o n was  the p r o d u c t o f  c o n s u l t a t i o n s between s e v e r a l l o c a l a d m i n i s t r a t i v e  and  147 o p e r a t i o n a l a g e n c i e s , none o f which were t o t a l l y a c q u a i n t e d w i t h the i d i o s y n c r a c i e s o f the i n d i v i d u a l p r o d u c i n g u n i t s . I t i s i n the c e n t r a l i z e d d e t e r m i n a t i o n o f g r o s s o u t p u t and procurement t a r g e t s t h a t one o f the major s o u r c e s o f i n e f f i c i e n c y i n Soviet agriculture arises.  The c e n t r a l  authori-  t i e s o f t e n assume the farms t o be c a p a b l e o f p r o d u c i n g a wide v a r i e t y of crops w i t h reasonable e f f i c i e n c y .  Consequently, they  o f t e n a s s i g n f i f t e e n o r twenty o u t p u t and/or procurement f o r d i f f e r e n t commodities t o each f a r m ,  1  targets  with l i t t l e regard to  t h e r e g i o n the farm i s s i t u a t e d i n and the l o c a l c o n d i t i o n s o f c l i m a t e and s o i l which e x i s t t h e r e .  The consequences  o f the  above d i r e c t i v e s r e s u l t e d i n a s e r i o u s l a c k o f s p e c i a l i z a t i o n i n a g r i c u l t u r a l p r o d u c t i o n and o f t e n f o r c e d farms t o c a r r y out p r o d u c t i o n on a v e r y s m a l l and r e l a t i v e l y uneconomical  scale.  The p r i n c i p a l reasons f o r t h i s g r o s s m i s a l l o c a t i o n o f r e s o u r c e s was m i s - i n f o r m a t i o n about r e g i o n a l c o n d i t i o n s on t h e p a r t o f t h e c e n t r a l p l a n n e r s and the low l e v e l o f a g r i c u l t u r a l product i o n , v i s - a - v i s t h e h i g h demands o f the urban p o p u l a t i o n , which made t h e government u n w i l l i n g t o s a c r i f i c e i t s much needed p u r c h a s e s from r e l a t i v e l y u n s u i t a b l e a r e a s .  To some degree the  low l e v e l o f a g r i c u l t u r a l p r o d u c t i o n was undoubtedly due t o the lack of r a t i o n a l s p e c i a l i z a t i o n . cause and which was  As t o which f a c t o r was  the consequence  the  o f the above s i t u a t i o n ,  t o what e x t e n t the v i a b i l i t y o f the t r a n s p o r t a t i o n  and  system  "'"Morris B o r n s t e i n , "The S o v i e t Debate on A g r i c u l t u r a l P r i c e and Procurement Reform", S o v i e t S t u d i e s , V o l . X X I ( J a n u a r y , 1969), p.17. W i t h i n the l i m i t s o f t h e i r i m p e r f e c t knowledge, and the n a t i o n a l demand f o r v a r i o u s c o m m o d i t i e s , the c e n t r a l p l a n n e r s do attempt t o a c c o u n t f o r the r e g i o n a l s u i t a b i l i t y i n t h e i r assignment o f o u t p u t t a r g e t s .  148  a f f e c t e d the degree o f n o n - s p e c i a l i z a t i o n , one may  o n l y specu-  late. A s i d e from the above d e f i c i e n c i e s , the c e n t r a l i z e d p r o d u c t i o n and procurement t a r g e t s were i r r a t i o n a l i n t h e i r expect a t i o n s r e g a r d i n g the p r o d u c t i v e c a p a b i l i t i e s o f the u n i t s ; i n p a r t t h i s was  due  farming  t o the S o v i e t i n c l i n a t i o n toward  c o n s t r u c t i n g i m p l a u s i b l e p l a n s , and i n p a r t t o the r a t h e r o p t o m i s t i c assumptions r e g a r d i n g c l i m a t i c a l c o n d i t i o n s . t h e i r determination  In  o f g r o s s o u t p u t and procurement t a r g e t s ,  the c e n t r a l p l a n n e r s had no a l t e r n a t i v e o t h e r t h a n t o s e t i n d i c e s under the a s s u m p t i o n o f f a v o u r a b l e c l i m a t i c a l tions.  To do o t h e r w i s e ,  f o r example, u s i n g average  these  condi-  harvest  f i g u r e s as a b a s i s f o r t h e i r procurement t a r g e t s would have r e s u l t e d i n an even g r e a t e r s h o r t a g e  o f a g r i c u l t u r a l commodities  i n s t a t e r e t a i l s t o r e s , and massive unplanned f l o w s i n the r e d i s t r i b u t i o n o f u r b a n - r u r a l income t h r o u g h the c o l l e c t i v e  farm  markets i n the event o f an above-average h a r v e s t .  other  hand, the o p t o m i s t i c t a r g e t s meant t h a t l i t t l e ,  On the  i f any, o f  the  farms' g r o s s h a r v e s t c o u l d be s o l d a t the h i g h e r d e l i v e r y p r i c e s (which would have i n c r e a s e d the i n c e n t i v e t o p r o d u c e ) .  The  fact  t h a t by the end o f 19 5 3 the c o l l e c t i v e farms owed the government a l m o s t t w e n t y - f i v e m i l l i o n tons o f g r a i n o v e r and above t h e i r d e l i v e r y o b l i g a t i o n s f o r t h a t y e a r i s i n d i c a t i v e o f the h i g h l y ''"Although the government's p r o p e n s i t y toward g i v i n g l i m i t e d r e c o g n i t i o n t o the advantages o f s p e c i a l i z a t i o n i n i t s a l l o c a t i o n o f c o n t r o l f i g u r e s has been d e c r e a s i n g i n the l a s t two decades, the most famous example o f the above d e f e c t o c c u r r e d d u r i n g the l a t e 1950's. Khrushchev o r d e r e d c o r n t o be grown i n many a r e a s t h a t were w e l l n o r t h o f the g e o g r a p h i c l i m i t s f o r corn c u l t i v a t i o n .  149 arbitrary  expectations  productive  capacity  To  h e l d by t h e government v i s - a - v i s t h e  o f the a g r i c u l t u r a l  sector.  1  a c e r t a i n degree t h e consequences o f i r r a t i o n a l  centralized  t a r g e t i n g , with  z a t i o n was m i t i g a t e d , disaggregation  regard  or at least  and a l l o c a t i o n  to intra-regional specialievenly  d i s t r i b u t e d , i n the  of the c o n t r o l f i g u r e s to the  individual  farms t h r o u g h t h e r e g i o n a l and l o c a l  agencies.  G r o s s r e g i o n a l i n d i c e s w o u l d be a l l o c a t e d b y t h e  regional their to  a u t h o r i t i e s , and i n t u r n by t h e l o c a l  respective  the s i z e  and  The individual scribed  posals  set indices.  of the pre-  Nominal r e s p o n s i b i l i t y  f o r plan  were e s t a b l i s h e d f o r e a c h  f a r m on t h e a d v i c e  o f pro-  agronomic s e r v i c e s and by t h e i n d e -  Neither  o f t h e s e a g e n c i e s were  the varied s o i l  y e t t h e y were j o i n t l y seeding patterns  conditions  farms and w i t h i n  that  dates  as w e l l  the  f a r m was e l i m i n a t e d  their  farming  f o r determining  f o r t h e farms under t h e i r  problem o f dual  thoroughly  e x i s t e d on  the i n d i v i d u a l  responsible  and h a r v e s t i n g  the  and  as s o w i n g a n d  jurisdiction.  c o n t r o l over the operational  While  activities of  i n 1953 b y a b o l i s h i n g t h e r a i o n  ^Karcz and Timoshenko, p.138.  the context  produc-  subordinate  rotation  plans f o r  where c o n s o l i d a t e d  f a m i l i a r with  enforcing  inputs,  l a y at the raion l e v e l ,  p e n d e n t MTS o r g a n s .  units,  of production  f a r m s was u n d e r t a k e n w i t h i n  s u b m i t t e d by t h e i r  various  given  a v a i l a b l e human a n d m a t e r i a l  detailed specification  centrally  plans  had been  f e r t i l i t y o f the i n d i v i d u a l farms.  construction tion  authorities to  f a r m s a f t e r some c o n s i d e r a t i o n  o f sown a r e a s ,  the s o i l  agricultural  "Soviet  Agricultural Policies",  150 agronomic agencies ties  t o t h e MTS,  influence thus the  and  the  e x e r t e d by  increasing  the  reform this  revenues w i t h i n the  the p r i n c i p a l was  ploughing and  MTS  interest  context of t h e i r the  operational planning,  procurement  various  interested  indicators  work was  a l l types  in  by w h i c h  proved  ratios  was  carried  profitable  i t s performance  harvesting,  into  this  stan-  these  from  the  ap-  e v a l u a t e d , they would c a r r y  out  t h e MTS  quality  was  ratios  standard  of  to themselves,  w a s t e f u l , and  while  overfulfilling  harrowing,  conversion  o u t by  by w h i c h i t was  work w h i c h was standards  real  farm  of a l l  m e a s u r e d i n t h e number o f  of ploughing,  Since the  activities  and  targets,  utilization  o t h e r m e c h a n i z e d o p e r a t i o n s were c o n v e r t e d  d a r d work u n i t .  moderating  b e t w e e n t h e MTS  t i m i n g and  m a c h i n e r y , was  MTS  units;  the  responsibili-  Farm managers d e s i r e d t o m a x i m i z e  quantitative  evaluated.  of  of t h e i r  e l i m i n a t e d the  body o v e r  which c o n t r o l l e d  major a g r i c u l t u r a l  the bulk  also  conflict  f a r m management.  t h e MTS,  shifting  varied  b u t w h i c h by o b j e c t i v e often sacrificed  for  quantity. During abolish  the e a r l y  t h e numerous c o n t r o l  mined t o guide of output central quotas be  the  plans  soils,  figures  f o r the  collective and  and  past d e l i v e r y  farm  allocated  subordinate  sown a r e a s  the  to the based  farms.  The raion on  number o f a n i m a l s ,  r e c o r d s , and  to  deter-  in their construction Henceforth  only gross  sector.  farms,  government d e c i d e d  t h a t were c e n t r a l l y  subordinate  a u t h o r i t i e s would c a l c u l a t e  them t o t h e i r of  1955  regional authorities  for their  disaggregated  size  part of  the  procurement  quotas  would  o r g a n s and  then  through  considerations of the  fertility  o t h e r r e l e v a n t d a t a on  of  the the  their  farm u n i t s . production  The c o l l e c t i v e and f i n a n c i a l  procurement t a r g e t s . individual in  autonomy  were s u b j e c t  achieved  i t s own  of their  formulation  i n a significant  collective  t h a t were a s s i g n e d  farms.  effectively  t o the  increase  The h i g h  pro-  determined the  and l i v e s t o c k a c t i v i t i e s ,  and t h e p l a n s  by t h e f a r m u n d e r t h e ' g u i d a n c e ' o f t h e MTS to approval  I t was n o t u n t i l  any s i g n i f i c a n t  operations.  the context  The d e v o l u t i o n o f p l a n  patterns  formulated  committees.  within  f o r the i n d i v i d u a l  farms c r o p p i n g  and  plans  farm u n i t s d i d n o t r e s u l t  curement t a r g e t s  were  farm would then c o n s t r u c t  In t h a t year  by t h e i r 19 58  respective raion  that the c o l l e c t i v e  degree o f c o n t r o l over t h e i r  executive farms internal  t h e MTS was d i s s o l v e d a n d t h e i r  ment was s o l d t o t h e c o l l e c t i v e  farms;  equip-  i n addition the procure-  ment q u o t a s were s u b s t a n t i a l l y r e d u c e d .  The c o m b i n e d e f f e c t o f  these  f a r m s autonomy i n t h e  r e f o r m s was t o g i v e  the i n d i v i d u a l  type  and t i m i n g  soil  improvement and h a r v e s t i n g ,  more d i s c r e t i o n activities targets.  