SOVIET ECONOMIC "REFORM" DECREES: MORE STEPS ON THE TREADMILL (SOV 82-10068)

Created: 5/1/1982

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Soviet Economic "Reform1 Decrees: More Steps on the Treadmill

Soviet Economic "Reform' Decrees: More Steps on the Treadmill

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Economic "Reform' Decrees: More Steps on th* Treadmill '

In9 the Sovici leadershipecree selling forth new measures to improve planning and performance of the economy. This decree, together with its more thanmplementing regulations1 amendment, is no more likely than in predecessor otaise thc economy's efficiency. Indeed, by foronc managers io spend more time coping with increasingly complicated regulations, the Latestmay make matters worse.

The principal goals and features of the new arrangements, presumably to be in effect in Ihe llth Five-Yearnd beyond, are:

To improve planning by focusing on five-year rather than annual plans and onew comprehensive programs. Alt plans are supposed to be "balanced" (in terms of input and output) and to remain stable for the five-year period.

ik prices more with costs by introducing new industrial wholesale pricesncorporating inew charge for water usage and sharply higher social insurance taxes.

To replacemajor successvalue of oulput. which leads enterprisesrefer expensiveanother indicator,net output" (average value added).

To tie enterprise and worker Incentivesariety of five-year plan largets. measured in physical units as well as in rubles and fotused on raising efficiency and product

To require allenterprises tofinance iheir operations from their own funds and bank credits, rather thanartial funding from the state budget.

To make the investment process more effeaive by requiring that approved plans remain unchanged for the five-year period, that all plans be backed with the requisite material and financial resources, and ihzi bank credits rather than customers' funds be used to finance construction in progress.

Many of the new measures are aimed directly at resolving two problems thai Soviet planners rightly regaid as especially(he demand (or labor and economizing on the use of fuel and raw materials.

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Because increments to Ihe Labor force will decline drasiically during, ihe authorities must limit labor demand to supply to keep the growth of wages io line with slower growth in consumer goods and services. This effort is linked to the need lo boost labor productiiity by squeezing out lhc "hidden labor reserves" lhat Sovici planners believe arc ubiquitous. Tbe new measures include compilation of regional labor balances,ofnl ceilings, locating of work norms, lying ma na ratal bonuses to meeting plans for labor productivity, allowing firms lo keep ihe wages saved by meeting planseduced work force, and organiong work brigadeseans of imposing group discipline. Although these measures should aid the planners in facing ditTicult manpower problems, probably the moil effeaive factor will be that extra workers will .imply not be there.

Other measures are intended lo cope with shortage* of critical law materia It thai threaten Ihe economy. These measuresreatly expanded role foe plan targets focused on savings on such resources per unit of output, imposition of tighter inputorms in physical terms, and directly tying incentives lo meeting targets. The new prices will raise lhc cost of most raw materials, and the shift to net output targets is intended to remove the incentiveinmiif the use of intermediate inpuis. Most of these measures have advantages but their effectiveness will be severely diminished by the inability of new rules to eliminate thc oldThere simply arc too many conflicting indicators Also, in an essentially unchanged environment. Ihe response of enterprises to new cost relationships is likely to be sluggish and limited.

Various measures are aimed at improving economic performance in general. The new planning emphases reflect ibe Soviet planners* Idee fixe that better plans will guarantee better performs nee. Eleven of Ihe much touted "comprehensive programs" have been included inlan. Many more plan balances are being prepared than ever before An array of new incentive arrangements to improve product qualityomplicated new state ccrtiftcalion procedure have been introduced Si illeovr sions and organi rational rearrange merits are designedolve thcproblems created by the cumbersome system of distributing material inputs lo producers,reater role for contracts and suffer penalties forackage of financial provisions is aimed at

eliciting more efncieni operations everywhere. Finally, new cenlralizecJ organizational structures have been set up to coordinate several large programs and to oversee the campaign to enforce raw material and energy savings.

The changes in working airartgcmcnu do notenuine reform of the economic system. Rather, they reinforce the traditional feaiures thatasted resourcesrand scale. Because planning ii now more centralized, rigid, and detailed than ever before, the producing unit is more fettered. Producer goods are more tightly rationed; administratively act. average cost-based prices are retained, and Byxaatinc incentive systems tie rewards and punishments to meeting plan targets expressed in physical units. The modifications of the past (woalf yean art no panacea for the Soviet econorny Rather, they move the system away from the decentralization, flexibility, and introduction of market elements, which) most Western (and some Soviet) critics believe are needed.

