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CHAPTER 1

A THEORETICAL MODEL OF SOVIET ECONOMIC PLANNING

1.1 General

This chapter exaaines the Soviet econoaic planninc ■atrix, the

theoretical foundation of centralized econo■ ic ■anace■ent in the USSR.

Althou1h the Western economist ■ i1ht find so■e of the concepts self­ evident, the author believes their inclusion at this point in the

■onoeraph will aid the reader in understandinc the Soviet approach

towards lar1e-scale econo■ ic ■anace ■ent.

1.2 The Econo■ ic Planning Matrix

The first step in econo■ ic planninc is co ■pilinc a list of production require■ents for a civen population and econoaic base.

This list is constantly refined and supple■ented, but the nu■ ber of such chan1es by co■parison with the overall size ot the list is insignifi­ cant. Within a sincle planninc period (a year or even a five year plan) it can be assu■ed to be constant and civen.

Co■plex production-de■and relations, includinc the necessity of continued capital invest■ent in production facilities require the for­

■ation, directly or indirectly, of an econo■ ic planninc ■atrix as shown in Pieure 1.1.

The left colu■n of Fipre 1.1 represents a list ot individual and public consu■ption ite ■ s (includinc plant equip■ent) , which ■ust be pro­ duced in the planninc period. The second colu■n la the de■and forecast tor each of these ite■s. The ways and ■ethods of forecastinc ■ay differ

3 Articles ot De ■and ~ Expenditure ot Resources

Consu■ption Forecast R(l) R(2) R(3) R(i) R(j ) R( ■)

C(l) P(l) S(ll) S(21) S(31) S(il) S(jl ) S(al)

C(2) P(2) S(12) S(22) S(32) S(i2) S(j2) s(a2)

------·------

C(i) P(i) S(li) S(2i) S(31) S(U) S(ji) S(ai)

------

C(j) P(j) S(lj) S(2j) S(3j) S(ij) S(jj) S(aj)

------

C(n) P(n) S(ln) S(2n) S(3n) S(in) S(Jn) S(an)

Pi111re 1.1 Bcono■ ic Plannin& Matrix.

4 and are discussed below. Por now we will assuae that the de■and fore­

cast tor each consuaption ite■ is iiven.

All subsequent table coluans are constructed in the sa■ e ■anner.

Bach coluan headini bas the na■e ot a particular production resource

R(l), R(2) ..• R(i) ••. R(j) ••. R(a). The resource expenditure nor■ or

production require■ent R(i) tor the production ot consuaption ite■ C(j) appears in the box for■ed by the intersection of consuaption uni t C(j) and resource R(i). We will call this nor■ or require■ent S(ij) .

1.3 Public Consuaption

Nor■ settine, i.e., the establishaent of tareet fleures for resource expenditures, represents one of the ■oat labor intensive and co■plex ele■ents of econo■ic plannine and will be exa■ined in succeedini chapters. At this staee ot analysis we will assuae that production require■ents, like de■and forecasts, are eiven.

The forecast for the co■plete expenditure ot resource R(i) for the production ot consuaption ite■ C(j), obviously, is equal to S(ij) x P(j). It is presently sufficient to enuaerate these products for each line of our table in order to deter■ine the de■and for resource R(i) for the entire econo ■y:

J•n PR(i) • t (S(ij) x P(j)) (1.1) j•1

Repeatine this operation for each colu■n of the ,- table, we obtain a ayate■ of n equations such as 1.1, which can be viewed as the si ■plest

■odel of a national econo■ ic plan. It asauaes that a list of consuaption

5 !teas and correspondine deaand forecasts tor the plan period are

required to deteraine (plan) the resource expenditure tor this period.

The resource list and itea list are autually independent.

This approach is appropriate when dealine with public conswaption

!teas and correspondine equations ot the above type can be solved inde­ pendently.

1,4 Inter■ediate Consu■ ption

In a aodern econo■y, 80 to 85 percent ot production output is spent

in the sphere ot inter■ediate consu■ ption and not in individual or public consu■ ption. An inter■ediate consu■ ption itea and a production

resource are one and the sue. In other words, value PR(i), whi ch represents the entire national econo■ ic expenditure of resource 1, and value P(i), which represents the consuaption forecast ot ite■ 1 are equivalent. Thus, the equations in Pieure 1.1 beco■e a systea ot hieh order linear equations. This systea is difficult to solve, as shown below.

Bvaluatine this difficulty in quantitative teras, we observe that the econoay ot a developed country produces approxiaately 2 ■ illion pro­ ducts. Consequently, the order of the correspondine systea of equations equals 10' . With the presence ot aodern coaputer equip■ent, the dif­ ficulty of solvine a syste■ of equations is deterained by the nuaber of binary arithaetic operations required, which is proportional to t he square of the order of the ayate■ . Por our ayste■, it is 10 14 t i mes

~reater than tor a first order syste■ of one equation. Solvine a first order "systea" requires no fewer than 10 binary operations and aany_aore in practice. Therefore, the above systea requires ■ore than 10 1 1 opera­ tions. Considerine that the output of the ■oat powerful ■odern coaputera

8 is close to 10 7 operations per second, such a syste■ would require 10 1 seconds ( ■ore than 3 years) ot co ■ puter ti ■ e alone. The unreality ot such an approach is obvious.

Providing it can be obtained, a solution to the syste■ shown in

Fipre 1.1, ■ay turn out to be ■athe■atically irreproachable but econo­

■ically unacceptable. Production possesses inertia and it the system solution ditters substantially fro ■ the actual production volu■e of corresponding products in the previous period, the given solution ■ay not be possible to i ■plement in practice. Theretore, the given syste■

■ust be supple■ented by inequalities of the type

P(i) - 4(1), F(i), P(i) + 4(1) (1.2)

where P(i) is the actual production volu■ e in the preceding peri od and 4(1) is the acceptable deviation, according to production delay con­ ditions. Inequality 1.2 is constructed tor each product. Therefore, syste■ 1.1 ■ust be solved as a constrained or "unsatisfied" system, per­

■itting nu■erous ■athe■atically correct solutions, fro■ which solutions are then selected which aatiaty the above syste ■ ot inequalities. The difficulty of solving the ■odel, already extre■e, increases con­ siderably.

1.5 Pour Para■eters of the Econo■ ic Planning Matrix The generally accepted (and at present probably the only) solution to the proble■ discussed above consists of repeatedly reducing the order of the ■odel. In practice, this ■eans grouping si ■ ilar products in a

"cluster," replacing ■any lines of the ■atrix and, correapon~lngly, ■any equations of ayate■ 1.1 with one line and one equation tor the cluster (See Chapter 3). Thia approach sharply changes the picture. For

7 exaaple, if the cluster i?"Oups an avera1e of 100 products, then total

required co■ puter ti ■e is reduced by a·factor of 10,000 to 3 hours.

Even if it is necessary to increase this ti ■e 10 or 20 fold, by takin1

into account the econo■ ic li ■ ita.tiona described above, it will re■ain within reasonable li ■ its, i.e., hours and days. Therefore, product cluster tor■ation is the first and ■oat i ■portant technique of econo ■ ic plannin1 in the Soviet Union.

The second obvious proble ■ is the already ■ entioned production inertia. Since the indices ot a plan period differ~ fortiori fro■ those of the previous period, it ■uat be possible to actually chan1e these indices. In other ·words production reserves ■u~t be planned and

for■ed, a factor which also de■ands analysis (See Chapter 2).

A third proble■ deter■ined directly by the type of equations seen in Pipre 1.1 is the presence ot resource expenditure nor■a for the pro­ duction ot each product, or the "nor■ative base" (See Chapter 3). The econo■ ic plannin1 ■atrix requires the presence of such nor■ s in each box. It 1oes without sayin1 that in the overwhel■in1 ■ajority of instances a 1iven resource is not spent at all for the production of a particular product, or its expenditure is ne1li1ible. Expenditure norms in these boxes equal zero. But takin1 into account the size of the

■atrix, even a s■all percenta1e of nontrivial nor■s ■akes it necessary to for■ and ■aintain a nor■ative base tor ■ illions ot articles.

The fourth and final proble■ ste•in1 fro■ the equation syste■ in

Pipre 1.1 consists ot deaand torecastin1 (See also Chapter 3). Demand torecastin1 is not always essential tor interaediate consumption articles since they are aiaultaneously also production resources, which can be aodeled by other ■athe■atical ■ethods. Nevertheless, the need for deaand torecaatinc for public consumption articles is · undi ■ inished.

8 Moreover, in the tinal analysis all econo ■ ic activity is ulti ■ately

reduced to satistyini consuaer de ■and. Theretore, accurate torecastin1

of cons1111er de■and is a necessary prerequisite of all econo■ ic plannin1. Porecastin1 is also necessary when plannin1 the production ot capi­

tal 10ods. We have already referred to a syste■ of inequalities (1.2)

which li ■ its the area ot econo■ ically acceptable solutions. Obviously

it is !■possible to construct such a syste■ without forecastin1 per­

■ issible production vol1111e deviations tro■ the level achieved in the precedin1 period. Purther, resource interchan1eability should be con­

sidered. It, tor exa■ ple, electricity can be produced by ther■al,

hydraulic and nuclear power stations, then equation 1.1 as it relates to

the production ot electricity ■ust be supple■ented by a specitication which reflects the proportion of each of these sources in its overall

production balance. Such a specitication can be tor■ulated only throu1h

torecastin1.