first  i n the areas o f  as w e l l a s t o a l l o w  utilization  o f land  the farm  and l i v e s t o c k  o v e r and a b o v e t h e now r e d u c e d q u o t a d e l i v e r y  m a s s i v e number o f a m a l g a m a t i o n s o f c o l l e c t i v e  took p l a c e five  simplify  i n their  farm o p e r a t i o n s ,  1  The that  o f mechanized  years  b e t w e e n 1950 and 1965, e s p e c i a l l y of this  p e r i o d , were m a i n l y  during the  carried  the a d m i n i s t r a t i v e problems o f p l a n n i n g  farms  out to  and c o n t r o l l i n g  """In many i n s t a n c e s i n c r e a s e d autonomy o v e r c r o p p i n g p a t t e r n s and l i v e s t o c k a c t i v i t i e s was n o t a c h i e v e d due t o t h e c o n t i n u e d p e r s i s t a n c e o f many l o c a l a u t h o r i t i e s t o t a r g e t t o t a l outputs. B r e z h n e v , i n a 1965 s p e e c h , p r o m i s e d t h a t t h i s p r a c t i c e w o u l d be s t o p p e d .  152 the of  implementation o f the plans. the planning  facilitated  greater  redistribution dition  the c o l l e c t i v e  control of plan  of Party  forces  well  stronger  farms.  as t h e i m p r o v e d  contributed  to f a c i l i t a t i n g  end  o f 1957.  of  collective  or  parts  farm  and i m p r o v e d  I t was t h e s e  supply  the s i m p l i f i c a t i o n amalgamations  implementation  o f many w e a k e r f a r m s t h r o u g h t h e i r  financially as  processes,  Along with  through a  the f i n a n c i a l  amalgamation latter  con-  with  two f a c t o r s ,  o f a g r i c u l t u r a l equipment,  that  t h e d i s s o l u t i o n o f t h e MTS a t t h e  The o v e r r i d i n g d i s a d v a n t a g e o f t h e a m a l g a m a t i o n s farms and t h e i r  later  of pre-existing state  conversion  f a r m s , was t h a t  into state  farms,  their  size  huge  now made them i n t e r n a l l y  unmanageable.  the  increasing the scale of operations  Soviet  planners  that  The d o g m a t i c b e l i e f o f  tantamount t o i n c r e a s i n g t h e e f f i c i e n c y many c a s e s optimum too  resulted i n the reverse  farm s i z e i n d i c a t e t h a t  large  forefficient  The tion  problems o f p l a n n i n g  o f plans  lems t h a t  on s t a t e  American  specialization cropping  patterns.  the  supervision  Although  times  and c o n t r o l l i n g t h e implementa-  o f purchase  of production  s t u d i e s on  1  f a r m s were p a r a l l e l  determination  had i n  farms a r e s e v e r a l  t o many o f t h e p r o b -  have been examined f o r t h e c o l l e c t i v e  centralized  dual  effect.  Soviet  operation.  of operations  was  targets  by e f f e c t i v e l y the state  t h a t was e x e r t e d  farms.  The  limited potential  determining the  farms d i d n o t s u f f e r over t h e i r  from  collective  R.D. L a i r d , "New T r e n d s a n d O l d R e m e d i e s " , i n The S o v i e t Economy: A C o l l e c t i o n o f Western and S o v i e t Views, ed. oy H a r r y S h a f f e r , p.136. L a i r d ' s p o s i t i o n i s s u b s t a n t i a t e d by L a z a r V o l i n i n h i s a r t i c l e " S o v i e t A g r i c u l t u r e under Khrushchev," p.19. 1  153  c o u n t e r p a r t s up t o 1 9 5 7 , they s u f f e r e d from i n t e r n a l management problems due  t o t h e i r huge s c a l e o f o p e r a t i o n s and  excessive  s u p e r v i s i o n by P a r t y and l o c a l o f f i c i a l s i n t h e i r a t t e m p t t o c o n t r o l the i m p l e m e n t a t i o n  o f p l a n s , the o v e r - z e a l o u s  v i s i o n a f t e r i n t e r f e r i n g w i t h farm operations."'" t h a t was  unique t o s t a t e farms was  One  superproblem  the d i s a g g r e g a t i o n o f con-  t r o l f i g u r e s regarding s t a t e purchases.  The  same problems  a r o s e as i n i n d u s t r y w i t h the t e n t a t i v e d i s t r i b u t i o n o f assignments. output  output  S t a t e farm managers would attempt t o d e f l a t e the  c a p a b i l i t i e s i n an a t t e m p t t o o b t a i n o u t p u t t a r g e t s w h i c h  c o u l d be e a s i l y a t t a i n e d , t h e r e b y e n s u r i n g t h e i r m a t e r i a l r e wards f o r p l a n f u l f i l l m e n t .  Although  t h i s problem w i l l  be  reduced by the c o n v e r s i o n o f the s t a t e farms t o a p r o f i t a b i l i t y related  i n c e n t i v e scheme, i t was  efficiency The  a s i g n i f i c a n t source o f i n -  f o r t h e s e farms i n the p a s t . deficiencies  i n a g r i c u l t u r a l p l a n n i n g and  plan  f o r m u l a t i o n n o t o n l y l e d t o the i n e f f i c i e n c i e s examined above; t h e y c r e a t e d o t h e r problems i n t h a t the e r r o r s i n p l a n n i n g r a m i f i e d through  the a l l o c a t i v e system.  The  invariably  optimis-  t i c expectations regarding a g r i c u l t u r a l output a l s o served d i s t o r t o t h e r p l a n s w h i c h were f u n c t i o n a l l y 2 t u r a l production.  related  to a g r i c u l -  Thus the d e v i a t i o n s o f ex p o s t r e s u l t s  ex ante e x p e c t a t i o n s c r e a t e d c o r r e s p o n d i n g  to  distortions  from  i n the  "'"Many examples a r e c i t e d by A l e c Nove i n h i s a r t i c l e " I n c e n t i v e s f o r P e a s a n t s and A d m i n i s t r a t o r s " , i n Was S t a l i n R e a l l y N e c e s s a r y ? Some Problems o f P o l i t i c a l Economy, ed. by A l e c Nove, pp.188-204. 2 E x p e c t a t i o n s r e g a r d i n g a g r i c u l t u r a l o u t p u t have been more subdued and r e a l i s t i c under the new l e a d e r s h i p than was c h a r a c t e r i s t i c o f the S t a l i n and Khrushchev e r a s .  154  ex p o s t r e s u l t s o f t h e b u d g e t a r y i n f l o w s from a g r i c u l t u r a l  turn-  o v e r t a x e s , t h e o u t p u t p l a n s o f f o o d p r o c e s s i n g i n d u s t r i e s and t e x t i l e m a n u f a c t u r e r s , t h e income and e x p e n d i t u r e b a l a n c e s o f the p o p u l a t i o n , and t h e numerous o t h e r p l a n s w h i c h were l i n k e d t o t h e above-mentioned  plans.  One may o n l y s p e c u l a t e as t o t h e  i n e f f i c i e n c i e s t h a t r e s u l t e d from t h e above d e v i a t i o n s from ex ante p l a n s c r e a t e d from t h e i m p o s s i b l e t a s k o f a c c u r a t e l y  fore-  c a s t i n g a g r i c u l t u r a l p r o d u c t i o n i n an environment w h i c h i s l a r g e l y beyond t h e c o n t r o l o f t h e c e n t r a l p l a n n e r s . The a g r i c u l t u r a l p r i c e and worker i n c e n t i v e s  system  The r e f o r m s t h a t have t a k e n p l a c e i n t h e S o v i e t  agri-  c u l t u r a l p r i c e system and t h e i r farm i n c e n t i v e schemes a r e und o u b t e d l y t h e most s i g n i f i c a n t o f t h e r e f o r m s u n d e r t a k e n i n t h e a g r i c u l t u r a l sector.  An e x a m i n a t i o n o f t h e t r e n d o f t h e s e r e -  forms r e v e a l s a d i s t i n c t and s i g n i f i c a n t s h i f t away from t h e quantitative  'command' form o f a l l o c a t i o n toward t h e a c q u i s i t i o n  of d e s i r e d outputs through p r o v i d i n g appropriate p r i c e tives.  I t was p r e v i o u s l y n o t e d t h a t t h e a g r i c u l t u r a l  incenprice  system a t t e m p t e d t o a c h i e v e two c o n f l i c t i n g o b j e c t i v e s :  namely,  t o keep t h e a g r i c u l t u r a l terms o f t r a d e as low as p o s s i b l e i n o r d e r t o make t h e p e a s a n t r y b e a r t h e b r u n t o f f i n a n c i n g t h e h i g h l e v e l o f i n v e s t m e n t s needed f o r i n d u s t r i a l i z a t i o n and, simultaneously, to provide s u f f i c i e n t incentives f o r the prod u c t i o n o f n e c e s s a r y a g r i c u l t u r a l commodities.  During the  S t a l i n i s t e r a t h e p r i c e system was p r i m a r i l y d i r e c t e d toward a c h i e v i n g t h e former o b j e c t i v e , w h i l e h i g h l e v e l s o f compulsory d e l i v e r i e s , r e i n f o r c e d by p h y s i c a l t h r e a t s and o u t r i g h t c o n -  fiscation,  were u t i l i z e d  Following revisions and  directed  Stalin's  death  the  latter objective.  t h e r e were a s e r i e s  towards i n c r e a s i n g c o l l e c t i v e  thus  the  value  purchase  and  delivery  were m a r k e d l y  to achieve  of t h e i r  l a b o u r day  of  farm  payments.  price  revenues  During  p r i c e s of grains, vegetables  and  i n c r e a s e d , t h e most s p e c t a c u l a r r e v i s i o n  19 5 3  potatoes being  an 2  increase  i n the  purchase p r i c e  The  incentive effects  the  following figures:  to  total  no  purchases for  purchases  to t o t a l  g r a i n and  toes,  of these  and  over  price  i n 19 52  p r o c u r e m e n t s was  meat and  of grain of  6.5  the  revisions share  percent  eggs, about 40 percent  30  rose  of  indicated  state  purchases  6.8  percent  commodities;  in  to approximately  20  percent  for  percent.  are  for milk,  were made o f o t h e r  procurements  some 900  f o r meat, m i l k , 3 vegetables.  and  by  for  1953 percent pota-  An e x c e p t i o n t o t h i s g e n e r a l p r i n c i p l e was e v i d e n t i n t h e i n c e n t i v e o r i e n t e d p r i c e s p a i d f o r t e c h n i c a l c r o p s , f o r example, c o t t o n , f l a x and s u g a r b e e t s . I n 1952 g o v e r n m e n t e x p e n d i t u r e s f o r p r o c u r e m e n t s o f t h e a b o v e c r o p s e q u a l l e d 48.7 p e r c e n t o f t h e i r t o t a l p r o c u r e m e n t b i l l f o r c o l l e c t i v e f a r m s and p r i v a t e household p l o t s . ( K a r c z and T i m o s h e n k o , " S o v i e t A g r i c u l t u r a l P o l i c y " , p.135.) A p a r t i a l e x p l a n a t i o n o f t h i s phenomenon i s t h a t t h e c o l l e c t i v e f a r m s w h i c h grew t h e s e c r o p s c o n t r a c t e d t o s e l l a l l t h e i r o u t p u t t o the government, thus l e a v i n g no m a r k e t a b l e s u r p l u s t h a t c o u l d be s o l d i n t h e c o l l e c t i v e f a r m markets to supplement t h e i r incomes. A l s o , these crops provided t h e raw m a t e r i a l b a s e f o r some o f t h e o u t p u t s o f l i g h t i n d u s t r y , w h i c h made t h e i r a d e q u a t e s u p p l y n e c e s s a r y . The d i s p r o p o r t i o n a t e i n c e n t i v e s o f f e r e d f o r t e c h n i c a l c r o p s were l e s s e n e d i n t h e f o l l o w i n g years through r e l a t i v e i n c r e a s e s i n the p r i c e of o t h e r a g r i c u l t u r a l commodities. 2 Karcz  and  Timoshenko,  "Soviet A g r i c u l t u r a l  Policy",  p.135. """"Ibid. A l l of the i n c r e a s e s i n s t a t e purchases cannot be a t t r i b u t e d t o t h e i n c r e a s e d p r i c e i n c e n t i v e s . P r o d u c t i o n was r e l a t i v e l y low i n 1952 and i n t h e p r o c e s s o f r e c o v e r i n g f r o m t h e war. Furthermore, the compulsory d e l i v e r y t a r g e t s f o r p r i v a t e p l o t s were r e d u c e d i n 1953 w h i c h f r e e d more o f t h e o u t p u t f o r g o v e r n m e n t p u r c h a s e s and c o l l e c t i v e f a r m m a r k e t s a l e s .  