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Canlenls

Overview InlfOduciion

Limiting ih. Demand for 2

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laeenirvg fee Eronomiririg om Labor y

- and Other

o. Use of Materials aad Eacrgy

" . RraKwaeo-Saving1 Plae Targetseri>naui

L_ j

Improviric Planning, Management, and General FxorsomkT

Upgrading Product

Shaft to NctOaipai

s.cal Plan

Improving th. WbolaaaU DiWribaltor.

RevtatM of ladwirial Wholesale

Strengthened Financial -lerefV

Planning Approaches and Technologies

CtaMfpsain Organic iiona!

Thc New Working Arrangement! ightirnMilCcsstrataninsst

Newke frodoan* Unit

Impact on Management of Human and Maierial

Effeci of New Arrangements on Ece)rusmic

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Soviet tconomk "Reform" Decrees: More Steps oa tbe Treadmill (u)

la9 Ibe CPSU and lhc Council of Ministers adopted the omaibuiellingide range of measures to improve planning and (heof (he economy. This decree rcprcicnu the iccond major attempt of tbe Brcihncv leadership to deal cooiprehenjirelyIhe chronic ills of tbe to called economiche first attempt was embodied in the set of meat urea launched in October"Xoiygia re/orIhoac measures:

Restored ibc indmonal sysicin voderaauaatric* nairr ecowo-nx activity.

Carriedajor revo-aa of industrial prices. ceairalirJac admlndaraiioai ofewly formedStale Commiiiee (or Prices.

Attempted lo cceiraliie lhc rationing of producer goodsewStale Committee for Vnrr.jl Technical Supply (Gonna b)

Raised the operational role of the fix year plan, which was now to be bated on detailed lona-rangc scicniific and technical forecasts.

ew system of incentive* for enterprises focused largely on salesfi lability (return on capital).

- Canittle more freedom in managing labor and investment

When the desired improve menu did not occur, thc reform tneasures were modified several limes ever Ibc acat decade- Indieaioci of product quality and labor productivity were added to theeteraniaams of managerial rewards, and inceninei oerr supposedly linked lo fulfillcontraetural obtigaiions. On the planning from Ihe five-year plan wai made legally binding at ibe same limeyncm of counter-planning wai introdueed. la the proccu. many etpcri-mmis werendorsed, all designed loso-called hidden reserves and lo remove one or another abciiilion prevalent under mil ing arrangements.

aad all MiBwaiMftlhe icii appui ii ihr end of

The ccmprehensive9 Decree and overollowup BWIKO.'

Reinforced thc shaft of the feews of rdaaaang aaai incenttvea from annual ptaiu to five-year [Jam. which arc to bc balanced and to rcrnaia liable

Aulhoritcd lhc major industrial price reform

Revised the sysieniof pbn indicaion and incentives to cmphasiic targets based on act output ralber lhan gross output.

Upgraded thc rale of so-called comprchenww or ransgrana-goats approaches to plinninj andof economic aclmty.

rogram for gradual Iranifcr of all

economic eniiliea io complete self-finance,wiih industrial ministries.

Attempted lo make thc investment proccu more effective by requiring that approved plans renuia unchanged for tbe frit year period, (bat al ptafts bc backed with the rrowoitc material and financial resources, aad lhat bank credits rather lhan cantom-crs' funds be used to finance construction in

Detailed other measures aimed al particularmi or particular sources of inefficiency.