More detailed analysis of this para■ eter constitutes an object of a

separate study, but two co■ plexities can be ■entioned here. Pirst, an

econo■ically sound solution ■ust clearly be acceptable tor ■ore than one

plannin1 period. Por exa■ ple, hydraulic or nuclear power plants require

lar1e initial invest■ents which beco■e trozen (econo■ically useless) tor a lone ti ■e: ther■al plants are ■uch cheaper and can be erected quickly, but their product is ■ore expensive. This particular co■plexity, however, does allow tor for■alized solutions. In the si ■ plest of the ■,

•zero-year" value Mo of ■oney Mt to be spent in year "t" is calculated usin1 equation

Mo• Mt(l-D/100), (1.3)

9 where X~ represents expected annual earnings: then, by totaling tor -T years, we obtain ■ore or less accurate comparable values of every ver­ sion. Ot course, the "zero-year" and period T ■ust be properly selected to include the longest construction period ot all co■pared versions, as well as the longest period in which the invest■ents are expected to be paid otf.

The other co■plexity is of a non-econo■ ic nature. In the above exa■ ple, nuclear power plants create hazardous wastes: hydraulic and coal plants dra■atically change cli ■ate and conditions of life tor fauna: oil and gas plants spend non-recoverable natural resources, etc.

No tor■alized ■ethods ot co■parison of production versions by non­ econo■ ic criteria can exist. Therefore, forecasting of alternative inputs beco■es ■ore art than science.

1.6 Su■■ary

It should be noted that none of the para■etera enu■erated is in itself, related to political or ideological factors. Solving tor each of the■ is equally necessary for any association which requires econo■ ic planning -- tro■ a fa■ ily to the govern■ent ot a country. However , the

■eans ot solving the■ will differ in ways that ■ay well be related to political or ideological factors. The proble■-solving approaches the■- aelves contain the operational causes ot a given level ot Soviet econo­

■ ic pertor■ance over a planning period. They are also indicative ot the functional difference between the Soviet and Western econo■ iea.

While Soviet econo ■ ic planning can be described by ■uch ■ore co■plex ■odela, the author believes that they are not as well suited tor hi1hli1htin1 the salient points of divergence between econo■ ic theory and practice in the USSR. By focusing the discussion on public and

10 inter■ediate cons1111ption require■ents and introducing four planning

para■eters, i.e., product clustering, production reserves, ■aterial and

labor standards, and de■and forecasting, he encourages the reader to adopt a prapatic attitude toward proble■-solving in a planned econoay.

The si ■ilarity between the reader's view and that of the Soviet planner

■ay co ■e as a suprise.

11 PRODUCTION RESERVES

2.1 General

• No discussion ot Soviet econo■ ic plannine would be co■plete without

an exa■ ination of production reserves. Production reserves are not

accounted tor in the econo■ ic plannine ■atrix and, in ■any cases, are

expressly torbidden by Gosplan. However, their use at ■ost levels of

the Soviet econo■y represents one ot the lareest "unotticial" !actors

affectine econo ■ ic perfor■ance in the USSR. Autono■ous enterprise-level

decision-■akine on a nationwide scale results in their practical

e■ployaent in ■oat Soviet factories. Consequently, Soviet planners

tacitly accept the■ in e■ployine techniques to tailor ofticial plans to

real lite conditions. This chapter exa■ ines the i ■pact of production

reserves and ot the ensuine resource redundancy on Soviet econo■ ic per­

for■ance. It focuses on the pheno ■ena ot butter and peak reserves and

the countervailine eovern■ent drive to increase production efficiency. Within this context, the chapter analyzes three consequences of the

excessive reliance on production reserves in the Soviet econo■y: !!ru!!­

torstvo, or officially supported local party orpnization ca■ paips to increase utilization ot plant capacity; bidden or unofficial reserve

accu■ ulation on the part of individual plant ■anaeers who exercise a

decree ot autono■y in securine unreported ■aterials; stor■in1

(shtur■ovshchina), ■ assive end-of-the-■onth increases in plant opera­

tion to ■ake-up tor prior production lacs, with co■-ensurate decrease

in quality control. All involve a ■easure of decentralization in eco­

no■ ic decision-■akine at odds with official policy, yet essential to the

12 noraal functionini of the Soviet econoay. This paradox illustrates the streniths and weaknesses of the centralized plannini system in the USSR.

2.2 Resource Redundancy

Returnini to aodel 1.1, we assuae that the planned voluae of pro­

duction of product i is Q(i) ite ■ s. The nor■ tor the expenditur e of resource j for the production of product i is S(ji) units. Consequently, it aust be stipulated that M(j) • S(ji) x Q(i) un i ts of resource j represent sufficient capacity for the entire planned voluae

of production of product i. This reasonin1, which is ■atheaati c ally

irreproachable, is econoaically incorrect because it does not take into

account the physical nature of resources and their behavior in t he pro­ duction process. Let us exaaine aachine tiae of a certain piece of aachinery. This

aachinery can function nor■ally 1iven the required ener1Y, priaary and secondary aateri~ls, and ·work force. If any of these conditions are not

■et, the ■achinery ceases providin1 a product.

Now let us look at a raw ■aterial or se■ifinished product fro■ which to prepare an article. In converse relationship to the previous

case, it is necessary to deliver the 1iven resource to the ■anutacturini facility. In the Soviet Union, the delivery of needed production resour­ ces to a elven plant or enterprise so■etiaes requires several weeks. An undelivered resource does not contribute to production efficiency.

Purtheraore, we ■uat consider the nature of the production proceaa

itself and deaands ■ade upon it. Pinally, we observe an ener1Y resource. The consuaption of electrical and ther■al power chan1ea sharply dependin1 on the ti ■ e of day, day of the week and season. If ener1Y 1eneration is insufficient

13 at peak-use hours, the planned production voluae is likewise insuf­ ficient, re1ardless o~ excess capacity durin1 off-peak hours.

In the USSR, resource redundancy in the for■ of production reserves presents a partial solution to these proble■ s. It the nor■ al tunctionin1 of ■achinery requires the si ■ultaneous · observance of k ■utually indepen­ dent conditions, and the probability of observin1 condition i is equal to p(i), then the avera1e probable product output fro■ equip■ent with a rated power ot M(J) is Q(j) • M{j) x p(l) x p(2) ••• x p(i) ... x p(k) (2.1) units. Assuain1 that the nuaber of conditions is equal to 10 and the

Probability of observin1 each conditio~ is 98 percent (a very hi1h production or,anization level), the avera1e probable product output totals 84 percent of the rated output. In other words, ■erely to pro­ vide a planned output at the level of Q(j) the enterprise ■ust have a production capacity on the scale of approxi■ately M(j) • 1.2 Q(j ) . In fact, the reserve production capacity ■uat be still ,reater, in order to have the capability to produce additional ,oods if necessary. The rate of industrial ■acbinery utilization in the West is 75-77 percent. Such a percentap represents a necessary 30 percent overexpenditure of capi­ tal invest■ent and so ■e on,oin1 losses.

The reserve of production capacities which we have exa■ ined , taken by itself, is econo■ ically useless tor■ the plant ■anapr's perspective.

It ■ust be supple■ented by so-called "buffer reserves" or current and . aurplua production stockpiles. Durinc periods ot nor■al plant opera­ tion, with no disruptions in the delivery and flow of ■aterial and

1oods, current production stockpiles are used to ■eet plan tar1ets while surplus production stockpiles are aupented. Durin1 an interruption of plant supplies as the result of a production or transportation

14 bottleneck elsewhere in the economy, surplus production stockpiles are expended while current production stockpiles are raised. Similar reser­

ves ot ■aterial and finished ioods, toraed at the beiinnine and end ot

production cycles, co■pensate tor irre1Ular delivery of supplies and

ioods transport. For the case of utilities such as electrical and ther­

■al power plants, the analoious reserve is the so-called "peak reserve"

which co ■pensates tor sharp increases in enera, (or water) use.• Soviet

production efficiency is co■plicated by an inconsistent official

approach to the plannini and ■aintenance of various kinds of production

reserves. The State Conittee on Material and Technical Supply

(Gosudarstvennyi ko■ itet po ■aterial'no ■y i tekhnichesko■y snabzheniu

-- Gossnab) requires the ■aintenance ot production cycle, current pro­

duction, and surplus production butter reserves by every plant and enterprise. Dependin1 on the type of production, Gossnab stipul ates the

■aintenance ot irreducible reserves ot ■aterials and finished 1oods,

consistin1 of 2 to 3 weeks supply (and in so■e cases, e.1., heatinc

oil, sand, a ■onth supply). National strate1ic reserves ot raw

■aterials and food stutts, tor which there is a 3 to 4 year supply in

selected product cateaories are unique in this respect.

The above plannin1 acco■plish■ents ■ust be viewed in the context

• ot a Soviet production reserve nor■ ot 2 weeks. Interoperational butter

stocks are usually s■aller and seldo■ exceed a day's nor■. However,

even here there are exceptions. In the Volp Auto■obile Factory

(Volzhakii avto■obil'nyi zavod), built in Toliatti by the Italian fir■

Piat to produce Zhiguli and Lada ■odel cars, there is a special punchina

• Many Soviet plants and enterprises also ■aintain e■eraency reserves tor catastrophic predicuents. Such reserves play no re,ular role in the production process.

15 shop reserve. Even it the shop completely stops operation the assembly

line can work fro ■ this reserve for several days . According to the

, assessaents ot specialists, tro■ 20 to 25 percent ot the Soviet Union's

annual production voluae is tound in reserves of various kinds of aaterials, in-progress production, and finished goods.