156 By  1957  the  curements equaled this  date the by  increase  i n labour  to  finance  that  to  this  pulsory net  directly  day  a large  portion  i n 1958,  net  t a k e n as  though not After  of  1963  burden of  o f f s e t by  private  plots  c o l l e c t i v e f a r m e r s was  proUp  1  to  in-  proportional  1957  equipment.  and  100.  the c o l l e c t i v e  t h e i r increased The  revenues  price  increases  were l a r g e l y a b s o r b e d financing  d i s t r i b u t i o n of  partially  d e l i v e r i e s on  income o f  1962,  A l t h o u g h the  reduced the  MTS  a l l government  affected production  distributions.  t h e i r purchases of  d e c r e a s e was  1952  a corresponding,  utilize  w a r d t h i s end.  index of  i n r e l a t i o n to  increases  creating  took place  purchases  266  price  centives  f a r m s had  overall price  the  income t o  the  equipment farm  elimination  i n 1958.  workers,  of  com-  Nevertheless,  b e l o w i t s 1957  to-  level  the  for  2 most y e a r s b e t w e e n 19 58 government c a n c e l l e d ery, the  the  thus e l i m i n a t i n g way  f o r farms t o  were i n t r o d u c e d  level  did  serve to  c o m p u l s i o n and commodities,  there  specifically  i n the  .  In  the  latter  year  o u t s t a n d i n g d e b t s o w i n g on  finance  the  following  various  greatly  price  1965  this drain  i n the  A l t h o u g h the  and  on  gross  preparing that  year.  improve the  were s e r i o u s  and  machin-  minimum g u a r a n t e e d wages  increases  incentives  revenues  MTS  the  i n the  agricultural price  pre-1953 b a l a n c e  between  for obtaining a g r i c u l t u r a l d e f i c i e n c i e s i n the  price  system,  r e l a t i v e p r i c e s t r u c t u r e , which created  r e s p o n d i n g d e f i c i e n c i e s i n the  structure  of  price  cor-  incentives.  •""Ibid. 2 A l e c Nove, " I n c e n t i v e s f o r P e a s a n t s and Administrat o r s " , i n Was S t a l i n R e a l l y N e c e s s a r y ? Some P r o b l e m s o f S o v i e t P o l i t i c a l Economy", e d . by A l e c Nove, p^ 188. ' ~" "~  157 The in  f o l l o w i n g t a b l e i n d i c a t e s the the  relative  magnitude of  p r i c e s t r u c t u r e i n I960,  TABLE  1963  the d i s t o r t i o n s and  1965.  XIV  RATIOS OF AVERAGE PRICE TO AVERAGE COSTS OF SELECTED AGRICULTURAL COMMODITIES IN 1960, 1963, and 1966* Commodity  R a t i o o f 1960 p r i c e s t o 1960 costs i n percent.  R a t i o o f 1963 p r i c e s t o 19611963 c o s t s i n percent.  Ratio of 1965 p r i c e s to 19631965 c o s t s i n percent.  155  191  184  147 164  167 161 164 83 81 99 76 149  153 140 157 98 109 113 104 134 83 118 99  Grain ( e x c l u d i n g corn) Potatoes Sugar beets Raw cotton Milk Cattle Sheep Pigs Wool Eggs Poultry Vegetables  -  86 65 98 67 143 65  -  -  -  —  —  Adapted from the f o l l o w i n g t a b l e s : Bornstein, "Soviet P r i c e T h e o r y " , p.240; B o r n s t e i n , " A g r i c u l t u r a l P r i c e and P r o c u r e m e n t R e f o r m " , p.5; and Nove " I n c e n t i v e s f o r P e a s a n t s and A d m i n i s t r a t o r s " , p.201. Cost c a l c u l a t i o n s i n c l u d e m a t e r i a l i n p u t s , d e p r e c i a t i o n , and l a b o u r c o s t s v a l u e d a t s t a t e f a r m l a b o u r norms and wage r a t e s .  The production  above t a b l e , even w i t h costs being  does r e f l e c t incentives,  the  i n the  the  meat and  profits  profitable  production their  other  obtained crops.  at state  labour  cost portion  f a r m r a t e s and  wide v a r i a t i o n s i n p r o f i t a b i l i t y ,  f a r m s were t o o f f s e t of milk,  valued  the  of  various  losses attached  commodities  from the  In the  crops.  norms,  and  thus  Supposedly  the  production  produced at a l o s s ,  production  case of  to the  of  o f g r a i n and  f a r m s where l o c a l  through  other  conditions  158 v/ere n o t f a v o u r a b l e modities,  to the production  non-existant.  1  as t h e i r  unsuited  com-  q u o t a s was m i n i m a l o r  The m i s a l l o c a t i v e e f f e c t s  purchase p r i c e s i n determining well  profitable  t h e i n c e n t i v e t o p r o d u c e s a l e a b l e q u a n t i t i e s o v e r and  a b o v e t h e minimum demanded by t h e i r often  o f these  over-quota  discriminating effect  to the production i n the price  revisions  Council  o f M i n i s t e r s , U.S.S.R.,  marketable output,  as  a g a i n s t f a r m s t h a t were  of high p r o f i t  reduced  o f government  undertaken passed  commodities,  were  i n mid-1970.  The  a resolution  to increase  2 the  prices paid f o r milk,  time quota  cream, c a t t l e  bonus p r i c e s e q u a l i n g 150 p e r c e n t deliveries  were i n t r o d u c e d  and wool.  A t t h e same  of the p r i c e s paid f o r  f o r over-quota  deliveries of  3  livestock,  p o u l t r y , m i l k , w o o l and e g g s .  Table  XIV o n l y g i v e s  of p r o f i t a b i l i t y  an i n d i c a t i o n  for different  commodities  a whole, and t h e r e f o r e does n o t r e f l e c t  o f the average f o r the country  rates as  the true v a r i a t i o n s i n  price  i n c e n t i v e s f a c e d by i n d i v i d u a l  collective  farms.  tural  purchase p r i c e s are z o n a l l y d i f f e r e n t i a t e d  sibly  based on t h e average c o s t s o f p r o d u c t i o n  Agricul-  and a r e o s t e n -  o f the r e s p e c t i v e  commodities w i t h i n a g i v e n p r i c e zone. In a c t u a l f a c t , before '''In a r e a s where o v e r - q u o t a d e l i v e r i e s c o u l d be d i s p o s e d o f i n c o l l e c t i v e farm markets t h e farms would o r g a n i z e t h e i r o v e r - q u o t a p r o d u c t i o n i n s u c h a way as t o m a x i m i z e t h e i r r e v e n u e , g i v e n t h e e x p e c t e d p r i c e s on c o l l e c t i v e f a r m m a r k e t s . 2 "On I n c r e a s i n g M a t e r i a l I n c e n t i v e s on C o l l e c t i v e and S t a t e Farms t o I n c r e a s e t h e O u t p u t o f A n i m a l H u s b a n d r y P r o d u c t s " , P r a v d a , J u l y 18, 1970. T r a n s l a t e d i n t h e C u r r e n t D i g e s t o f t h e S o v i e t P r e s s , V o l . X X I I , No. 30, 1970, pp.1-2. The r e p o r t e d p r i c e i n c r e a s e f o r w o o l e q u a l e d 20 p e r c e n t ; no o t h e r f i g u r e s were c i t e d . 3 I b i d . , p.2.  159 the  1965 p r i c e  highest 180  price  percent  sidered, from  revisions,  costs  zones, r e l a t i v e t o the lowest p r i c e  t o 900 p e r c e n t h i g h e r ,  while  the corresponding  30 p e r c e n t  t o 55 p e r c e n t .  quate v a r i a t i o n inter-zone  the average p r o d u c t i o n  i n the  z o n e s , were  d e p e n d i n g on t h e c r o p  variation  i n prices  con-  ranged  The c o n s e q u e n c e s o f t h e i n a d e -  1  i n zonal prices  lead  c o l l e c t i v e farm revenues  to gross  inequalities i n  and r e s u l t e d  i n an  inequit-  a b l e d i s t r i b u t i o n o f income among c o l l e c t i v e f a r m s , w h i c h h a d corresponding centives. of  land  distortive effects  on i n t e r - z o n a l  On an i n t r a - z o n e b a s i s ,  with d i f f e r i n g natural  production i n -  t h e i n c l u s i o n o f wide  advantages  lead  areas  to similar i n t r a -  zone i n c o m e - i n c e n t i v e v a r i a t i o n s  w h i c h were n o t b a s e d on i n t e r -  farm d i f f e r e n c e s  but which  inequitable  i n productivity  distribution of natural  resulted  advantages  among  from t h e farms  2 within  a given  price  region.  inter-zonal  price  inter-zonal  income v a r i a t i o n s ,  remained constant zonal  reform  d i f f e r e n t i a l s , which reduced but zonal price  and 'average c o s t s '  are s t i l l  increased  the l e v e l of boundaries  have  the bases o f  prices. The  ture  The 1965 p r i c e  above o b s e r v a t i o n s  indicate 1  that  Bornstein,  prices  on t h e a g r i c u l t u r a l p r i c e  have l a r g e l y  "Agricultural Price  replaced  struc-  c o m p u l s i o n as  and Procurement  Reform",  p. 6.  2 P r e v i o u s t o 1958 t h e d i f f e r e n t i a l i n c o m e s a r i s i n g f r o m n a t u r a l c o n d i t i o n s were l e s s e n e d by t h e MTS payments i n k i n d w h i c h were u s u a l l y e x t r a c t e d a s a p r o p o r t i o n o f t h e g r o s s h a r vest. A f t e r 1958 t h e d i f f e r e n t i a t i o n i n z o n a l p r i c e s was i n c r e a s e d a n d t h e z o n a l p r i c e b o u n d a r i e s were m o d i f i e d s l i g h t l y b u t t h e s e r e f o r m s were s t i l l i n s u f f i c i e n t t o e x t r a c t t h e d i f f e r e n t i a l l a n d r e n t a l payments r e q u i r e d t o a c h i e v e income and i n c e n t i v e e q u i t i e s .  160 the  instrument  f o r e f f e c t i n g q u o t a d e l i v e r i e s and  do,  i n some c a s e s , p r o v i d e  quota d e l i v e r i e s to  the  where, t h e y do  to  national  or  chase p r i c e s  are  set  farm markets p r o v i d e be  these  that  The  accidently  requirements.  So  long  as  below e q u i l i b r i u m an  outlet  that  system of  the  proportions  l e v e l s and  related pur-  collective i t  government p u r c h a s e of  price  government  for over-quota outputs,  not  over-  these  only  will prices,  over-quota production  of  commodities."""  problems of  inadequate p r i c e  above were r e f l e c t e d i n t h e ation  Nevertheless,  prices  for  are  determine the  agricultural  incentives  operate,  f r e e market p r i c e s ,  will  necessary  government.  incentives, local  the  that  existed  pre-1966  incentives  system of  f o r c o l l e c t i v e farms.  discussed  labour  Under t h e  remuner-  labour  r e m u n e r a t i o n , wage payments were made f r o m t h e  i n c o m e i n c a s h and  kind  that  farm o b l i g a t i o n s  had  b e e n met.  ments meant t h a t  the  value of  remained The  t i o n s were made.  L a b o u r day  net  for distribution after a l l  residual  l a b o u r day  i n d i v i d u a l w o r k e r s were unknown t o  day  nature of  contributions  them u n t i l  c r e d i t s were a l s o  year-end subject  wage p a y made  by  calculato  wide  The f o l l o w i n g e x a m p l e s i n d i c a t e t h e d i s c r e p a n c y b e t w e e n g o v e r n m e n t p r i c e s and c o l l e c t i v e f a r m m a r k e t p r i c e s . The 19531954 c o m p u l s o r y d e l i v e r y p r i c e s f o r p o t a t o e s was t e n r u b l e s per q u i n t a l , compared t o 194 r u b l e s i n t h e Moscow c o l l e c t i v e f a r m market. The u n i f i e d p r i c e was i n c r e a s e d i n 1958 to f o r t y rubles, w h i l e t h e 1957 f r e e m a r k e t p r i c e was 118 r u b l e s p e r q u i n t a l . The 1953-54 c o m p u l s o r y d e l i v e r y p r i c e f o r m i l k was fifty-five r u b l e s p e r q u i n t a l compared t o t h e f r e e m a r k e t p r i c e o f 39 4 rubles. The u n i f i e d 1958 p r i c e was i n c r e a s e d t o 115 r u b l e s per q u i n t a l w h i l e t h e 1957 f r e e m a r k e t p r i c e was 307 r u b l e s . Simil a r l y f o r e g g s , t h e 1953-54 c o m p u l s o r y p r i c e was t w e n t y r u b l e s per- q u i n t a l , t h e f r e e m a r k e t p r i c e was 239 r u b l e s . The 1958 u n i f i e d p r i c e was r a i s e d t o s i x t y r u b l e s , w h i l e t h e 1957 free m a r k e t p r i c e was 226 r u b l e s . ( S p u l b e r , The S o v i e t Economy, p.89, n.12.)  