9 Decree and subsequent implementing rcgu-UIhmh hate Ml the planning and incentive arrsnge-menu lhal. an leu Mbseqaeatly modified, are lo prevail beyond thebo They are intended lo enable iheope with dechning productivity growih rates and (rowing leaource constraints of unprecedenicd severity. Factor produciivity declined

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during. Throughouthe growth of Ihe labor force -ill be only half thai in. Production of critical materia's^iiels, minerals, lied. andslowed cxsnstdOTbty.a'nd costs are ruiitf sharply. Agricultural output hat nearly stagnated, aad cosu per unit of output ire alio rising. Growih of Ihecapiial slock hai slowed, and (he relent on invesimeni hai declined sieadily. Thus, theust substantially raise the return on resource ir.ruis for eeenwnte growihontinue erenai modal rata Equallybe need lo radically improve lhe quality of dutpuland remove lhe dtstortioos in prod-ucl mix thai rcdoce lhe conlribulion of production lo lhe eejjnoiiiy. Sonet planners pcrceirc these problems in all Ihdr severity. In addition to reducing growih largels. shilling invesimeni priorities, and introducing policies to augmenl lhe growth of ihe labor force, they are counting on Ihe litest modifications in thearrangements of lhe production system at spelled out in Ihc9 Decree. The decree has triggered an avalanche of folio-up decrees,nd other bureaucratic activities. Some amend provisions of Ihe9 Decree, asajor new wny-governnsenl decree (published inealing with measures loelidl savi-gs In energy and raw materials.

This paper ti escribes ihe working arrangements now being introduced and assesses their likely impact on economic pcrfot mancc. It focuses, in lurn. on three critical irnpaairves sdenlified by Soviei planner*need to limit the demand for labor. Ihe need ton raw materials and energy, and the general need lo obtain more utility in terms of desired, efficient final output from combined inputs of labor, capital, and raw materials. Several of the ntw ir>casures arc aimed al solving all three problems. Thc impact of Ihc new measures on Ihe comparability of Soviet economic data ts considered in tbe appendix.

Untiling tbe Denaaad for Labor

Soviei planners are convinced, correctly,iasj-market for labor inequires severe restrictions on the demand for Labor because there is little scope for augmenting supply beyond ihc small additions resulting from growth of ihc working-age population. Eicess demand most be avoided, both nationally and locally, lo prevent unplanned increases in wages thai cannot be

matched wiih goods and services. The effort to limit demand for labor al the level of individual enterprises also is part of-the'effort to raise* labor prodasctivity, especially by redudng gross overmanning. Some of the measures are directed spedfically al balancing supply and demand, especially in local and regional markets; others arc aimed at reducing demand for workers in individual firms, both by Hal and through targeted investment and incentives. Both types of measures aree carried out in an economicfeaturing reduced growth of invesimeni and serious efforts io restrict building new enterprises lhat havc larger staffing rcQuircmcnti lhan an equivalent capacity achieved by expanding and rnodcrnJting eatsting planu.

ar Ba lancet. Nol only will total labor force growih be slow in, bul rates of growth will differ widely among republics and adminiitralivc subdivisions. Toramework for assessing the critical regional dimension of the problem as wdl a* the possibilities of coping with it. both five-year and annual balances of labor supply and roqulretnenU are now to be compiled for republics, krays, oblasts. rayoni. and major cilles. These balances are to be disaggregated by sex, sector, and skill level. The Slate Planning Committeeequired to submit the balances for the USSR and the republics to the Council of Ministers for approval. The Slate Commit' lee for Labor and Social Problems is supposed touch larger rote in this planning process, as are regional planning committees and local Soviets. The central authorities ordered all enterprises, beginningo submit ihcir planned requirements for manpower lo local Soviets for review before sending Ihe plans Iobo, mi no tries were ordered to surely subordinate enterprises wiih labor mainly from local sources and through intraminbierialrather than through ccniriiixcd dtilribu-lion.ayor party*government decree ofodifying seme of these arrangements, ordered enterprises, regsrdlesj of subordination, to present their entire annual plans lo local Soviets, which arc to review all matters concerning manpower and io confirm changes lhal affect labor' Thc pressreat deal of local activity

in Ifec field of labor ptaruiina In ihcfoe developmentoe

eiampfe. iberc arc separate sect moo lor Labor, local authorities ctthst cornidctabfcestricting thc growih of lhc labor force ia ihoe reajiiru.'

ctcrRimingncedi al al levels,. hot ma arc lo beby lightened norm Ipta tin-rig factors} relating number of prod anion workers to output and by leaner iiaffLBg pailcrra for white collar employees. Thia requirement, ipecifieci in the9 Decree ai implementedaspian instruction, callsevkw of 'he entire sytiern of norms underlying the determination of labor rceju ire-meats in induslry lo make thunhat is.Progressive'* norms are also to be employed both In calculation of ibe planned wage fond, which ise set on ibc basis of norms relating average wages lo oulput. and in ataWishing the wage components of the values of nt oulput for indusuial products prornulgated ia2 along with thc new wholesale prices. Labor norms (for example, wages per ruble of output) arc Happened so bc coosisi-CM among the varioM uses to -hkh they arc put.