By co ■parison, the Soviet energy industry is in a favorable peak

reserve position. Instances ot interruptions in power are co■pa ratively

rare and are ■ore likely associated with eaergencies than with i nade­ quate peak reserves. In the USSR, the power industry in general and the

electric power industry in particular have developed at exceptionally

rapid rates. It is not uncouon tor a aajor electric power station to

be built prior to the actual settle ■ent of electricity consuaers . The

best known exuple ot this type ot construction tiaetable is the construction ot the Bratsk Hydroelectric Power Station in eastern Siberia, the largest such station in the Soviet Union, approxiaately

three years prior to the erection of its ■ain consuaer, the Bratsk Alu­

■ inu■ Plant. The situation is drastically different for production capacity

reserves which are, in ettect, illegal . A chronic shortage of ■achinery

is the ■oat likely reason tor the harsh official attitude toward produc­ , tion capacity reserves. A traditional Soviet disregard tor the probabi­

lity ■ethod of production analysis contributes to this attitude.

The official Party view was expressed under Stalin in a directive

to ■ake 100 percent uee of production capacities over the course of a

given 5-year plan. Any atte ■pts to plan and organize production on the

basis of probability analysis and to establish reserve capacities were

actively and often ruthlessly discouraged. Por, exaaple, Western tir■ s which built factories in the USSR during the first years of industrial!-

16 zation in the late 1920s and early 1930s were accused of deliberately understatini rated product outputs. Additionally, ■any Soviet spe­ cialists were labeled "saboteurs" and "wreckers" and were subject to the death penalty. At present advocates of ■athe■ atical econo ■ ic and probability analysis of production ■ethods are per■ itted to forward their concepts. However the directive callint for the 100 percent use of production capacities re■ains in effect. It bas three consequences for the Soviet econo ■y which are ■uch ■ore serious than the nonachieve­

■ent of plan tariets; novatorstvo, unofficial reserve accu■ulation, and shtur■ovshchina. These are exa■ ined below.

2.3 Novatorstvo The first consequence of the party directive is novatorstvo. In official Soviet lexicon, novatorstvo is a ■ass worker ■ove■ent toward technolo1ical pro1ress and i ■prove■ents in the use of production capaci­ ties. The theory behind novatorstvo states that the Soviet worker co■- bines practical experience with theoretical knowled1e and self interest in the production results. In order to achieve his coal, he devises

■ethods which substantially exceed the rated production indices of his

■acbinery.

In practice, novatorstvo ste■s fro■ autono■ous decisions ■ade on the local Partko■, or Party co•ittee level. Two funda■ ental assu■ p­ tions eovern these decisions. Pirstly, the Partko■ asau■ es that the national leadership will encourace a hypothetical 100- 200 percent utili­ zation of production capacity in order to achieve full production effi­ ciency. Secondly, eiven the tendency of plan tarpta to increase in relation to the rate of production increase it beco■ea risky to exceed production nor■ indices by ■ore than~ - 10 percent. Such a conser-

17 vative posture ■ ini ■ izes the risks associated with under or overachieving a given plan target. Sipiticantly, a degree of decentra­

lization in national econo■ ic planning and function is achieved by these

cautious. party organization initiatives. In a typical case, the Party

desipates a ■odel worker representative as the novator tor a particular production policy. It allocates the necessary resources and trained personnel, tor the project, which it then publicizes as an example of

successful econo■ ic decision- ■aking at the enterprise level . However, it is not in the Party organization's interest to change its publicity caa­ paip it it policy turns out to be unsuccessful.•

In addition to the negative i ■pact novatorstvo often has on plant worker ■orale, it can have a direct influence on the national econo■y.

The best known exa■ples of novatorstvo, expanded to a national scale, support this arguaent. Khrushchev's ■id-1950s ca■paign to keep trucks operating tor 100,000 kilo■eters without repairs, the so-called "100,000 lea ■ove■ent", is the first. Soviet transport enterprises and their drivers were called on to keep their vehicles on the road tor increasingly long periods. Official plan targets soon increased fro ■

100,000 k■ to 300,000 k■; one atte■ pted increase ■andated 500,000 k■.

Given the generally poor condition of Soviet roads, ■aintenance expen­ ditures for participating vehicles began to exceed purchase costs by factors of three and four.

The accelerated production ■ove■ent in the ■etalworking industry in the 1960a is the second exa■ ple of novatorstvo's negative i ■pact on

• The 1upervising econo■ ic ■inistry or Party organization could notice such a, change and atte■pt to introduce refor■ s which aight involve the re■oval of responsible local officials. Consequently, a failed production increase policy often leads to worker de■oralization in the face of substandard plant perfor■ance . .

18 the Soviet national economy. Formally called the "high speed workers'

■ovement," this policy encouraged turners and ■ illing machine operators to adopt cutting practices which exceeded the rated capacities of the

■etal cutting equip■ent by a factor of 15 - 20. Due to the large a■ ount of positive publicity and award-giving which surrounded participating

enterprises, the introduction of precision forging, punching, and

casting ■ethods necessary for low tolerance work and ■aterial economy

was delayed for at least 10 years. This unsuccessful progra■, like its

predecessor, resulted in a sizable waste of raw ■aterials, parts,

finished ■achinery, and labor.

2.4 Unofficial Accu■ulation

Another aspect of the pheno■enon of autono■ous econo■ic decision­

■aking in the USSR is the accepted practice of unofficial planning at

■oat levels of production. A Soviet plant manager, while he ■ay publicly call for 100 percent utilization of production capacities, will

accu■ulate production reserves to coapensate for unavoidable ■achinery

stoppages. Por its part, the ■ain ad■ inistration of the supervisory

econo■ ic ■ inistry tacitly accepts such officially illegal production

reserves because they will ! ■prove plant perfor■ance over the plan

! period. This relation between unofficial reserve accuaulation and offi­ cial production reserve policy is analogous to that between the • no■enklatura plan and official production voluae planning. As a rule,

unofficial reserve accuaulation is the practical ■eans by which factory

level proble■s are solved. Unofficial production reserves enable the

Soviet econo■y as a whole to for■ally retain the ful~-capacity use policy.

On the other band, unofficial production reserve accuaulation leads

to a situation in which no enterprise can per■ it itself to sipificantly

19 exceed its plan target. Such success could lead to an investigation by

the People's Control Couittee (Ko■ itet narodnogo kontrolia -- NKK), or

Goskontrol, a body which enforces econo■ ic legislation. As a result

production reserve accu■ ulation cannot totally co■pensate tor production lags and work stoppages.

2.5 Shturmovshchina

A third phenomenon ot low and ■ id-level decision- ■aking autonomy linked to the full production capacity policy is shturmovshchina or

stor■ ing. The Western reader aight well understand the need to sharply

increase the te■po of factory work during periods of sudden increase in deaand. In the Soviet Union stor■ing is a regular occurrence necessi­

tated by persistent supply bottlenecks which, as we have seen, stem fro ■ production-based econo ■ ic planning. A typical plant's ■onthly produc­ tion schedule is divided into 3 10-day periods: in the first 10 days of the ■onth, 20 to 25 percent of the products are produced; in the second 10 days, 30 to 35 percent; and in the third 10 days, 40 to 50 percent. Production quality varies in inverse proportion to quantity. In the third period the factory technical control section will relax ■any stan­ dards for the sake of around-the-clock production, the shtur■ ovshchina.

During the first 10 days the ■achine operators are not at peak effi­ ciency after the stor■ing of the previous ■onth. Purther■ore, they are still aase■bling products fro■ parts ■ade during the stor■ ing period.

A• a rule, the hiehest quality products are ■anufactured durine the second period ot the ■onth. Custo■er reluctance to purchase anything not ■anufactured during the second 10 d~y period has 0 led to a situation in which the labels on conau■ er goods now show the ■onth but not the day

20 ot ■anutacture. For the sa■ e reason, goods intended for display or

export are selected only fro■ products of the second 10 day period. - Stor ■ ing co ■es about as follows: Central Statistical Administra- tion (Tsentral'noe statisticheskoe upravlenie -- TsSU) regulations sti- . . pulate that products produced in one ■onth cannot be counted as

fulfilling the plan of another ■onth. Therefore, interruptions in pro­ 1

duction ■ ust be co ■ pensated for during the sue ■ onth in which they

occur. Moreover, plants and enterprises ■ust ■eet nomenklatura plan

targets at the beginning of the ■onth and produce goods which yield good

production indices. Only at the end of the ■onth are plant managers

able to concentrate on producing ite■s required by factories in the next link of the production chain. Consequently, a receiving factory expends

its buffer reserves, after which interruptions in work begin. Their

■anagers couonly appoint expediters (tolkachi) to go to the supplying factories in order to speed up deliveries of necessary articles.

However, it is generally the case that only by the end of the ■ onth do

the required ■aterials arrive and around-the-clock work begins to com­

pensate for the lag. At ■onths end, the plant ■anage■ent ■ust offi­ cially attest to the delivery of finished products to the warehouse. In

■any cases this procedure occurs regardless of whether the products are finished: if not it is unofficially understood that they will be

co■pleted in the first days of the following ■onthly cycle. The ad-hoc

decentralized decision-■aking described above leads to a ■onthly pattern

ot atorainc which contributes to the dislocation ot Soviet econoaic

planning. The co■bination of rigid plan co■ pletion dates and the

absence of econo■ically justified redundancy in production capacities leads to production irregularities which cannot be accounted for within

the fra■ework of centralized 1-year and 5-year plans.