161 variations  i n value  from y e a r to y e a r  aggerated r e f l e c t i o n of h a r v e s t was  poor, the  o u t p u t s , w o u l d be obligations paid  and  the  vast  be  s o l d on  incentive eration,  majority,  would r e c e i v e  g o o d , amounts i n e x c e s s o f could  success of  s o l d under the  f o r these purchases.  the  i n that the  harvest.  i f not  compulsory  the  a l l of  correspondingly  A l t e r n a t i v e l y , i f the the  required  by  the  If the  delivery  the farm's  (or  low  ex-  quota)  prices  harvest  was  government d e l i v e r i e s  c o l l e c t i v e farm m a r k e t s .  problems c r e a t e d  t h e y were an  generally  1  low  Aside  from  l e v e l of  f l u c t u a t i n g value of  the  certainty of  t h e s e payments u n t i l  y e a r - e n d d i s t r i b u t i o n s were  method o f  productivity est  or  remuneration d i d  q u a l i t y of  in increasing  the  labour contributions from the but  'extra'  w o u l d be  alternative  cent of  the  b e c a u s e any  dissipated the  taken together,  2  yet  to  the  area of  them  resulted  personally  f a r m members. an  inter-  their  product that  accrue to  un-  increased  little  q u a l i t y of  household p l o t provided the  the  foster  W o r k e r s had  increased  would not  I t was  for  attractive  c o l l e c t i v e farm.  household p l o t s  sown l a n d  or  among a l l t h e  t o w o r k i n g on  Private  work.  productivity  exertions  these reasons that  the  little  and  remun-  the  made, t h e  work u n i t s ,  the  occupy a p p r o x i m a t e l y  c o l l e c t i v e f a r m s and  t h e y were r e s p o n s i b l e  f o r the  3-3.5  private  perplots  following  ''"Up t o 1958, premium p u r c h a s e p r i c e s f o r a b o v e - p l a n d e l i v e r i e s were p a i d by t h e g o v e r n m e n t , w h i c h w o u l d have c r e a t e d the s i t u a t i o n d e s c r i b e d above. Between 1958 and 1964 unified p u r c h a s e p r i c e s were p a i d f o r a l l d e l i v e r i e s made t o t h e g o v e r n m e n t , b u t t h e y were c o n s i d e r a b l y b e l o w t h e c o r r e s p o n d i n g f r e e market p r i c e s . Premium p r i c e s h a v e b e e n i n c r e a s i n g l y u s e d s i n c e 1965, b u t t h e a m p l i t u d e o f wage f l u c t u a t i o n s has b e e n r e d u c e d by t h e g u a r a n t e e d minimum wage p a i d f o r work d o n e . 2  Gruchy, C o m p a r i t i v e  Economic Systems,  p.744.  162 relative  shares  of total  agricultural  TABLE  output  i n 1965.  XV  RELATIVE SHARES OF STATE FARMS, COLLECTIVE FARMS AND PRIVATE PLOTS IN THE TOTAL AGRICULTURAL OUTPUT OF SELECTED COMMODITIES IN 1965* Commodity  State  Grain Cotton Sugar b e e t s Potatoes Vegetables Meat Milk Eggs Wool  Farm  Collective  farm  Private  61 80 91 22 25 30 35 13 41  37 20 9 15 34 30 26 20 39  2 0 0 63 41 40 39 67 20  * Source:  S p u l b e r , The S o v i e t Economy,  The a b o v e t a b l e labour  resources that  the p r i v a t e exist over  and .  due t o t h e d i s p r o p o r t i o n a t e i n c e n t i v e s  that  alternative.  private  be i n c a p i t a l  physical  product  much l o w e r  misallocation of  o c c u r s between the c o l l e c t i v e  25 p e r c e n t o f c o l l e c t i v e to their  the massive  farm  f o r the l a t t e r  voted may  plots  indicates  p.87.  plots.  investments  Bergson  that  i n 1960  f a r m members l a b o u r t i m e was 1  D e s p i t e any i n e q u a l i t i e s  de-  there  per hectare of land, the marginal  of labour i n private  t h a n on c o l l e c t i v e  states  c u l t i v a t i o n must be  farms w i t h  very  such d i s p r o p o r t i o n a t e 2  labour  inputs per hectare of land being applied. Bergson,  The E c o n o m i c s o f S o v i e t P l a n n i n g ,  The  reason  p.223.  2 Nancy N i m i t z e s t i m a t e s t h a t i n 196 3 t h e p r i v a t e s e c t o r s h a r e o f t o t a l a g r i c u l t u r a l l a b o u r was 42.1 p e r c e n t and i t s p r o d u c t i v i t y o n l y 71 p e r c e n t o f l a b o u r i n t h e p u b l i c s e c t o r . (Nancy N i m i t z , "Farm Employment i n t h e S o v i e t U n i o n 1928-1963", i n S o v i e t and E a s t E u r o p e a n A g r i c u l t u r e , e d . by J e r r y K a r c z , pp.178-181.)  163 for  such  intensive cultivation  of p r i v a t e plots  marginal  revenue product  of p r i v a t e plots  marginal  revenue product  for labour  farms, given may  be  the  fact  p e r s o n a l l y consumed o r  market  prices. The  reform  do  Relative duction  than  the  collective  from p r i v a t e p l o t s  at the  high  collective  farm  of the  collective  farm  system o f  labour  have l e s s e n e d  toward p r i v a t e c u l t i v a t i o n ,  1967  output  t h a t i n t r o d u c e d minimum g u a r a n t e e d  f o r work done s h o u l d  for  i n p u t s to the  the  sold  i s higher  the  1  1966  remuneration  tives  that a l l of  i s that  not  indicate  percentage  although  production  39  percent  figures  direction.  of p r i v a t e production  equaled  wages  disproportionate incen-  a strong trend i n this  shares  i n that year  the  s t a t e farm  f o r both  to t o t a l  pro-  meat and  milk  2 and  65 percent  tive  share  2 percent by the  the  f o r eggs,  s i n c e 1965 f o r eggs.  continued  collective  of  which represented 1 percent  farms.  u n d e r t a k e n i n 1969,  labour  62  e s t a b l i s h e d minimum l a b o u r  evidence  requirements  In a sample  over  i n the  rela-  f o r meat, n i l f o r m i l k ,  A d d i t i o n a l negative  mandatory  a drop  percent  study  i s provided  stipulated  of c o l l e c t i v e  of the  total  and  sample  contributions for their  by  farms had  male members  3 in  excess  of  200  man-days.  The  continuing high  levels  of  ''"Once t h e c o l l e c t i v e f a r m has met i t s q u o t a d e l i v e r i e s , t h e m a r g i n a l g r o s s income o f a b o v e - q u o t a p r o d u c t i o n i s f a c e d w i t h a h i g h l e v e l o f d e d u c t i o n s b e f o r e i t i s d i s t r i b u t e d among t h e members ( r e l a t i v e t o t h e t a x l e v y f a c e d by t h e m a r g i n a l g r o s s income o f p r i v a t e c u l t i v a t i o n ) . 2 Clarke,  "Soviet A g r i c u l t u r a l  Reforms S i n c e  Khrushchev",  p.169. 3 U. G a e v s k a i a , " C e r t a i n F i n d i n g s o f a S t u d y on t h e i z a t i o n o f L a b o u r R e s o u r c e s on C o l l e c t i v e Farms", P r o b l e m s E c o n o m i c s , V o l . X I I ( A p r i l , 1 9 7 0 ) , p.57.  Utilof  164 outputs  from  private  requirements still  lective  and mandatory  would tend t o i n d i c a t e  remains The  plots  attractive  relative  farm p e a s a n t s .  peasant  fluctuations  will  that day  to collective  cultivation farm  existed  f a r m wage r a t e s ,  no l o n g e r h a v e t o b e a r  work.  f o r the c o l -  By r e c e i v i n g minimum m o n t h l y  payments  the c o l l e c t i v e  the brunt o f harvest  the value o f h i s labour  The h i g h minimum wage r a t e s s h o u l d a l s o  the i n e q u a l i t i e s  system.  that private  and t h e u n c e r t a i n t y o v e r  contributions. to reduce  contribution  1966 wage r e f o r m was a m a j o r v i c t o r y  f o r work d o n e , v a l u e d a t s t a t e farm  labour  i n remuneration  among d i f f e r e n t Undoubtedly  many c o l l e c t i v e  do much  f o r s i m i l a r work  farms under t h e ' r e s i d u a l '  labour  t h e h i g h minimum wage r a t e s w i l l  farms i n t o  debt  as they w i l l  t h e i n c r e a s e d l a b o u r c o s t s under t h e p r e - e x i s t i n g  prices  and i n t r a - z o n e c o s t v a r i a t i o n s . level  o f bank c r e d i t s  I t i s probable  force  alize  and z o n a l p r i c e  The state  zonal price  structure  new i n c e n t i v e  scheme w h i c h h a s b e e n  boundaries.  formulated f o r  s h o u l d do much t o i m p r o v e t h e i r  Under t h e p r e - r e f o r m  system,  prices  fundamental  served primarily  c o n c e r n was t o f u l f i l l  were t h e main c r i t e r i a  of financial  efficiency.  i n g d e v i c e s and t h e f a r m manager h a d m i n o r c o n c e r n his  that the  t h e government t o r a t i o n -  farms t h a t have been c o n v e r t e d t o t h e system  self-sufficiency  zonal  r e q u i r e d by many f a r m s t o f i n a n c e  t h e i r mandatory l a b o u r c o s t s w i l l their  force  n o t be a b l e t o  absorb  increasing  done  h i s output  b y w h i c h he was e v a l u a t e d .  as  account-  f o r c o s t s , as t a r g e t s which Specifically,  f a r m managers a n d a d m i n i s t r a t i v e p e r s o n n e l were p a i d b o n u s e s f o r overfulfilling uses  b e i n g made  their  output  targets, with  from o v e r - p l a n p r o f i t s .  allocations  f o r bon-  T h e r e f o r e i t was t o t h e  165 manager's a d v a n t a g e to a  inflate  planned  low l e v e l  targets,  relative bility  costs  t o d e f l a t e p l a n n e d o u t p u t s and  as much as p o s s i b l e  o f planned p r o f i t .  a b l e s , he c o u l d put  t o attempt  increase  By d e f l a t i n g t h e f o r m e r  the p r o b a b i l i t y of achieving  a n d by i n f l a t i n g  h i s costs  were m i t i g a t e d  a bonus.  To a l a r g e  by t h e s u p e r i o r  But, and  given costs  the fact  that h i s planned  were m o d i f i e d  extent  outputs  of  targets,  foroverfulfilling The  a  h i s output  meeting these t a r g e t s  awarded  provisions  significant  tendencies  organs before  (i.e.,  were l o w r e l a t i v e  the p e n a l t i e s f o r t o t h e bonuses  h i s planned p r o f i t  target.  scheme  from  1  represent  Allocations to incentive  m a n a g e r i a l p e r s o n n e l a n d w o r k e r s a r e made  still  t o minimize the r i s k  since  o f t h e new i n c e n t i v e  improvement.  they  revenues)  and a p p r o v e d , t h e f a r m manager was expenditures  not  these  o f the i n d i v i d u a l farms.  