21 The USSR does have enterprises which continuously operate at peak

efficiency, such as the Gorkii Auto■obile Factory (Gor'kovskii avtomo­

bil'nYi zavod) which produces Volga ■odel vehicles ienerally reserved

for ■eabers of the party apparatus. Its production capacities, required

reserves, and ■aterial deliveries are included in the no■ enklatura plan,

and its director is, by statute, a deputy ■ inister in the Ministry of

the Autoaobile Industry. Military-related enterprises do not ienerally suffer production interruptions and yield hiih quality products.

Materials delivered to such enterprises are included in the no ■enklatura

plan for non-■ilitary ■ inistries. The hardware they produce is desipated to be delivered to special ■ ilitary representatives

(voenpredy) of the four services of the Soviet Ar■ed Forces.

2.6 Su■■ ary

The pheno■ena of novatorstvo, hidden reserves, and shturaovshchina underline the dep-ee to which Soviet enterprise ■anaiers are able to and indeed, ■ust function in an autono■ous decision-■aking capacity.

Despite their generally neiative consequences for the Soviet econo■y as a whole, these pheno■ena represent concrete, on-the-spot ■anaie■ent decisions to increase an individual enterprise's ■aterial reserves and production efficiency. In the followini chapter the reader will see how this tendency towards decision-■aking autono■y in econo ■ ic policy ■ ani­ fests itself at high planning levels.

22 CHAPTER 3

SOVIET PLANNING PRACTICE MODEL VS. REALITY

3.1 General This chapter covers five officially accepted planning techniques couonly used by Gosplan and ainisterial level planners when devising yearly, five-year, and long-range econo■ic plans for their subordinate enterprises: product clustering, no ■enklatura planning, nor ■ setting for

■aterial expenditure, labor standard setting, and de■and forecasting.

Aside fro■ their official nature, these techniques share a couon, and less conventional trait; they can be i ■ple■ented in ways that vary aarkedly fro■ what Western organizational behaviorists have co■e to reprd as typical for centralized large-scale systeas. As a result of their so■eti ■es unorthodox application-in the production of both inter­ aediate and final consuaption articles these techniques can have widely varying results which are extre■ely difficult to aodel. What can be said is that ■ethodological success has usually been encountered in the area of interaediate consuaption planning. This situation is pri ■ arily due to the fact that the lack of effective ■arket gauging techniques renders de■and forecasting extre■ely difficult tor the planning of con­ auaer goods production.

3.2 Product Clustering

To reduce the co■plexity of planning for an econo■ ic entity as vast as the USSR, Soviet econo■ ists utilize the technique of wproduct clustering.w Each cluster contains a nuaber of products with certain

23 shared characteristics. At the highest levels ot the planning process

(tor example, the Party Prograa), clusters include a rel«tively broad range ot iteas. At the ■inisterial level, planning is also executed

around product clusters. Even at lower levels o( the planning hierarchy, such as the factory, very specific product clusters play a

■ajor role in setting production targets. The ■echanics of product clustering and its i ■pact on the levels .of output, on the exaaple ot Soviet planning tor rolled steel production, is analyzed below.

3.2.1 Levels of Product Clustering

Pipre 3.1 shows a siaplitied diagra■ of product clustering tor

"rolled steel," one of the ■ost iaportant products in a aodern econo■y. It is not possible to coapletely depict all the types of rolled steel

(enco■passing several tens of thousands of products), but this diagra■ gives an i ■pression sufficient tor our analysis. The left part of the diagra■ shows the hierarchy of clustering levels and the right part shows the fields in which they are used.

Bcono■ ists find that the generic cluster na■ e, "rolled steel," is auch too broad to be used in actual planning. The ter ■ appears in ■oat descriptions of the general econoay intended for a broad readership, such as the Soviet Coaunist Party Progra■ or newspaper accounts of five-year plans.

The next two or three levels of clustering, however, are used in docu■ents of the State Planning co.. ittee (Gosplan) and the USSR

Ministry of Ferrous Metallurgy (Ministerstvo chernoi ■etallurgii), i.e., the organizations directly responsible for the production of steel.

These levels of product clustering generally co■prise 10 to 20 lines overall in co■plete texts ot five-year and annual national econo■ ic

24 !!ill of Use

Rolled CPSU Progra■: press Steel

Construction High-Quality Special Steel USSR Gosplan: Steel Steel and Alloys Ministry of Ferrous Metallurgy

Rolled Sheets Rolled Bars Rolled Pipes Saae as above

Plate Steel Bot Rolled Cold Rolled Main ad■ inistration Sheet Steel Sheet Steel ot Ministry ot Perrous Metallurgy

Sheet Thickness Sheet Thickness Sheet Thickness Metallurgical up to l a l - 2 M ■ore than 2 • enterprises

Steel Type Steel Type Steel Type Purchasing enterpri­ ST 2 ST 3 ST 5 ses; USSR Gossnab

Steel, sheet rolled, ST 2, deep drawing, Planning and design GOST 999, thickness 0.9 a, width 700 ■- docuaentation. Set­ ting aaterial stan­ dards. Price forma­ tion.

Pigure 3.1 Product Cluster

plane. It should be noted that, unlike the broader cluster p-oupings featured in newspaper accounts, these texts are not accessible to the ordinary Soviet reader. More detailed levels of product clustering than these are unsuitable for econo ■ ic planning, but are necessary tor planning within the

25 Ministry or Ferrous Metallurgy, its aain adainistrations and ■ e t allurii­ cal plants. At the plant level, products are specified to a degree that

peraits the planner to work out reciprocal plans between rolled steel producers and plants, that are rolled steel consuaers. Indeed, this sue level is used in relations between enterprises (both the pr oducers and consuaers of rolled steel) and the State Couittee for Material and

Technical Supply (Gosudarstvennyi kouitet po ■ aterial'no-tekhn i cheskomy

snabzheniiu - Gossnab).*

Finally, the lowest level in fipre 3.1 is a specific product sub­

cate1ory. It includes data necessary for referral to a particul ar pro­ duct cate1ory at the hi1her levels -- the type of rolled steel, basic

diaensions, quality, etc. Moreover, it also includes individual data which distinpish this product cate1ory: an expanded description, i.e., "deep drawin1 steel," for use in the production of bulk staapinis, and reference to a state All-Union Standard (GOST)••.

• Gossnab does neither plans production nor does it balance it with resource requireaents, but aerely distributes the existin1 or planned aaount aaon1 consuaers. This operation takes place for each resource independently, without re1ard for other resources. Therefore, in contrast to Gosplan, Gossnab is not restricted by the scale of the econoaic aatrix and can distribute a lar1e nuaber of products. •• Every product in the USSR ■ust ■eet a set of specifications listed in docuaent called a "standard" (standart). For products essential to the functionin1 of the national econo■y, standards are issued by the State Co■■ ittee for Standardization (Gosudarstvennyi ko ■ itet po stan­ dartizatsii -- Gosstandart). These standards are called State All-Union Standards (Gosudarstvennyi obshchesoiuznyi standart -- GOST). Standards for less widely used products are issued by appropriate ■inistries and are referred to as Sector Standards (Otraslevoi standart -- OST) or Sec­ tor Technical Specifications (Otraaleyye tekhnicheskie usloviia -- OTU). Products in only li ■ ited use are covered by Republic Technical Specifi­ cations (Respublikanskie tekhnicheskie usloviia -- RTU). Te■porary Technical Specifications (Vre ■ ennye tekhnicheskie usloviia -- VTU) ■ay cover products in their first year of production. VTU are issued by the research institute or enterprise where the new product was deve­ loped . . Each new product ■ust be labeled with a standard iden­ tification, i.e., standard type (GOST, OST, OTU, RTU, VTU), re1istra­ tion nuaber, and so■eti ■es, year of issuance. A new product ■ ay not be ■anufactured, priced, or supplied without an appropriate standard. Knowin1ly aanufacturin1 a product in violation of standard specifica­ tions is ille1al but co.. on, especially durin1 ■onthly shtur ■ ovshchina periods.

26 Consu■ers of rolled steel use .the specifications tor a product category in planning, design and technological docU11entation tor pro­ ducts, as well as in working out ■aterial resources expenditure norms tor these products (a subject which will be discussed in ■ore detail below). This level ot product clustering is also used in working out reciprocal plans between the enterprises which produce and consu■e rolled steel and the State Co ■■ ittee on Prices (Gosudarstuennyi ko ■mitet tsen - Gosko■tsen). Gosko■ tsen never operates with product clusters but only with specific products tor which it establishes prices. Therefore, the so-called "wholesale price handbooks" (spravochniki optovykh !!.!fil}, published by Gosko ■ tsen contain the ■ost co ■plete inventory of products

■anutactured in the USSR. Por exa■ ple, the "rolled steel" product cluster which we exa■ ined occupies ■ore than a thousand pages in these handbooks.

3.2.2 Product Assort■ent

The structure ot a product cluster and the correlation of its levels with the levels ot planning, distribution and consU11ption ot industrial products seea co■pletely logical and thus beneficial to planners.

However, product clustering ■ay also have a negative i ■pact on Soviet econo■ic pertor■ance. Under certain conditions this negative influence can be large enough to seriously affect the output ot entire sectors ot the econoay and thus slow down overall pertoraance. The following exaaple of a hypothetical steel production plan will highlight so ■e ot the negative aspects ot Soviet product clustering.

Assu■ ing that a ■etallurgical enterprise will produce 1,000 tons ot

1-2 • thick sheet steel according to plan require■ents (in accepted

Soviet ter■ inology, "inserted in the plan" (zalozhen v plan) or

27 "tarieted" (dovedion)). At this level of product clusterini one tinds dozens, perhaps even hundreds, ot specific products. Given the absence of aarket forces, the Soviet aanaier aust produce an overall quantity ot

steel as specified by bis plan tar~et. As lonr as he re■ains wi thin the

traaework ot the required level ot the product cluster, be aay produce steel with a thickness ot 1 ■■, 1.5 ■■ or 2 ■■ to ■eet bis tariet.

Since producinr tiner steel requires aore labor, enero resources and

■acbine ti ■ e per ton, the Soviet producer quite naturally prefers to turn out thicker steel. Because ot product clusterinr, the Soviet producer bas no incentive, indeed, feels stronr disincentives to ■eet

consu■ er de■and tor thinner steel. The above exaaple illustrates the principal weaknesses inherent in the Soviet syste■ ot product clusterin1. Within each product cluster, reprdless ot its specifications, output tends toward the producer's advantace in ter■ s of costs and benefits, at the expense of product diversity.

3.2.3 Structure ot Production Tarrets at the Plant Level

Product clusterinr also contributes directly to ■akinr plan tultill■ent a eoal within itself. For exa■ ple, let us assu■ e that the

Soviet producer decides to ■eet consu■er de■and tor fine steel, reprdless ot plan directives. This involves investinr additional labor and resources into production, and perhaps not fultillinr the plan because the producer's own resources are liaited. At year's end , when the producer traditionally receives a bonus baaed on perfor■ance , he will be evaluated accordinr to output. Since his output was ■ore expen­ sive to produce, and since he consciously eaphaaized quality over quan­ tity ot products (which ■ay have aet consu■ er need better), in ter■ s of overall output his perfor■ance will be considered poor. ~onsequently,

28 the producer will opt tor the production ot those goods in the cluster

that are easier to ■ anutacture and those help hi ■ ■eet output targets.

Thus, product clustering, in addition to being a si ■ ple technical ■ ethod used to reduce the size ot the econo ■ ic planning ■atrix, beco ■es a fac­ tor which substantially worsens the quality ot product output. This aspect of product clustering has caused considerable losses to the Soviet

econo■y.

3.2. 4 Consu■er De■and Yet another effect of product clustering is its indirect ability to alter consu■er de■and. Returning to the exa■ple of sheet steel produc­ tion, we assu■e that the consu■er requires 1.2 • thick steel . Instead, the tactory produces and offers 1.6 • steel. Theoretically, the con­ au■er can appeal to the State Arbitration Board (Gosudarstvennyi arbitrazh -- Gosarbitrazh) which is responsible tor _solving disputes between enterprises; such disputes lie outside of court jurisdiction. Gosarbitrazh is authorized to fine the supplying enterprise. The con­ su■er will receive a copy of the arbitration decision but will not receive the needed steel, because Gosarbitrazh is not e■ powered to adjust supply transport plans. In effect, the consu■er endangers the achieve■ent ot his own plan. Consequently, he selects another approach.

Be will accept 1.6 • thick steel and ■ove his product output sti ll turther toward the "advantageous" end ot the cluster, i.e., favorable to the ■anufacturer, in order to co ■pensate for the unavoidable over expen­ diture ot ■aterial input. At the sa■e ti ■e the ■ etallurgical factory baa justification for ■oving its own products furthe~ toward the advan­ tageous end: consu■ers have adapted their own need to the tactory's pro­ ducts.

29 According to professional Soviet publications such as Planovoe khoziaistvo and Ekonomicheskaia gazeta, troa 20 to 25 percent ot rolled steel is lost ■erely through the use of larger sizes than required. In other words, up to 30 ■illion tons ot steel, and all the labor, ■aterial and enerff resources expended to produce it are wasted annually. Moreover, such asyuetrical production in this particular cluster forces the producers of goods requiring steel to shift part ot their resources to ■ anutacturing excessively heavy products.

3.2.5 The 1965 Retor■: Neutralizing the Bttect of Product Clustering One aspect ot the econoaic reforas introduced by Aleksei Kosygin in 1965 was an atteapt to neutralize or at least lessen the negative effect of product clustering. The reasoning behind the reform was straight­ forward. The profit ■otive would, at least in part, ensure acceptable product quality. The 1965 reforas stipulated that resource and contract payments should be incorPf>rated into _Soviet econo■ ic planning to exploit

■arket forces without suffering fro ■ their shortcoaings. Indices of profit, profitability, fixed payments, and payments tor fixed productive capital and other resources were included in enterprise plans. Material incentives, i.e., bonus payments to workers and aanagers and larger social funds tor factories were ■ade dependent upon these indices.

Gossnab decisions about the delivery ot ■aterial resources began to be for■ulated as direct aKree■ents between supplier and custoaer. Higher prices were per■ itted tor resource intensive products in high demand, increasing the profit and profitability of production. Even the idea ot

"econo■ ic autono■y (ekono ■ icheskaia avtono ■ iia of industrial enterprises" I proayshlennykh predpriiatii) was discussed.

Unfortunately, the 1965 retor■ disregarded several prevalent con­ ditions of the Soviet econo■y, including the lack of production incen-

30 tives, as well as the otticial priority accorded to tive-year plan targets. Consequently, it was less successful than at first hoped.

Pro■ a theoretical standpoint, the authors ot the 1965 retor■ overlooked the fact that in a Western ■arket econo■y, profit is not an "index" but a pri ■ e incentive tor increased production; all other indices are planned and ■et due to the existence ot a profit ■otive. By contrast, in the Soviet planned econo■y, production output volu■ e is the principal index tor what is produced; all other indices are secondary and often

■erely deter■ine the required price.

Purther ■ore, five-year plan targets have top priority. Thus, a

Soviet enterprise ■anager has a very strong incentive in ■eeting plan tarpts, lest be place his career in jeopardy.

3.3 The No■enklatura Plan

When the 1965 refor■ atte■pt failed to .adequately deal with the neptive aspects ot product clusterinr, another, •ore conservative

Soviet ■ethod was reintroduced, the "no■enklatura*" planning ■ethod, ot which product clusterinr is an inte~al co■ponent. The no■enklatura plan (plan po no■enklature) is an official Soviet ter■ tor ite■ized planninr of production tarrets for particular products ~ouped into clusters. Today the Soviets rely heavily on_both product clustering and the no ■enklatura planning ■ethod tor output targetinr throurhout their econo■y.

Soviet planners found that it was possible to extract fro■ a detailed list of prod~cts several thousand products and plan tor the■

* Editor's note: The reader should note that the ter■ "no ■enklatura" is also widely used in Western political science in reference to the Soviet party hierarchy of govern■ental appoint■ents. The two ■eanings are linked insofar as it is the no■enklatura which deter ■ ines produc­ tion priorities in the Soviet Union.

31 independently, without reference to other products or to the econo■ ic

planning ■atrix as a whole. Each ot these selected products is included within one or another product cluster and therefore cannot influence

production balance (it, ot course, this balance is kept at the level ot the clusters). This list ot noes and the Soviet planning decisions

■ade utilizing the ■, called the no ■enklatura plan, ■ay be drawn tor

s ■all irOUps within a cluster not ordinarily used in planning; aost often, however, it is set directly tor specified products.

The no■enklatura plan is co■bined with the "iross output plan"

(plan po valu), i .e., the ■ajor categories ot products that ■ ake a

cluster. Together they ■alee up the ■ain production plan ot a plant.

Pipre 3. 2 presents part ot the production plan tor a ■etallurgical

factory. This docu■ent is the creation ot the Main Ad■ inistration ot

the Ministry ot Ferrous Metallurn and a particular ■anutacturing plant and, consequently, it includes two product cluster levels. At the

■ inistry level, a cluster usually consists ot a generic product plus a

■ajor category ot this product and sub-category. Thus, tor exaaple, we

have:

Generic product line: Steel Major category: Sheet steel Sub-category: Cold rolled sheet steel.

In the no ■enklatura ■ethodology reintroduced in 196~, the cluster used in econo■ ic planning becaae ■ore refined. Thus. in addition to the three standard identifiers used above, another subgroup was called tor, i.e., "product desipation".

The colu■n "product desipation" contains the na■es of s■aller categories of products at the level ot which the work ot the factory

32 Type Product Unit ot Quantity Note No. _ Desipation Measure

4. Steel, cold rolled sheet

4.1 Thickness up to 1 u T 1,200

includin~:

a) steel, rolled, 0.45 u 1,000 no fewer Purpose in thick, 600 u wide, GOST linear than 25.0 accordance w/ 00-000 ■eters USSR Council ot Ministers No. 00/111

b) steel, ST 5, unitor■ 1,000 no fewer Purpose, Ukr triued thickness 0.5u sq.•· than 11.5 SSR Council 1,500 x 700 u sheet, GOST of Ministers 1234 No. 0-123

4.2 Thickness 1 - 2 ■a T 1,300

4.3 Thickness ■ore than 2 u T 1,500

Total cold rolled sheet steel T 3,000

Pipre 3.2 Bxuple of Product Output Plan

33 is planned. In the exaaple there are three such sub-categories, ditterentiated by the thickness ot the steel sheeting. Por each sub­ category there is a unit ot ■easure, usually the sue tor the entire cluster (in this case, a ■etric ton), and a plan target (the nu■ ber ot these units to be produced during the plan period). Usually the listing also includes production targets tor shorter periods ot ti ■e within the plan period, but in this case these targets have been o■ itted. A total is given at the end ot the plan section. The plan is then returned to the higher level ot planning, in our exuple to the level ot the Main

Ad■ inistration.