encouraged toward extravagant underfulfilling  h i s out-  maximize h i s p o s s i -  administrative  approved the p r o d u c t i o n - f i n a n c i a l plans  vari-  as much as p o s s i b l e  t o h i s p l a n n e d o u t p u t s , he c o u l d  of obtaining  so a s t o a c h i e v e  funds f o r  deductions  B e f o r e 1965 f a r m managers were p e n a l i z e d 1 p e r c e n t o f t h e i r b a s i c pay f o r each 1 p e r c e n t o f u n d e r f u l f i l l m e n t o f each o f t h e i r p r i n c i p a l o u t p u t t a r g e t s , t o a maximum o f 30 p e r c e n t o f b a s i c p a y . I n 1965 t h e i r b a s i c pay was g u a r a n t e e d , a n d m a n a g e r i a l p e r s o n n e l were t o r e c e i v e b o n u s e s o f 10 p e r c e n t o f t h e i r b a s i c s a l a r y f o r each 1 percent o f o v e r f u l f i l l m e n t o f t h e i r sales plan, provided that the established targets f o r meat a n d g r a i n , o r i n t h e c a s e o f s p e c i a l t y f a r m s , t h e i r p r i n c i p a l o u t p u t s , were f u l f i l l e d . Bonuses f o r c o s t reductions a r e c o n d i t i o n a l on a c h i e v i n g t h e a n n u a l s a l e s p l a n s a n d c o s t o f p r o d u c t t a r g e t s , and a r e a l l o c a t e d t o m a n a g e r i a l p e r s o n n e l at r a t e s t o a c e i l i n g o f 5 percent o f the over-plan profits. ("On t h e S a l a r i e s o f M a n a g e r i a l P e r s o n n e l and S p e c i a l i s t s o f S t a t e Farms and o t h e r S t a t e A g r i c u l t u r a l E n t e r p r i s e s " , P r a v d a , A p r i l 22, 1965. T r a n s l a t e d i n t h e C u r r e n t D i g e s t .of t h e S o v i e t P r e s s , V o l . X V I I , N o . l , 1965, p.10.)  166 a p p l i e d a g a i n s t the net p r o f i t of the farm, w i t h lower norms b e i n g a p p l i e d a g a i n s t o v e r - p l a n p r o f i t s .  The  deduction  stipulation  t h a t lower r a t e s of i n c e n t i v e d e d u c t i o n s w i l l be a p p l i e d t o o v e r - p l a n p r o f i t s p r o v i d e s some encouragement to farm managers to more f u l l y account  f o r the p r o d u c t i v e c a p a c i t y o f h i s farm  and h i s expected c o s t s i n d e t e r m i n i n g h i s p r o d u c t i o n and  finan-  c i a l p l a n s ; t o under or o v e r - e s t i m a t e these r e s p e c t i v e v a r i a b l e s would decrease h i s p o t e n t i a l bonus."'"  N e v e r t h e l e s s , the  t h a t a l l o c a t i o n s t o i n c e n t i v e funds are s t i l l  fact  applicable to  o v e r - p l a n p r o f i t s p r o v i d e s an i n c e n t i v e t o i n c r e a s e  revenues  and economize on e x p e n d i t u r e s beyond t h e i r planned l e v e l s i f a t all  possible. The new  nesses:  i n c e n t i v e scheme does e x h i b i t c e r t a i n weak-  v i z . , the d i s t o r t i o n s c r e a t e d by the  'new'  price  struc-  t u r e f a c i n g the s t a t e farms, and the r e l a t i o n s h i p between the s i z e of bonus a l l o c a t i o n s and the farms' wage funds. t h a t have been c o n v e r t e d t o the system o f f i n a n c i a l  The  farms  self-  s u f f i c i e n c y are p a i d f o r t h e i r outputs a t the government  purchase  o  p r i c e s paid to c o l l e c t i v e  farms;  thus t h e i r p r o f i t a b i l i t y  de-  pends on t h e i r l o c a t i o n , on the commodities they produce,  and  the p r i c e s p a i d f o r these commodities i n t h e i r r e s p e c t i v e p r i c e zones. Under the new ial-incentive  i n c e n t i v e scheme deductions t o the mater-  fund, which i s the source o f a l l money bonuses,  are l i m i t e d t o a maximum e q u a l t o 12 p e r c e n t of the annual wage "'"Deductions t o the i n c e n t i v e funds f o r o v e r - p l a n p r o f i t s are c a l c u l a t e d a t 50 p e r c e n t of the r a t e s used f o r planned profits.  167 fund. on  Undoubtedly  farms),  v a r i a t i o n s i n the  but  increasing level  of  i t may  efficiency  the  material  efficiency  of  case of  level  of  an  remuneration  i n t e r e s t of  is greatly  reduced.  fund through  increasing their  profits,  i t i s not  managers w i l l  over-emphasize  ward t h i s eously  end;  by  reducing  allowed  the  f o r the  a reduction  labour-saving  reducing  labour  of  The trade  ing  retail  d e c i d e on  The  the the  increasing  likely  i n labour as  the  that  expenditures a means is  to-  simultan-  maximum  deductions  of  criteria  crux of  the basic  Trade  trade  a u t h o r i t i e s are  system i s that  been  payment o f money b o n u s e s .  objective  system.  maximum  Alternatively,  1  e x p e n d i t u r e s he  used to e v a l u a t e  must t a k e i n t o c o n s i d e r a t i o n  central  state  material-incentive  techniques  base which determines  Evaluation Evaluation  among  f a r m managers i n  their  i n t r o d u c t i o n of  ceiling mitigate  f u n d has  increase  the  farms t h a t  to  Once t h e  material-incentive  operations  a  e f f e c t i v e d i s i n c e n t i v e toward  p r o f i t a b l e farms. the  (and  can  or  the  on  made t o p r o v i d e  c o n t r o l purposes  also provide  a l l o c a t i o n s to  attained,  in  p r o v i s i o n was  wage payments f o r m o n e t a r y  excessive  the  this  t r y i n g to the  political  state  goals  retail  that  through t h e i r  the  retail-  macroeconomic a l l o c a t i o n  leaders  the  aims o r  achieve  Soviet  proportions  Soviet  the  Soviet  e x c l u s i v e l y and  i n the party  economy. leaders  arbitrarily  Throughout  history  of  have  derived  """Their m a t e r i a l i n t e r e s t i s l i m i t e d t o b o n u s e s t h r o u g h t h e s o c i a l - c u l t u r a l and h o u s i n g f u n d .  the  consistently  in  kind  168  f o l l o w e d a p o l i c y of u t i l i z i n g a l a r g e p a r t of the come f o r investment purposes, thereby l e a v i n g portion  of the  national  and  small The  i s an e s s e n t i a l p r e -  e f f e c t i v e implementation of an  p o l i c y which d i v e r g e s from the  in-  a relatively  income f o r consumption purposes.  a b o l i t i o n of consumer s o v e r e i g n t y was r e q u i s i t e f o r the  national  allocation  p r e f e r e n c e s of consumers.  problems f a c i n g the  consumer goods s e c t o r may  following  of a g i v e n volume of r e s o u r c e s t h a t have  way:  out  been d e c i d e d by the and  Party leaders,  at what p r i c e s must they be  market of a l l goods, r e c o v e r the by  the  and  produced,  s o l d , i n o r d e r to c l e a r  the  p u r c h a s i n g power made a v a i l a b l e transfer  little  attention  S t a l i n i s t e r a the to the  central  payments,  authorities  above c r i t e r i a i n t h a t the  p r i o r i t y was  growth of the heavy i n d u s t r y  to maximize the  s e c t o r o f the  viewed as a n e c e s s i t y force;  to ensure the  i d e o l o g i c a l appeals, p h y s i c a l  t a c t i c s were the  and  from the  l a b o u r f o r c e and  the  terrorist acceptable the  During t h i s  central authorities deliberately fixed r e t a i l  below market c l e a r i n g l e v e l s by ceed the  labour  ensure  p o l i t i c a l submission of the p o p u l a t i o n as a whole. period  The  largely  p r i n c i p a l methods u t i l i z e d to o b t a i n  l e v e l s of p r o d u c t i v i t y  output  s u b s i s t a n c e of the coercion,  over-  economy.  a l l o c a t i o n of economic r e s o u r c e s f o r consumption was  was  the  o p t i m i z e consumer s a t i s f a c t i o n .  riding political-economic and  phrased i n  which goods must be  s t a t e through the payment of wages and  Throughout the paid  be  The  allowing  supply of consumer goods a t the  prices  monetary demand to current  prices."'"  exUnder  "'"The e x c e s s i v e p u r c h a s i n g power of the g e n e r a l p u b l i c kept w i t h i n t o l e r a b l e l i m i t s by the compulsory purchases of  169 these circumstances a s e l l e r ' s market p r e v a i l e d  where  the  s c a r c e consumer goods were i m m e d i a t e l y p u r c h a s e d once t h e y tered  the  retail  shops, r e g a r d l e s s  appropriateness.  The  on  the  a s s o r t m e n t o f goods o f f e r e d  of S t a l i n , rapidly.  the The  the  t i o n l e v e l of the ineffectiveness  prices  r a i s e d the  of  low  r e a l income p o l i c y  consumption l e v e l of  income i n the  the  hands o f  was  The  desire  to increase  the  the  population.  the  consequent increase  sumer s e l e c t i v i t y  as  a r e s u l t of t h e i r increased  w h i c h were f o l l o w e d  consumer d u r a b l e s . government bonds.  labour force  resulted  interests.  i n market g l u t s of  The  by  by  market s a t u r a t i o n s indicates  of in  appealing i n con-  discretionary  c e r t a i n s o f t goods  following table  increasing motivation  to t h e i r m a t e r i a l  income r e s u l t e d  consump-  productivity  a means f o r p r o m o t i n g e c o n o m i c g r o w t h h a d  The  the increased  r a p i d improvement i n the this period  pursued  had  i d e o l o g i c a l appeals i n promoting  work f o r c e .  death  r e n t a l communal  s u b s i s t e n c e minimum and  populace during  of  and  the  1957,  set  change  a gradual s h i f t toward motivating  in  the  e s p e c i a l l y a f t e r the  e s p e c i a l l y the  w e l l above the  A p a r t i a l explanation  l a b o u r as  nulli-  made i n p l a n n i n g  consumers began t o  free medical services  l e v e l of d i s c r e t i o n a r y  f o r the  this period  f o r s a l e as w e l l as  p o s i t i o n of Soviet  g o v e r n m e n t , had  population the  errors  e a r l y 1 9 5 0 ' s , and  h o u s i n g p o l i c i e s , and the  limited  goods.  During the  by  market during  a t l e a s t c o n c e a l e d , any  for these  t h e i r q u a l i t y or  h i g h u n s a t i s f i e d demand f o r v i r t u a l l y a l l  consumer goods o f f e r e d f i e d , or  of  en-  of the  beginning various extent  of  170 the  unsold  quantities of soft  goods.  TABLE XVI R E T A I L S A L E S AND I N V E N T O R I E S OF S O F T GOODS FOR S E L E C T E D Y E A R S , 1950 - 1966* rubles) (in b i l l i o n s of  Sales Inventory Inventory as a percent of sales  1950  1958  1960  1963  1965  1966  9.5 2.3  18.7 5.8  21.8 8.3  23.3 11.7  26.0 11.8  28.2 11.4  24.0  31.0  38.0  50.0  45.0  40.0  *  Willem Source: R a t i o n a l i t y , p.79 •  The that the  have rigid  above t a b l e  K e i z e r , The  i n d i c a t e s the  planning  system which perpetuated  styling,  studies 19 57,  years  that  and p r i c i n g o f consumer i n demand  used t o forecast  'new p r o d u c t  1  stores  were  acceptability  o f newly created  planners  made i n c r e a s i n g  price  have  elasticity  dividual  demand  demand  goods.  forecasts  introduced goods.  have  crude  been  made  budget In  t o t e s t the market  Since  1  and  i n the  d e m a n d p r i o r t o 1955.  that  time  Soviet  use o f c a l c u l a t i o n s o f income  c o e f f i c i e n t s w h i c h a r e now  groups o f commodities, as w e l l  preferences  errors  t o supplement the r e l a t i v e l y  were  Economic  cumulative deficiencies  from f a u l t y f o r e c a s t i n g o f future  Numerous improvements recent  Quest f o r  resulted  assortment,  in  Soviet  calculated  as s t u d i e s  of  and  for i n consumer  and i n d i f f e r e n c e a n a l y s i s , i n an a t t e m p t t o i m p r o v e  forecasts. During """Jere  the late Felker,  1950's t h e c e n t r a l a u t h o r i t i e s b e g a n  Soviet  Economic  Controversies,  n . 6,  to  p.135.  