The first category ot the plan, entitled "thickness up to 1 u" has a line "including," acco■panied by two sub-categories. Pirst ot all, we see that these sub-categories include the designations ot specific types ot products, and not designations ot product categories within the cluster. Here the ■anufacturer cannot ■anipulate output to his advantage by selecting a preferred product tro ■ the cluster: output ■ust be exactly as written. Purther■ore, the units of ■easure adopted in the cl uster are replaced by units which reflect the particular industrial de ■and tor, and not output of, the riven types ot products. Enterprises which consu■ e sheet steel require not any particular weight but definite di ■ensions -­ len,th, width and area. The units of ■easure are selected accordingly: linear ■eters tor point A and square ■eters tor point 8. Thus the

■etallurgical factory loses the opportunity to fulfill its ~arget by workinc on "favorable tolerances" and ■ ust ■eet the consu■ ers need tor the product's particular ■easure■ents.

The uount of the required ■etal is given in the colu■ n "quantity." The words "no fewer than" show that the enterprise is given the right to produce a surplus of this point of the no■enklatura plan (however, in

34 so■e cases, such as ■ olybdenu■ wire production where the raw ■aterial is in very short supply, producing surpluses is prohibited). Some points of

the no ■enklatura plan are acco ■ panied by re■arks, usually indicating

which level of the adainistration is interested in the product.

Here certain rules apply. First, in plan docu■ ents there is usually no reference to Party agencies; the exception is press reference

to high level directives. Open reference to the direct involve■ent of a .. • Party depart■ent in a particular point ot the no■enklatura plan is con­

sidered undesirable. It is co ■■only accepted that ·reference to the USSR

Council of Ministers ■eans that the CPSU Central co-ittee is involved;

reference to the council of ■ inisters of a union republic is indicative

of the involve■ent of the corresponding republic Party central

couittee.•

Second, hierarchy is strictly observed. In plans of enterprises which are subordinate to All-Union authorities, only the USSR Council of Ministers and other All-Union adainistrative bodies (for example, Gosplan) can be referred to. If we consider that Soviet republics have

their own ■inistries of ■etallurgy (the national body is the All-Union

Ministry of Ferrous Metallurgy), ■etallurgical factories can be attached to any of various governing bodies; thus, this example applies to both

.. the USSR Council of Ministers and to the council of ■ inisters of a union republic (in this case the Ukrainian Republic). We should note that

individu~l republics also operate a nu■ ber of industrial faciliti es;

• Editor'• Note: Despite its intimate and indissoluble links with the Soviet Couunist Party (high Party officials and high governaent officials are often one and the sa■ e person), the Soviet Union's for■ al governing structure (incorporating organs such as ~he Council of Ministers, the Supre■e Soviet, etc., as well as the corresponding local authorities) re■ains the country's official governing body. The ter ■ "All-Union" refers to national organizations. "Republican" organizations are unique to each of the Soviet Union's fifteen republics.

38 their plans ■ake reference only to republic, and not to All-Union ad■ i­

nistrative bodies. For locally subordinated enterprises plan tariets

(includin1 the no■enklatura plan) are set by reiional and local 1overn­

■ent. However, the econo ■ic sipificance of this last ll"OUP and is

■ inor and we will not consider it in the present study.

A ■ajority ot ite■s in the no ■enklatura plan is repeated without chanp year after year. Usually, these are products necessary for the

tunctionin1 of the ar■ed forces and defense industries and the Party and the state apparatus. Such products are included in the "Council of

Ministers List" (Spisok Soveta Ministrov) (see "re■arks" in Pipre

2.2), which is an ite■ized list of defense-related products; these are civen the hicbest priority. Econo■ic planninc or1Uizations, as well as

■anutacturin1 enterprises, would rather tail to ■eet ll"OSS output plan tarpts than not ■eet the production tar1ets for products ite■ized on the Council of Ministers' List.

A product's i ■portance to the nation's econo■y ■ay have little to do with its selection as part ot the no■enklatura plan. Priorities are often dictated by political considerations. The hiper the level at which the decision is aade to include a 1iven product in no■enklatura, the ■ore i ■portant this product auto■atically beco■es. In the early

1960s, this author beca■e a ■e■ber of a task force which was to devise a plan tor ■eetin1 the output tar1et tor one ot the ite■s of the no■enkla­ l!!!:! plan. The co-ission's work was 1iven the hi1hest priority. The co-ission was authorized to request all the required resources and allocate the■ to the plants involved. Its director reported personally to the cbair■an of the State co-ittee tor Conatructlon Affairs

(Gosudarstvennyi ko■ itet po dela■ stroitel'stva -- Goaatroi) who in

36 D ■edian ot de■and within planned eroup. N - ■edian of ■anutacturinc . - - deficit zone. + - surplus zone. t - no■enklatura-planned ite■a.

V

Report Plan

D M D M

I I I leas than 1 I 1 to 2 I 2 to 3 s I ..,,I I ◄ I I .:.I I Planned product groups (steel by thickness, 111D) I --·- I I I .. 1 '•I

Pisure 3 . 3. Co■bined results of product clusterinc and no ■enklatura planninc.

37 turn reported to the CPSU Central Couittee Secretariat. The project

itself was li ■ ited to the construction of rural two-storey residential

houses and ad■ inistrative buildings as part of Khrushchev's ad■ i nistra­

tive refora dividing regional govern■ ent into industrial and ap-icultural

ad■ inistrations.

The regional and local Party-state apparatus has access to

appropriate levels of the no ■en.klatura plan, either through poli tical con­ ; nections to the republic and All-Union govern■ents, or by way of unof­

ficial pressure on the aanagers of industrial enterprises located on its

territory. In the second case local production require■ents are not

entered into the production plan, but are satisfied, •by seeking addi­ tional resources" {za schiot izyskaniia dopolnitel'nykh resursov), and by

pushing products within a cluster still further toward the less resource­ intensive end.

3.4 Planning Effectiveness

The co■bined results of product clustering and no ■en.klatura

planning are represented in a si ■plified fora in Pigure 2.3. We assuae

that de■and is spread ■ore or less evenly a■ong (in our sa■ple case), steel products of every size, as indicated by the line labeled "Plan. "

In every cluster, production of ite■s requiring ereater resource input !

fro■ the aanufacturer does not reach de■and level, while production of

leas resource-intensive ite■s surpasses de■and. This pheno■enon results

in the saw-toothed line labeled "Pact" in the figure. The area under this line represents the total quantity of production. If it is ereater

than the area under the "Plan" line, the ■anufacturer can rightfully

clai ■ overfulfill■ent of the plan, as is represented by the line labeled "Report." However, in reality every cluster consists of a defici t zone

38 and a surplus zone. Relative to the ■edian size of products in demand,

the ■edian size of products actually ■anufactured shifts to the profi­ table end of the cluster, resultine in enoraous waste of resources.

The aanufacture of products called for in noaenklatura plans, however,

is not affected by this pheno ■enon. The level of production of such

!teas, as is pointed out in Pi~re 2.3 by the X-aarked arrows, usually

coincides with the plan.

A phenoaenon such as the noaenklatura plan is a natural extension of

Soviet econoaic conditions. Its existence testifies to the real

advantaies of centralized econoaic plannine for selectively tarieted

sections of the econoay. The Soviet Union's vieorous aissile construc­ tion, nuclear weapons, and space exploration pro~aas, as well as its powerful intellieence network, are based on the noaenklatura plan.

Products necessary to satisfy consuaer needs are usually not included in

the noaenklatura plan. This, however, is a question of the Soviet

10vern■ent's priorities and not of plannine aethods.

3.S Material Expenditure Noras• Nora settine for industrial aaterial expenditure is carried out at the enterprise level. An industrial enterprise or econoaic ainistry

scientific research institute (nauchno issledovatel'skii institut -­ NII), which is developine a new product is required to calculate stan­ dards for the expenditure of basic aaterials, usine the lowest level of

product clusterini: i.e., the specific desipations of aaterial resour­ ces. Ancillary aaterials, for exaaple, lubricants, packini ■aterials, etc., aay be anrepted and therefore are not discussed here.

• Editor's note: In this section, the Soviet tera "noras" is used interchaneeably with the word "standards. "

39 Material expenditure nor■ s are a■ong the ■ost accurate data in

the Soviet econo■ ic planning syste■. This del!'ee of accuracy is due to

their dual function. Inas ■uch as they are used in co■pilinc orders tor

aaterial resources, it is disadvantageous to underesti ■ate the■.

However, given that they also serve as the basis for deter■ ining a new

product's econo■ ic efficiency, the lower they are the larger the plant's

new technoloff bonus will be (see Chapter 2). Consequently, ■aterial

J expenditure nor■s reflect real deaand with a hip del!'ee of accuracy.

3.8.1 Manufacturing Industry Nor ■a

We now turn to a detailed exa■ ination of the role of nor■a in Soviet

econo■ic planning. Central a■ong the planned nor■ indices of industrial

enterprises and NIis ia the index on the econo■ ic efficiency of the R&D

and introduction of new equipaent and technoloff. This is the ■ain index

of scientific research institute activity. It also deter■ ines production

bonuses at the enterprise level. The size of factory bonuses substan­ tially depends on new product efficiency, which is defined according t~

the foraula: E • A(Pl - P2), where A is the annual volu■e of production

of new products and Pl and P2 are so-called adduced econo■ ic costs per

unit of co■parable and new product, respectively. Of allot these

a■ ounts only P2 (adduced coats for new equip■ent and technoloCY) is

dependent on the developer of the new product. The lower the ■aterial

intensiveness of a new product is, the lower are its adduced costs. Con­

sequently, the plant can earn an econo■ ic efficiency bonus for the given

product. In theory, such a syste■ should encourage reducing the ■aterial

intensiveness of a product which is essential in ■ ini ■ izing shortages.

Another i ■portant enterprise-level index is that of production pro­ fitability (rentabel'nost' proizvodstva). Production profitability

40 expresses factory profit per product type ■anufactured. The bonus asso­ ciated with it is ■uch s ■aller but is paid replarly, not on a one ti ■e , basis as is the new equip■ent and technoloanr bonus discussed above. It is i ■portant that a product be as expensive as possible for a plant to obtain this bonus. The unavoidable result of the consistent application of this plan index would be uncontrolled inflation, since free ■ arket co■ petition does not exist in the USSR.

In this respect, Gosko■ tsen plays the role of a coapetitor in holdine down inflation. It conducts detailed, ite ■ ized reviews of new product prices relative to the ■aterial expenditure noras of the elven products. Thus, Goskoatsen also functions as a check on aaterial nor■ reliability. On the basis of the checked ■aterial expenditure standards a eiven enterprise annually coapiles a supply order listine the nu■ ber and type of required aaterial resources. This order is not coapiled for specifically desipated !teas: rather it is aade out for a low level ot product clusterine as stipulated by Gossnab. The order appears in the fora ot a several hundred pace text, which presents Gossnab with a detailed analysis of aaterial requireaents. The authorization to deliver requested supplies, raznariadki, then depends on a further test of availability. All aaterial resources are subdivided into two croups: planned (adequate supply) and funded (deficit). With respect to planned aaterial, enterprise orders are usually satisfied. Despite the fact that soae order ticures ■ay be exa11erated, the accuracy of the standards ensure seneral Goaanab approval.

With respect to funded ■aterial, enterprise orders are not as readily filled. Gossnab has already distributed available resources aaonc the econo■ ic ■ inistries, based on no■enklatura plan require■ents.

41 The plan tor product output is not adjusted tor enterprises that are

allocated less funded ■aterial than necessary for adequate production

runs. In such instances plant ■ana,ers ■ust exercise their own ini­ tiative to secure needed supplies, with tacit Gossnab approval. In this

connection, factory ■anacers often enter into unofficial contractual

relationships with other enterprises, sellinc, or exchancini needed

supplies. These relationships are baaed on personal contacts between

} plant ■anaiers and/or their respective supply department (otdel

snabzheniia) statfs. Low level ■ inistry or Gossnab offices ■ay also

take a part in arraniinc such deals.

Otten a ■anacer ■ ust purchase ite■ s he does not need in order to

secure needed equip■ent, spare parts or raw ■aterials. Be is forced to

accept the unneeded items (nelikvidy) in order to ■eet a plan tariet of another enterprise. Generally, they are of low quality and will

accuaulate until such ti ■e as he is able to include the■ in another supply exchanie. More often, however, the nelikvidy are written off and

sent to one ot ■any orianizationa responsible for handlini secondary

■aterial resources, e.~ .• the Main Ad■ inistration for the Use of Secon­ dary Perrous Metals (Glavnoe upravlenie po ispol'zovaniiu vtorichnykh

chornykh ■etalov Vtorchor■et). Such a transfer ■ust be carried out

with a de~ee of caution; the plant ■anaier ■uat report to the TsSU the

weipt of secondary ■aterials he is transterrinc out and the reported

tipre will auto ■atically be included into the followinc year's plan tor

secondary resources. The railure to ■eet this particular plan tarcet

can lead to the loss of a considerable portion ot the plant's production bonus. Therefore, nelikvidy are stored for years and written ott only

~adually, to co■pensate for the annual influx of new nelikvidy.

42 3.5. 2 Construction Industry Nor■s

Material nor■s settin1 in construction is acco■plished accordin1 to different standards than those in ■ anufacturin1. It is carried out at several plannin1 levels, each of which has a strictly defined field ot application.

The settin1 ot resource expenditure standards per one ■ illion rubles ot construction project cost (aillionnik) occurs at the hi1hest plannin1 level. Gosplan, the State Construction Couission, Gosstroi, and the construction ■ inistries apply these plannin1 standards in coor­ dination with their respective subordinate bodies. Product desi111ations are taken tro■ the hi1hest levels ot product clusters. Thus the

■ illionnik is e■inently suitable for national econo■ ic plannin1, as opposed to actual production. Nor■ esti■ation per ■easure ot the volu■e ot construction projects, for exa■ple, per cubic ■eter ot bricklayin1 work, occupies the next plannin1 level. All construction projects in the USSR are conducted accordin1 to these standards which are usually desipated "Gossnab list, (Spisak Gossnaba)." This desi111a­ tion enables construction ■ana1ers to use the nor■s to co■pile supply orders.

Pinally, "construction nor■s and rules" (stroitel'nye noray i pravila - SNIP) introduce ■aterial expenditure standards tor specific product desipations. These nor■ s serve pri ■arily tor technical rather than econo■ic planninc purposes, and are outside the scope ot this

■onoeraph* .

• These standards enco■pass a wide ranee ot purely techn~cal specifica­ tions intended tor the institute or desi,n bureau ■aterials researcher, e.1., buildin1 ■aterial response to certain conditions.

43 Construction orpnizations, in contrast to industrial enterprises, do not participate in settin1 ■aterial expenditure standards at any of the above levels. In the USSR construction nor ■s are developed by about 600 "standards research stations" (nor■ativno-issledovatel'skie stantsii) colocated with construction or1anizations. The stations report to TsNIB which, in turn, relays infor■ation to Gosstroi. This situation can lead to conflicts between construction project

■ana1ers, local standards station chiefs, and the Gosstroi adainistra­ tion over supply allocation and plan tar1ets.

Construction projects are supervised by numerous ■inistries, ■uch in the sa■ e way that ■anutacturin1 sectors are run. Salient ■ inistries involved in construction include the Ministry of Construction Affairs (Minstroi), the Ministry of Installation and Special Construction

Projects (Ministerstvo ■ontazhnykh i spetsial'nykh stroitel'nykh rabot

-- Min■ontazhspetsstroi), the Ministry of Road Construction

(Ministerstvo stroitel'stva avto■obil'nykh dorog --Mindorstroi), and others. Specialized construction ■ inistries have been established tor i ■portant econo■ ic sectors, e.1 .. the Ministry of Construction ot Petro­ leu■ and Gas Industry Enterprises (Ministerstvo stroitel'stva predpriiatii neftianoi i gazovoi pro ■yshlennosti --Minnefte1&Zstroi); the sue is true tor i ■portant econo ■ ic re1ions of the USSR . This type of ■ inistry orpnization lends itself to frequent reorpnization with the periodic division/co■ bination/creation/rena■ in1 ot various construc­ tion ■inistries. In this connection it is i ■portant to note that unlike in the ■anutacturin1 industry, where a sector's research institutes, deaip bureaus, and enterprises are subordinated to a ain1le supervisin1

■ inistry or ■ain ad■ iniatration, in the construction industry a ■ iniatry supervises only enterprises . Consequently, a ■anufacturin1 industry

44 enterprise can better ensure that a given product's design docu■ en­ tation, standards, and price work in its ■ inistry's interests, and thus its own, than can a construction enterprise, which can have several

"overseers". The repercussions ot this arrange■ent are discussed below.

In preparing a five-year plan, industrial ■inistries, local govern■ent bodies and other organizational custo ■ers who require the construction of buildings, facilities and factories include their orders in the draft plan. These orders are accepted and the naae of the corresponding construction facility is entered in the "title list"

(spisok titulov), which gives authorization to begin the first stage of construction: project planning.

Project planning is perfor■ed by State planning institutes (Gosudarstvennyi institut proektirovaniia - Gipro) involved in industrial enterprise planning usually belong to the corresponding industrial ■inistries such as the State Planning Institute for Sanitary

Engineering Equip■ent Industry Enterprises, or Giprosantekhpro ■, in Leninp-ad. Gipro which plan public use structures are generally subor­ dinated to Gosstroi but ■ay also fall under city adainistration.

Construction project cost reduction is the ■ain index by which the work of the Gipro is assessed. Decreasing construction costs begins at the project planning stage.

Gosstroi applies the ■ost rigorous esti■ated standards, as well as ■ ini­

■al construction volu■ es. The p-eater the cost of the project, the ■ore strictly it is checked, becinninc with the coat esti ■ate. In this capa­ city, Gosstroi plays the sue role with respect to construction price­ setting that Gosko ■ tsen plays with respect to industt'ial price-setting.

45 It should be noted that at this planning stage, the construction organi­

zations have not tor■ally been assiened to the planned project. After the project has been included in the construction plan the

corresponding construction ■inistry bas the right to express its

disagree ■ent with the cost esti ■ ate. However, since the ■oat experienced

esti ■ating otticials (s ■ etchiki) work in Gosstroi and in the Gipro,

these estiaates are revised very rarely. In any case, as the inspecting

supervisory body, Gosstroi bas the final word on cost esti■ation and price setting.