appreciate  the  due  to the  rather austere  and  s e v e r a l m o d i f i c a t i o n s were t a k e n  of  the  Until  planning 1960  the  forthcoming the  expected  the  recognition formulated detailed  the  formulated  orders  from the  i n the p r o d u c t i o n , f o r the  forthcoming  assortment  finalized  on  plans  credit  the  of  success  such  f o r durable  application  of  largely  on  plans  the  for  basis  of  t r a d e o r g a n i z a t i o n s and  were g i v e n o n l y v e r y and  assortment  year.  Beginning  producing  and  groups t h a t  supply  the  forthcoming  c a t e g o r i e s o f goods, commodity  the  had  limited plans  i n 1960,  the  e n t e r p r i s e s were received  from  1  of the  f o r m u l a t i n g the p r o d u c t i o n  t h e w i d e r use  assortment  the b a s i s o f c u r r e n t o r d e r s  limited  flexibility consumers.  f o r e c a s t e d f o r the  f o r the  trading organizations. The  in  been  current year,  o f goods o f f e r e d  t o improve the  and  d e s i r e d w i t h i n these  i n the  styles  capricious tastes of  supply,  capacities  and  i n demand f o r v a r i o u s  assortment  be  had  year's  Changes  l a g g i n g consumer s a l e s were a l s o  assortment  production,  production  occurred  to  t h a t the  system to the  year  previous  year.  fact  and  above-mentioned assortment  p l a n s , as w e l l  merchandize-moving techniques  goods i n a b u n d a n t s u p p l y  i n f o r m a t i v e a d v e r t i z i n g , can  innovations  and be  the  as  as  consumer  wider  a s c e r t a i n e d from  following table. Table  in  total  an  increase of  X V I I shows t h a t b e t w e e n 1961  d i s p o s a b l e money income was  and  196 7 t h e  5 3 percent,  growth  compared  with 2  131  percent  i n money h e l d  i n savings  accounts.  "''Ibid. , p. 146 . 2 this  The i n c r e a s e d r e p r e s s e d i n f l a t i o n t h a t o c c u r r e d p e r i o d i s s u b s t a n t i a t e d by t h e w i d e n i n g d i s c r e p a n c y  during between  172 Part of the r a p i d increase increasing affluence the  i n s a v i n g s c a n be a t t r i b u t e d t o t h e  of the Soviet  population,  major cause f o r the r a p i d i n c r e a s e  income-savings r a t i o  offered  in their  disposable  can be a t t r i b u t e d t o t h e r e f u s a l o f c o n -  sumers t o buy unwanted o r u n s u i t a b l e explanation  but undoubtedly  f o r the increasing  commodities.  lack of conformity  f o r s a l e and t h e d e s i r e s  A  partial  between  o f t h e c o n s u m e r s c a n be e x -  p l a i n e d by t h e l a c k o f r e s p o n s i v e n e s s o f t h e p r o d u c e r s t o trade  orders,  goods  due t o t h e i r i n c e n t i v e s y s t e m a n d t h e  i m p o s e d upon t h e p r o d u c e r s b y t h e m a t e r i a l  supply  retail  rigidity  system.  TABLE X V I I PERSONAL DISPOSABLE MONEY INCOME AND SAVINGS ACCOUNTS, 1960 - 1 9 6 7 * ( b i l l i o n s of rubles)  Total disposable money i n c o m e Total savings i n accounts Percentage o f additional i n come s a v e d * Source:  1961  1962  1963  1964  1965  1966  1967  87.8  95.0  98.8  104.4  116.5  125.7  134.0  11.7  12.7  14.0  15.7  18.7  22.9  27.0  9.3  14.0  34.4  30.4  24.7  45.7  49.4  Keizer,  The S o v i e t  Quest, p.81.  P r e v i o u s t o 1 9 6 7 , when t h e new introduced  into light  ducing enterprises put  and c o s t  was  i n d u s t r y , t h e key i n d i c e s by w h i c h  were e v a l u a t e d  reduction  o f o u t p u t t a r g e t was  i n c e n t i v e system  targets.  given  was  t h e i r gross value of out-  P r i o r t o 1958 t h e g r o s s  paramount i m p o r t a n c e .  s t a t e r e t a i l p r i c e s and c o l l e c t i v e see T a b l e X I , p.96.  pro-  value  Under b o t h  farm p r i c e s a t t h i s  time;  173 situations  the  assortments assigned  i n such  targets.  maximized the ducer  producer  a way  by  fulfillment  consumers  rights  the  through  enterprises  of t h e i r  individual  by  their  the  t o w a r d s an  primary part  incentive  method u t i l i z e d  of the  labour  1965  re-  value of  the  central  goods  retail  trade  The  been f o r m u l a t e d and  the  producing  on  the  therefore only limits  allowed  and  quality  o f consumer  as a w h o l e .  goods  populace The  problem, planned  be  of material interest  ineffective  as  i f the e x t r a  d e s i r e d consumer c o m m o d i t i e s . retail  s a l e s must be  i s of  distinct  to encourage h i g h e r p r o d u c t i v i t y  the  with  allocations.  policy  purchase  left  gross a s s o r t -  o r d e r s w i t h i n the  economy  force w i l l  their  problem  allocations.  the  the  i m p o s e d on  e x p e c t a t i o n s of the  income c a n n o t incentive  The  e n t e r p r i s e can  assortment  f o r the  quality  of m a t e r i a l s i n accordance  the assortment  importance  from  input coefficients  t h e demands and  pro-  desires of  rigidity  p l a n w h i c h has  pre-assigned material  offered with  shift  i s the  producing  detailed  Matching  crucial  the  which  far in increasing  the orders  h i s m a t e r i a l supply  basis  the  of h i s  trade organizations exercise  19 6 5 r e f o r m s  supply  or  o f the  to the manifested  u n s u i t a b l e goods.  approved  assigned  o f the  assortments  s h o u l d go  through  their  fulfill  targeted indices  i n c e n t i v e s on  receive allocations  ments a s s i g n e d ;  his  fulfillment  implementation  p r o v i d i n g the  of rejecting  producer  The  indices,  (as e x p r e s s e d  u n t o u c h e d by  of the  of producers  organizations),  to d i s t o r t  t o maximize the  performance  profitability  responsiveness  as  incentive  conform to the  t h e consumer.  forms , which based and  an  Thus goods were f r e q u e n t l y p r o d u c e d  but which d i d not  desired  sold  had  the on  the  real  Aside achieved  from in  174 order  to a t t a i n f i n a n c i a l  investment  funds are  over taxes,  and  completion of ial  supply  equilibrium.  revenues  these  The  are  in fact  problem of  system i n reducing  the  the  i n the  Soviet  allocation  o f many m a t e r i a l  reality  long  as  as  the  tion's  resources  Evaluation  of  Any  tralized  a l l o c a t i n g domestic  activities ing  implement  the  their  i n the  allocation.  planning  external desired  na-  By  few  Soviet  and  pattern  of  to  influence except  the  restricting  of  uncontrolled  concept of foreign and  by  cen-  trade incorporat-  n a t i o n a l economic p l a n s ,  utilize  trade  resource  the  in  by  mechanics  Union;  successfully isolate  world  their  foreign trade  organizations,  i n the  and  among a l t e r n a -  resources,  e s s e n t i a l under the  utilized  a u t h o r i t i e s can  from the  resources  monopolization, of  a relatively  foreign trade  central omy  to  the  e q u i p m e n t as  economic f o r c e s  d i s t r i b u t i o n of The  and  i s d i a m e t r i c a l l y opposed t o  resource  diverge  quantitative planning  a l l o c a t i o n of materials  presently  trade  leadership  a  trade  government i s a b s o l u t e l y  foreign  t o be  consumption.  uses cannot permit e x t e r n a l  allocation  continue  and  and  con-  administrative  between i n v e s t m e n t  economy w h i c h u t i l i z e s  composition  mater-  allocation  The  Party  the  producers to  a l l o c a t i o n of  a c o n t r o l l e d manner. the  the  turn-  the  the  p r i m a r y methods o f  the  of  will  of  regarding  foreign  administrative  tive  supplies  desires  from consumer p r e f e r e n c e s  economy.  and  of  r e a l i z e d on  rigidity  present  source  profits  only  response of  sumer demands i s i n s o l v a b l e u n d e r t h e mechanics o p e r a t i v e  primary  from e n t e r p r i s e  revenues  sales.  The  domestic  flows to  utilization.  the econ-  help  175 The scarcity  ratios,  unsuitable in  the  tral  lack of a r a t i o n a l  makes c a l c u l a t i o n s o f  criteria  internal  planners,  t o use  and  since  utilities,  mates o f  relative  of  p r o d u c e d and able  utilities  resources,  as  a basis  of values as  foreign  trade  plan  difficulty  The  financial  the  a c t u a l s a l e s are estimates  of  does r e s u l t  the  of  but  i n the  in  is utilized  export  revenues are  ad  hoc  changes t o  be  increased,  is  to reduce the  plan  as  the  which  below the  imports.  planned  the  increase  annual plan.  In  the  more f r e q u e n t  result  plans.  before  t o be  from  the  In  level  the  imports  has  obtained  revenues then provide  of  unavoid-  i s derived  be  level  resources  i n formulating  can  volume o f p l a n n e d  export  sub-optimal  economy.  prices that  on  esti-  c o n s i s t e n t n a t i o n a l economic the  cen-  Obviously  becomes an  therefore  straint  but  this  and  Planned export  the  i n d i c a t i v e of  case o f  negotiated  sales.  the  not  an  deficiency  by  for trade.  p r a c t i c e s used  achieving  equivalent  of  This  a r e weak i n s e v e r a l r e s p e c t s ,  the  costs  recognized  i t does i n t h e  allocation  methodological  trade.  relative  subjective, unquantifiable  consumed i n t e r n a l l y ,  method o f  The  of  p r i c e s are  r e s u l t when q u a n t i t a t i v e p l a n n i n g  principal  on  a basis  relative  t h e y use  subjective estimation  utilization  as  comparative  price structure i s well  relative  the  p r i c e s y s t e m , b a s e d on  based  export  financial  the  case  where  i t necessitates  some c a s e s e x p o r t s  planned.  of 1  underplan Since  con-  these  many may  revenues imports  ^ T r a d e c r e d i t s may be e x t e n d e d t o c o v e r u n p l a n n e d i m b a l ances, e s p e c i a l l y i n i n t r a - b l o c t r a d e , but with the nonc o n v e r t i b i l i t y o f the r u b l e , the t r a d e w i t h c o n v e r t i b l e c u r r e n c y a r e a s o f t e n has t o be r e d u c e d i f t h e l e v e l o f a p p r o p r i a t e f o r e i g n e x c h a n g e i s b e l o w what was p l a n n e d .  176 were t o be u t i l i z e d reduction all  plan  process  i n imports  plan  planned  fulfillment,  will  imports  before  Previous  the necessary  time,  output  ity  materials to f u l f i l l  Therefore  t r a d e a s s o c i a t i o n s and n e c e s s a r y  export tion  plans  the  i n the i n a b i l i t y o r , i n the case  o f unnecessary  i nthe  o f the export the correspond-  does n o t r e s t  with  o f c a n c e l l e d o r d e r s , t h e accumula-  inventories.  o f Soviet export  policy  non-convertibility  the trade  It i s likely  t h a t t h e problems  increase over  production  o f the exports.  o f m a n u f a c t u r e d goods r e l a t i v e  ning  different  i n p u t changes a r e f r e q u e n t -  i n c o n s i s t e n t plans w i l l  the complexity  The  During  o f t h e e n t e r p r i s e t o meet i t s new  changes r e q u i r e d i n e x p o r t  objective  plans.  