Gosstroi and Gipro receive bonuses tor ■ini ■izing the costs of pro­

jects. Consequently, these bodies tend to underesti■ate project values.

As a result such underesti■ation often forces costs to be recalculated

later. These recalculations necessitate co■plicated bureaucratic proce­ dures involvin1 the purchasin1 ■ inistry, the construction ■inistry and Goaatroi. Not surprisingly, construction orpnization chiefs prefer not to beco■e e■broiled in such bureaucratic infighting and thus co■pen­ sate tor the reduced product coat in unofficial ways.

The plan for a construction organization's production volu■e can be set in two ways. Por organizations involved exclusively in one type of construction, i.e., residential construction, Gosstroi establishes the plan in physical units of ■easure, such as square ■eters of living space. Por all other organizations, which are in the ■ajority, Gosstroi sets the plan in ■onetary ter■s; i.e., in thousands of rubles of esti­ bated conatructJon project coat. Precisely which projects are coapleted

■akes no difference, as long as the su■ corresponds to the plan target.

Therefore, after fulfilling the obligatory no ■enklatura plan, construc­ tion organizations actively e■bark upon co■pleting advantageous (vxgodnye,) projects. In contrast to industry, the ■oat costly projects, such as

48 erectini steel and precast reinforced concrete structures, are considered

advantaieous. This e■ phasis is the result ot the ■onetary incentives

described above. It follows that chaniin1 the units of aeasure in the product clusters will not chanie the value of advantaieous projects as a whole and the enterprise reliance on advantaieous projects to provide

needed inco■e.

After co■pletini advanta1eous work on a facility and obtaininr rood accountini indices the construction orpnization will switch to another

facility, leavinr a ■ iniau■ work force to co■plete disadvantaieous (neVYgodnaia) work, or even haltini it altopther. Theoretically, a purchaser ainistry has the ript not to accept the

report of the construction or1anization it the planned facility is not

finished. Por the builder this aeans plan nonfulfillaent, loss of bonu­ ses and bureaucratic entanileaents. However, each facility ia included not only in the builder's plan, but also in that of the purchaser. Thus, both builder and purchaser will suffer for plan nontulfillaent. Naturally, the purchaser prefers to accept incoaplete construction.

3.6 Labor Noras

Within the tra■ework ot the official Soviet policy on aandatory tull-eaployaent, labor expenditure standards are used both to deteraine wap scales and to provide worker incentives and penalties. A produc­ tive worker can expect that the iOVernaent will provide for a sipiticant iaproveaent in livin1 conditions tor hiaselt and his taaily, while an unproductive one cannot. In fact, unproductive Soviet workers are also subject to a variety of non-econo■ ic penalties includinc denial of day­ care services, deletion fro■ apartaent waitinc lists, witbholdinc of

47 vacation tiae, and inclusion onto a "black board" (chornaia doska), or public list ot poor workers.

A labor nor■ ■ay be established either in the tor■ ot the len~h

ot the workshitt factored by a set ot hourly wa1es (assiped in accor­

dance with a worker's qualification cate1ory) and potential production bonuses, or accordin1 to a piecework scale with correspondin1 bonuses.

Inas ■uoh as the 1overn■ent determines the workshitt len~h. wa1e table, l and bonus scale, the use ot the hourly wa1e scale restricts the plant

■ana1er's ability to sti ■ulate productivity by increasin1 wa1es . Con­

sequently, ■ost ■ana1ers have turned to the piecework syste■ which

enables the■ to adjust wa1e rates ■ore flexibly and keep pace wi th

risin1 worker expectations. Soviet production and labor plannin1 ■ust

take this pheno■enon into account, as is seen below.

3.8.1 Current Labor Nor■s tor the Manutacturin1 and Construction Industry

The current Soviet labor standards systea ■ore than adequately

aeets the require■ents ot centralized econo ■ ic plannin1. The State

co-ittee tor Labor and Social Proble■s (Gosudarstvennyi ko■ itet truda i

sotsial'nykh proble■ - Gosko ■ trud), prior to 1978, the State co-ittee

tor Labor and Wa1es (Gosudarstvennyi ko■itet truda i zarplaty), resolves

questions ot labor orianization, pay■ent and nor■ settin1. Gosko■ trud, throup the ottice ot the Central Bureau tor Industrial Labor Standards

(Tsentral'noe biuro proayshlennykh nor■ativov po trudu - TaBPNT) also controls

the practice ot labor standard settin1 tor the ■anutacturin1 industry. Por the construction industry, this activity is controlled by Gosstroi,

which will be discussed in ■ore detail below.

TsBPNT develops and updates two ■ajor docu■ ents: the Industrial

Ti ■e Standards (Nor■ativv vre■eni v proayshlennosti) and the Wa1e Rate

48 and Qualifications Guide (Tarifno-kvalifikatsionnYi spravochnik -- TKS).

TsBPNT establishes ti ■e standards tor operations such as lifting a given

~ weight, drilling a hole of a 1iven size, tightening a particular type of nut, etc. Enterprise-level technical specialists define a sequence of such operations as a aanutacturing, or labor process (trudovoi protsess), and calculate tiae standards as a function of the aggregate of the operation standards. They can then co■pare ■anufacturing process standards with TKS data to assi111 appropriately qualified workers to a given ■anufacturing process. Since wage rates for each qualifications category are fixed by the goverDllent, the above procedure establishes both the piecework ti ■e scale and wage rate. Standards obtained in this way are teraed "calculated nor■s" (raschiotnye nor■Y). After plant

■anage■ent and local union co-ittee approval, they are used to issue I workers daily, weekly, and/or ■onthly perfor■ance tarpts and wage infor■ation (nariady).

Enterprises aay also use ti ■e study nor■s, which are establi shed by observations directly at the work place. Calculated and ti ■e study nor■ s are designated as technically or scientifically based. A plant's percentap of technically-based wage standards is included in its planning indices. If this percentage can be ■aintained, the plant ■anage■ent and e■ployees will acquire certain benefits, which will be discussed below. Other standards, teraed "experience-baaed" (optynye) and

"statistical," (atatisticheskie) are established on the basis of the personal experience of the nor■ a setter or the accuaulated statistics of actual product output, respectively. In theory, experience-based and statistical nor■a are intended for inter!■ uae witil technical stan­ dards are devised and i ■ple■ented. However, in practice the syate■ functions aucb differently.

49 3.6.2 Wage Setting Practice in Manufacturing The actual setting of wage standards begins with aonthly wage

assess■ents, relative to worker qualifications. A worker who is not

satisfied with his wage level ■ay resign and apply tor a job at another

enterprise thereby endangering production target achieve■ent. There­

fore, ■anagers prefer not to cut wages in the face of reasonable worker

expectations. ! Monthly wages assessed in this way are divided by the number of

product units which can be produced in a given workplace. The resulting

figure esti ■ate is further divided by the corresponding govern■ent-set

hourly wage. The final result serves as a labor nor■ which does not

reflect labor expenditure but does satisfy worker de■and tor reasonably higher wages. Otten, such standards cannot be supported by credible

calculations or ti ■e studies and therefore are established as "experience based." Usually, however, industrial enterprise technical

specialists are able to adapt a calculated or ti ■e study substantiation tor this standard. As a result, technical personnel and workers receive

bonuses tor work according to technical standards; ■oreover, workers

also receive higher hourly wages.

The hourly wage syste■ reflects not only workers' qualifications

differences, but also nu■erous other distinctions in working conditions.

! Hourly wages are lower in light industry, or Group B, enterprises than in heavy industry, or Group A, enterprises. Enterprise size is directly

proportional to wage a■ounts. Likewise, pri■ary production shops have

hiper hourly wages than do ancillary shops. There are ■any rules regu­ lating the application of higher wage rates; work according to technical standards ia one such regulating criterion.

50 However, this co ■plex syste ■ does not have the desired ettect ot

■axi ■izin1 production efficiency because of insufficient wa1e rate dif­ ferentiation, and the resultin1 lack ot worker incentives. Within one qualification level, wa1e rates differ by a total of 3-5 percent and the overall ratio between the lowest and hi1hest rates does not exceed

1:2.S. The practice of settin1 nor■s accordine to actual wa1e require­

■ents coapletely nullities such insipiticant differences .. Con­ sequently, the laws of supply and deaand and not state standards deter­

■ ine actual wa1e rates.

3.6.3 Labor Nor■ Review

An iaportant function ot labor nor■ settine is replatine labor productivity. Actual eoods output is deterained by the difference between labor productivity and individual consuaption level. Accor­ din1ly, Soviet econoaic plannin1 dictates that wa1es ,row ■ore slowly than labor productivity.

Labor productivity ,rowth is aaintained by periodic labor nor■ reviews. Until 1953 such reviews were carried out annually, usually in

March, coincidin, with official announce■ents on reducin1 retail prices tor consuaer eoods. The reduction in consuaer eoods prices justified, to a certain extent, the labor nor■ review. After Stalin's death, re,ular price reductions ceased and prices actually beean to increase.

At the sue tiae, it was decided to carry out the labor nor■ review process ,radually throuehout the entire year so as to aini ■ ize public dissatisfaction with price inflation. In theory, labor standards reviews are based on .the introduction ot new equipaent, advanced production technolon and aodern orpnizational practices in the workplace. However, it is difficult tor enterprises to

51