Thus t h e c o n s e q u e n c e s o f i n c o n s i s t e n t e n t e r p r i s e  associated with  of  these  Unfortunately,  the  result  p l a n s , and have  t h a n were a n t i c i p a t e d  a u t h o r i t y t o change i n p u t a l l o c a t i o n s  plans  export  t h e t r a d e o r g a n i z a t i o n s have t h e a u t h o r -  at the enterprise l e v e l .  n o t made.  commodities a r e  often stipulate  ing  ly  plan  enterprises producing  t o change t h e q u a n t i t y , and s p e c i f i c a t i o n s  orders  utilized.  The f o r e i g n t r a d e  and assortment  and/or s p e c i f i c a t i o n s  plan.  were t o be  exports.  sale negotiations the purchasers  export  o f the production  the sales of the export  to this  goods h a v e b e e n a s s i g n e d  assortments  stage  on o v e r -  i n c o n s i s t e n c i e s i n t h e n a t i o n a l economic  i s ratified  ordered  plan, the  have v a r i o u s e f f e c t s  f r o m c h a n g e s made t o p l a n n e d  negotiated.  the  inputs i n the supply  d e p e n d i n g on w h i c h  t h e now n o n - e x i s t e n t Further  result  as f a c t o r  plans  time  as  are a function  The r e c e n t t r e n d a n d e x p r e s s e d i s to increase the proportion  to total  export  volume.  of the ruble necessitated plan-  f l o w s w i t h most o f i t s t r a d i n g p a r t n e r s ,  with  177 the  exception of countries having  to achieve  an  country."'"  Bilateral  ensuring the  the  a balance  o f payments b e t w e e n  b a l a n c i n g o f t r a d e has  o f payments w i t h  t r a d e between c o u n t r i e s t o t h e  exports to  e q u i l i b r i u m balance  c o n v e r t i b l e c u r r e n c i e s , so  level  of the  imports  advantage  the  is limited  of limits  of whatever imports S o v i e t U n i o n may  l a r g e q u a n t i t i e s o f commodities  value  each  t r a d i n g p a r t n e r s but  are d e s i r e d , i . e . , although  import  the  as  from another  to the  value  of  or  desire country,  exports  2 acceptable the  to that country  the  converse.  The  I n t e r n a t i o n a l Bank f o r E c o n o m i c C o o p e r a t i o n  t o overcome the trade,  inherent restrictiveness  at l e a s t with The  new  swing c r e d i t s serious  level  of the  of c r e d i t  were o v e r c o m e .  system,  rectified  and  trade the  in intra-bloc  flows  an  n e e d e d and  However, t h e  the  low  was  a  definite  balancing trade.  and  Most o f  velocity  principal trade  attempt  bilateral  o l d system, namely t h o s e  lack of m u l t i l a t e r a l  to a l i m i t e d  All planned,  the  was  nations.  settlements  o l d system o f b i l a t e r a l  p r e v i o u s l y used  deficiencies  the h i g h funds,  the  financial  creation of  of balanced  t r a d e among E a s t e r n - b l o c  system of  improvement o v e r  old  and  the  involving of  trade  d e f i c i e n c y of  s e t t l e m e n t s , was  the only  degree.. i n the  difficulties  Eastern-bloc countries of planned  multilateral  are trade  are  "'"An o v e r a l l b a l a n c e o f t r a d e w i t h c o n v e r t i b l e c u r r e n c y c o u n t r i e s was n e c e s s a r y , b u t a s u r p l u s t r a d e b a l a n c e w i t h B r i t a i n c o u l d be u s e d t o e q u a l i z e a d e f i c i t b a l a n c e w i t h C a n a d a and so on. 2 R e - e x p o r t i n g unwanted i m p o r t s i s a l s o a p o s s i b l e means of achieving a balance of trade. Thus t h e S o v i e t s r e - e x p o r t , f o r e x a m p l e , C h i n e s e t i n and E g y p t i a n c o t t o n , t o a l l o w t h e s e c o u n t r i e s t o f i n a n c e t h e i r imports from the S o v i e t Union. (Alec Nove and Desmond D o n e l l y , T r a d e W i t h Communist C o u n t r i e s , p. 34.)  178 considerable. ficulties.  A hypothetical Suppose c o u n t r y  1  A runs a s u r p l u s  with  tions with  D and  C and  the  surplus  why  C and  exactly be  be  U n i o n and enter  tions with  are  the  A(B).  deficit  go  T h e r e i s no  surplus  (deficit)  from) o t h e r  negotiations  by  taking  into  with  D.  negotiaequal  to  p a r t i c u l a r reason deficit  with  of buying  B.  with  Members  A will  a n o t h e r member  be-  (selling)  than  more  countries. followed of  with  the  by  the  Soviet  IBEC h a v e b e e n  each of  i n t o account  the  member  general  surpluses  c r e d i t s and  to coun-  negotia-  or  deficits  debits  T h e s e same p r o c e d u r e s were p o s s i b l e IBEC and  C and  (surplus)  a combined n e t  A*s  B,  dif-  with  before  were u n d e r t a k e n , a l t h o u g h on  a  scale.  problems of  above e x a m i n a t i o n Soviet  s y s t e m and  trade  the  are  shows t h a t the  of  necessitates  the the  benefits of bilateral  the  trade  the  greatest  lack of a r a t i o n a l  inconvertibility  former problems e l i m i n a t e s  culation  a net  h e l d where members t r y t o o f f s e t  The  The  countries  means t h a t A(B)  member c o u n t r i e s  c r e a t i o n of the  price  e l u c i d a t e the  completion of these negotiations  countries.  smaller  with  actual trading procedures  each other  other the  (bought  a l l other  On  with  a surplus  into bilateral  tries.  require  trades  subsequent d i f f i c u l t y  s o l d to The  This  to o f f s e t  to accept the  A  want t o r u n  sufficient  cause o f can  (deficit)  D should  loathe  B.  example w i l l  of  their  possibility while  balancing  of  the  technical  internal  domestic of  latter  currency.  rational  cal-  problem  a large proportion  of  "'"The example g i v e n c l o s e l y f o l l o w s t h a t g i v e n by F r a n k Holzman i n " F o r e i g n T r a d e B e h a v i o u r i n C e n t r a l l y P l a n n e d E c o n o m i e s " , i n I n d u s t r i a l i z a t i o n i n Two S y s t e m s , e d . by H e n r y R o s o v s k y , p.249.  179 trade  flows.  iated with the  T h e s e p r o b l e m s as  inconsistent  inflexibility  well  as  foreign trade  inherent  i n the  the  diseconomies  plans  Soviet  a l l a r i s e out  utilized  rationale that  i n the  Soviet  lies  behind the  economy i s t h a t  and  economic goals  of  the  populace.  overall objectives  demands t h a t exceed the of  the  The  s t a t e by an  the  Communist P a r t y  these o b j e c t i v e s  level  constructed  the  of  make on  populace.  a l l o c a t i o n mechanism t h a t  towards s a t i s f y i n g  the  objectives  of  the  form of a l l o c a t i o n social,  the  the  Hence t h e  sources, the  resources  as w e l l  as  to  state.  permitting  expressed assortment of  i t s own  these  and  i n the  hands  regime  has  resulting  administrative disposal  of  g r o s s demand f o r  resources  goods and  the  resources,  The  c o n t r o l o v e r the  satisfy  of  is primarily directed  has  nation's  s t a t e , and  political  allocation the  from those  placed  mechanism o f q u a n t i t a t i v e p l a n n i n g state  political  nation's  allocation  facilitated  Planning  differ  t h a t w o u l d v o l u n t a r i l y be the  of  form o f a l l o c a t i o n .  Conclusion: the Problem o f C e n t r a l and t h e M a r k e t i n R u s s i a  The  assoc-  t o be  re-  utilized  services desired  by  in  the  state. The industry,  preceding  a g r i c u l t u r e , and  mechanics p r e s e n t l y tially  examination of  the  essence of  same as Soviet  titative  planning.  b u t e d by  means o f  trade  utilized those used  the  indicate that  i n the  Soviet  throughout  a l l o c a t i o n has  imperative  national  Stalinist  i n the  are  in  the a l l o c a t i v e  economy a r e  the  remained  Economic r e s o u r c e s an  reforms undertaken  essenera.  realm of  a l l o c a t e d and  economic  plan;  The  quandistri-  180 administrative force  methods a r e s t i l l  i n the d i r e c t i o n  the overwhelmingly  and c o n t r o l  of the nation's  predominant economic  processes. The  successive  economic system, p r i o r the  r e f o r m s a n d m o d i f i c a t i o n s made t o t h e t o 1965, c e n t e r e d on r e o r g a n i z a t i o n s o f  economic-administrative bureaucracy.  made t o c o r r e c t system w i t h i n and  the manifested d e f i c i e n c i e s  present  perhaps w i t h t h e q u a l i f i e d  agricultural prices to  the death o f S t a l i n , purchase p r i c e s ,  of agricultural  more c l o s e l y  with  align  the quantitative  cultural  outputs.  agricultural  successive  and m o d i f i c a t i o n s  commodities  delivery are s t i l l  until  such time as t h e s t a t e  of agricultural  'free'  quotas  Many d e f i c i e n c i e s i n creating  of the r e l a t i v e  incentives  crops,  i n Soviet  to enforce  and w i l l  purchase p r i c e s deliveries  offered agri-  f o rthe p r i n c i p a l  assigned  the de-  continue  t o be  are s u f f i c i e n t to  of agricultural  s a t i s f y t h e demands o f t h e p o p u l a c e .  sulted  increases i n  demands o f t h e g o v e r n m e n t , v i z . ,  production  to  alternatives,  agriculture.  the production-price  Target  the necessary  methods  c o m m o d i t i e s have b e e n made i n a t t e m p t s  sired  induce  planning  the adoption o f r e a l exception of  were  of the a l l o c a t i o n  t h e framework o f t h e p r e - e x i s t i n g  d i d not i n fact  Since  Repeated attempts  outputs  1  allocation  t h a t have r e -  s u b - o p t i o n a l u s e o f r e s o u r c e s have  been  "''There i s l i t t l e l i k e l i h o o d o f t h e c e n t r a l g o v e r n m e n t s w i t c h i n g from quasi-compulsory d e l i v e r i e s t o p r i c e i n c e n t i v e s in the near f u t u r e . The t u r n o v e r t a x e s a p p l i e d t o a g r i c u l t u r a l products sold through the state r e t a i l o u t l e t s provide a s i g n i f i c a n t p r o p o r t i o n o f budgetary revenues. To r e l y on p r i c e i n c e n t i v e s t h e g o v e r n m e n t w o u l d be r e q u i r e d t o s u b s t a n t i a l l y increase t h e i r purchase p r i c e s .  181  p o i n t e d o u t i n t h e above e x a m i n a t i o n o f t h e S o v i e t economic system.  A number o f t h e s e i n e f f i c i e n c i e s have been p a r t i a l l y  (and i n some cases s u b s t a n t i a l l y ) reduced by t h e m o d i f i c a t i o n s made t o t h e a l l o c a t i o n system i n t h e p a s t two decades. other remaining  Some  i n e f f i c i e n c i e s , f o r example t h e c o h e r e n t s p e c i -  f i c a t i o n of output plans, i n s u f f i c i e n t s p e c i a l i z a t i o n o f prod u c t i o n , and p r o d u c t i o n  shutdowns due t o t h e l a t e a r r i v a l o f  i n p u t s u p p l i e s may p o s s i b l y be r e d u c e d i n t h e f u t u r e by improved data processing techniques i n producer goods. The  and by c o n v e r t i n g t o w h o l e s a l e  trade  1  1965 r e f o r m s s i g n i f i c a n t l y r e d u c e d t h e r e l a t i v e  scope o f t h e c e n t r a l i z e d d i r e c t i v e s i n g u i d i n g r e s o u r c e t i o n by s u b s t i t u t i n g 'economic l e v e r s ' , i . e . , p r o f i t s ,  allocacapital  c h a r g e s , and i n c e n t i v e funds t o h e l p r e g u l a t e and c o n t r o l t h e economy. was  Nevertheless,  not diminished;  t h e dominance o f c e n t r a l i z e d d i r e c t i v e s  t h e r o l e o f t h e 'economic l e v e r s ' was t o  promote adherence t o t h e p h y s i c a l (and f i n a n c i a l ) v a r i a b l e s t a r g e t e d by t h e c e n t r a l a u t h o r i t i e s . The i n c r e a s e d r e l i a n c e on  'economic l e v e r s ' was t h e l a s t o f t h e many m o d i f i c a t i o n s  that  have been made i n t h e S o v i e t g u i d a n c e system i n an attempt t o o b t a i n r a t i o n a l i t y a t t h e microeconomic l e v e l .  The  pre-reform  g u i d a n c e system had r e l i e d o v e r w h e l m i n g l y on a d m i n i s t r a t i v e c o n t r o l s and c e n t r a l l y e s t a b l i s h e d i n p u t and o u t p u t norms i n an ''"Kosygin has announced t h e c e n t r a l government's i n t e n t i o n s t o c o n v e r t t o w h o l e s a l e t r a d e i n p r o d u c e r goods. (Kosygin, D i r e c t i v e s o f t h e F i v e - Y e a r Economic Development P l a n o f t h e U.S.S.R. f o r 1971-1975, p.59.) Formal a p p r o v a l by s u p e r i o r a d m i n i s t r a t i v e a u t h o r i t i e s was r e q u i r e d f o r o v e r 99 p e r c e n t o f the w h o l e s a l e t r a d e i n p r o d u c e r goods c a r r i e d o u t i n l a t e 1969. (Schroeder, " S o v i e t Economic Reform a t an Impasse", pp.39-40.  182  attempt to o b t a i n economic l e v e l .  the e l u s i v e g o a l o f e f f i c i e n c y a t the The  f i n a n c i a l targets  r e s u l t i n g vast array of p h y s i c a l  stifled  l a c k o f coherency i n the t a r g e t e d  the  i n c e n t i v e scheme used to encourage the  t a r g e t s , d i d not  stimulate  f u l f i l l m e n t o f these  I n n o v a t i o n was  i n s u f f i c i e n t , and  level.  d i r e c t i v e s , as w e l l as i n  the e f f i c i e n t c a r r y i n g out  o b j e c t i v e s o f the n a t i o n a l p l a n . s p e c i a l i z a t i o n was  and  i n i t i a t i v e at the e n t e r p r i s e  The  production  of  The  o f the  'economic c o s t s '  modifications  annual p l a n s ,  was  directed  made to the  through u t i l i z i n g the  1  created  the  'automatic' response toward  e f f i c i e n c y at the e n t e r p r i s e  has  implementation o f  'economic l e v e r s ' noted  p r i s e bonus schemes to t h e i r p r o f i t s . levers  targets,  involved.  above, were an attempt to induce an greater  the  stifled,  toward f u l f i l l i n g the p r i n c i p a l i n c e n t i v e - r e l a t e d p l a n regardless  micro-  l e v e l by The  r e l a t i n g enter-  use  a corresponding increase  o f the  'economic  i n the d i r e c t i v e  r o l e of i n d u s t r i a l wholesale p r i c e s a t the micro l e v e l to e f f e c t the p r e f e r e n c e s of the c e n t r a l a u t h o r i t i e s .  Consequently, i n -  d u s t r i a l wholesale p r i c e s have been manipulated to encourage various the  diverse objectives:  s u b s t i t u t i o n of scarce  some p r i c e s are v a r i e d to encourage i n p u t s , o t h e r s are v a r i e d t o  l a t e improvement of product q u a l i t y , induce the o f new  technology, or the  i n t r o d u c t i o n o f new  essence, the o b j e c t i v e s o f the cate,  implementation  products.  autonomous, r a t i o n a l  d e c i s i o n making t h a t i s c h a r a c t e r i s t i c of c o m p e t i t i v e The  success of the  In  'economic l e v e r s ' i s to d u p l i -  i n s e l e c t e d spheres of a c t i o n , the  economies.  stimu-  'economic l e v e r s ' i n  e f f i c i e n c y , w h i l e s i m u l t a n e o u s l y encouraging the  market stimulating  fulfillment  of  183 the o b j e c t i v e s of the economic  p l a n , has been l e s s t h a n complete.  S i n c e the o n s e t o f the new microeconomic guidance system, the number o f i t e m s i n the a s s o r t m e n t p l a n s has d i s p l a y e d a tendency to i n c r e a s e .  R e i n f o r c i n g t h i s i n d i c a t i o n of a lack of coher-  1  ency i n t h e microeconomic guidance system i s the f a c t t h a t the number o f persons employed 38 p e r c e n t between 1964 and  i n s t a t e a d m i n i s t r a t i o n has 2  increased  1970.  The above-noted t e n d e n c i e s toward i n c r e a s i n g t h e l e v e l o f a d m i n i s t r a t i v e guidance m a n i f e s t s  the c e n t r a l problem  i n the S o v i e t form o f a l l o c a t i o n , the l a c k o f an  inherent  economically  s u b s t a n t i a t e d c r i t e r i o n o f v a l u e which would a l l o w  decentralized,  autonomous d e c i s i o n making, d i r e c t e d toward f u l f i l l i n g the exp e c t a t i o n s of the Party l e a d e r s h i p .  The l a c k o f coherency i n  the S o v i e t p r i c e system, and the f a c t t h a t p r i c e s do n o t a t t e m p t t o i n d i c a t e s c a r c i t y - u t i l i t y r a t i o s has two n e g a t i v e quences:  1) the l a c k o f an e c o n o m i c a l l y  conse-  substantiated  criterion  o f v a l u e e l i m i n a t e s t h e p o s s i b i l i t y o f making optimum c h o i c e s  to  a c h i e v e d e f i n e d ends, i . e . , r a t i o n a l s u b s t i t u t i o n i s i m p o s s i b l e ; 2) i t n e c e s s i t a t e s p r e p o n d e r a n t a d m i n i s t r a t i v e guidance t o d i rect productive  activities.  any degree o f economic  I f the c e n t r a l p l a n s  r a t i o n a l i t y , t h e y must be  are t o possess constructed  w i t h the a i d o f s c a r c i t y p r i c e s , based upon p l a n n e r  preferences.  The t a s k o f c o n s t r u c t i n g such a p r i c e system w i t h o u t the a i d o f a competitive  market has proven t o be  impossible.  "'"Michael E l l m a n , Economic Reform i n the S o v i e t U n i o n , p.305. A p a r t o f the i n c r e a s e i n a s s o r t m e n t t a r g e t s can be a t t r i b u t e d t o t h e i n c r e a s i n g c o m p l e x i t y o f p r o d u c t i o n mixes. 2 S c h r o e d e r , " S o v i e t Economic Reform a t an Impasse", pp.37-38.  184  BIBLIOGRAPHY OF SOURCES  CONSULTED  Books Abramov, V.A. The E c o n o m i c s o f A g r i c u l t u r e . P u b l i s h e r s , 1967.  Moscow:  Progress  A l l a k h u e r d a n , D.A. Soviet Financial P u b l i s h e r s , 1966.  Moscow:  Progress  Ames, Edward. S o v i e t Economic I r w i n I n c . , 1965.  System.  Processes.  Homewood:  Richard  B a b i t c h e v , E. "The I n t e r n a t i o n a l Bank f o r E c o n o m i c C o o p e r a t i o n " Money a n d P l a n . 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Rand p a p e r ( P - 3 6 7 4 ) . Santa Monica: Rand C o r p o r a t i o n , 1967. R o n i m o i s , Hans. "On S o v i e t M o n e t a r y , and on Some P r o b l e m s R e l a t e d t o M o n e t a r y C i r c u l a t i o n i n t h e U.S.S.R." P a p e r p r e s e n t e d a t U n i v e r s i t y o f S t o c k h o l m , 1945.  196  APPENDIX I OUTLINE OF THE SCHEDULES FOR PREPARING ANNUAL PLANS AND BUDGETS* J  Agencies  F  M  A  J  J  M  A  0  S  D  N  Supreme S o v i e t Council of Ministers, U.S.S.R., P a r t y C e n t r a l Committee G o s p l a n U.S.S.R,  ii  \  1  4 i  r  M i n i s t r y of Finance, U.S.S.R. \  S t a t e Committees and agencies  2  governments  Republican m i n i s t r i e s , (sovnarkhozy)  3  /  v  1  i  ' t  5  j  6  \  10  '\ •\ •\  .» "A \ 't 1 1\  t •  \9  9 •\  ,\ •  \ '  A  \ i  1  1  Economic p l a n s F i n a n c i a l plans Source: System, p.51.  J:  11  •  •\  local  E n t e r p r i s e s and o t h e r primary u n i t s  1 1  J  O b l a s t , k r a y , A.S.S.R. governments Rayon and o t h e r governments  k  4  U.S.S.R. m i n i s t r i e s and a g e n c i e s Republican  A •\  51  111 r  12 Budgets  U.S. Bureau o f t h e Census, The S o v i e t F i n a n c i a l  197  KEY 1.  P r e l i m i n a r y d r a f t s o f " m a t e r i a l b a l a n c e s " f o r c r i t i c a l comm o d i t i e s , summary n a t i o n a l - i n c o m e type b a l a n c e s ( n o t i n c l u d i n g t h e c o n s o l i d a t e d f i n a n c i a l p l a n ) , and " c o n t r o l f i g u r e s . "  2.  P r e l i m i n a r y t a r g e t s and l i m i t s f o r o u t p u t and consumption of c r i t i c a l commodities, c a p i t a l investment, l a b o r product i v i t y , cost reduction, e t c .  3.  D r a f t s o f economic p l a n s i n expanded form. C o p i e s a r e a l s o s e n t t o t h e C o u n c i l o f M i n i s t e r s U.S.S.R. (not shown).  4.  D r a f t o f t h e a g g r e g a t e d " S t a t e P l a n f o r t h e N a t i o n a l Economy o f t h e U.S.S.R."  5.  P r e l i m i n a r y d r a f t s o f summary f i n a n c i a l p l a n s o f economic a g e n c i e s and e s t i m a t e s ( i . e . , agency budgets) o f budgetsupported agencies.  6.  P r e l i m i n a r y d r a f t s o f t h e c o n s o l i d a t e d s t a t e budgets o f u n i o n - r e p u b l i c s , w i t h d r a f t summary f i n a n c i a l p l a n s and e s t imates ( 5 ) a t t a c h e d . C o p i e s a r e a l s o s e n t t o G o s p l a n U.S. S.R. and t h e C o u n c i l o f M i n i s t e r s U.S.S.R. ( n o t shown).  7.  D r a f t o f t h e c o n s o l i d a t e d " S t a t e Budget o f t h e U.S.S.R.," w i t h d r a f t s o f summary f i n a n c i a l p l a n s and e s t i m a t e s o f a l l - u n i o n agencies attached.  8.  D i s s e m i n a t i o n o f t a r g e t s and l i m i t s i n t h e d r a f t n a t i o n a l economic p l a n . I n i t i a l , i n t e r m e d i a t e , and t e r m i n a t i n g d a t e s are o b s c u r e , and p r o b a b l y v a r y f o r d i f f e r e n t t y p e s o f i n d i c a t o r s . Not shown i s an upward f l o w o f d e t a i l e d s p e c i f i c a t i o n s f o r a l l o c a t e d m a t e r i a l s and p r o d u c t s from consumers up t o p l a n n i n g o r " p l a n - r e a l i z a t i o n " a g e n c i e s ( e . g . , s o y u z g l a v k i o f Sovnarkhoz U.S.S.R.) and subsequent downward f l o w o f p r o d u c t i o n and d e l i v e r y a u t h o r i z a t i o n i n f i n a l d e t a i l .  9.  D i s s e m i n a t i o n o f b u d g e t s , f i n a n c i a l p l a n s , and e s t i m a t e s t h r o u g h t h e network o f f i n a n c e o r g a n s . The t i m i n g o f t h i s f l o w i s o b s c u r e . Approved summary budgets and p l a n s r e t u r n i n g from t h e s u p e r i o r l e v e l a r e t i m e d t o meet p r e l i m i n a r y and summary d r a f t s coming up from t h e i n f e r i o r l e v e l . Fina n c i a l p l a n s and e s t i m a t e s a r e approved a t each l e v e l a f t e r r e c e i p t o f approved budgets from above.  1 0 . R a t i f i e d budgets. 1 1 . R a t i f i e d n a t i o n a l economic p l a n s .  198 12. D e t a i l e d " t e c h n i c a l - p r o d u c t i o n - f i n a n c i a l p l a n s , " o r t h e i r e q u i v a l e n t , drawn up and r a t i f i e d a t t h e e n t e r p r i s e l e v e l . R e f e r e n c e c o p i e s a r e s e n t up t o t h e n e x t a d m i n i s t r a t i v e l e v e l f o r c o n t r o l purposes (not shown).  

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