I rceali fi /orawIhff- The new ajiantxrncnis. like their immediate predecessors, make tuecca* in meeting labor raroducUvily Urgeta an important determinant of Ihc sue of ceooomkfunds and managerial bonuses. Other new titan-niog features are intended to rciaforcc this general-ired incentive to save labor. The new rules requirethc wage fund be determined on Ihe basis of stable ccefficienu relating wages to oulput (wages per ruble oft noted, these nor mi are to bc basedeog restive" manning factors and generally

'arc supposed to remain unchangedive-year plan. rVkrcover. any savings in ihc wage fund beyond

- planned amounts arc to go into caHcrprise incentive funds. This prDoedurc already adopted ia over tfiQO enterprises, ia effect cauraes oa7 Sfcejuduao experiment tan effort lo meet product ion plans with fewer workers at the Saetsckaao chcaaacalorma live wagecheduled to bcin II mi nut mi1 and ia the remainder" Aathc Shchekiuo plan, enterprise managers arc allowed to use wage savingsay

bonuiei lup in JO percent of regular wagesllo workers who lakeob* or umilarly raise productivity Thc new rules continue so penalite managers for wage overeipcadiiurcs. by charging iheai to the enterprise boa as fund and reducing manlpiial bonuses in the period in which lhc ovcrcspcndiiiire occurred

CeV/ingi aad* Or Act Measures. The new arrangcoienu contain other stringeni reoithrcancnts First, beginningolings on thc auraber of ertifJoyeea were inspected on ministries aadllhoogh theOT seemed to apply everywhere, evidcaily Ihey were enforced only in industry. The industrial labor plan was only slightly racecdedut there were complaints about the failure of many rnteiptbes aid ministries io observe the ceilings.'* labc Council of Ministersecree listing thai beginning2 annual plans will set aa employ-Bseat ceiling for all ministries, depart menu, aad ueuen republics.'* Thc decree also specifics sectors in which cmpSoymeat growth rates are lo be reduced and those in which employment levels arc actually lo bc cut. AJthougb some economisu are urging penalties for violation of raanpowcr ceilings, at present, penalties for overmanning operate only indirectly through the penalties for cwcrcipcndiisre of thc wage fund aad for reduced labor productivity.

Second, the price of labor it being raised beginning1 becausearge rise in the social insurance charge (from ancreenl of ihe industrial wagebill loa lop rate of I* percent! Third,iaaew target to enterprisereduced number of anaaaal workers In the soul of prodaction workers. Under thc bonus mute, the arnntttry can make thatctceaninani of the sih of manairrial bonuses. The0 substitute machines for men. freeing them for work elsewhere: thus, tbe instructions for implementing thc new target rajuire enterprises to submit lists of released surplus manual workers and their oiaalifiealions to localoffices (orinally, workers arc to be orgaaaacd into brigades, mobiliring groupto meet rxodwetion and productivity got hi. with reinforcerovided by group bonus schemes.

Use of Main-lab and Energy Ihc new wortingements attack ihb objective, rxonr'eiih'ng on materials and energy use. on several fronts: (IVsiiffer plan norms governing ma'criat* nsc (tl tiiL bli^hiiiiii; of materiab oac and oost-red action targets for enterprises, with incentives tied to meeting those targets;doption of net output, rather than gross oat put or sales, as the principal measure of thc volume ofevised methods of ttreasur-ing output in physical units;rice revisions.

The normative base for planning and allocating raw materials andeing revised to enforce reductions in materiabper unit of product. Guidance for this vast effort at norm rrvbionension was provided io tbe Gosplan issuance ofanuarya System of Progressive and Tcximical-Eeoocenic Norms and Normative Measures for TheirIntohe system is to include norms relating to labor, materials, Invesimeni, and finances.1 article criiiciied ministerial and other lower level planning and research agencies for the slow pace of work in forming the revised set of norms, suffer usage riorms undoubtedly wereintolan. "

Rfiourxt-Sfiat Pimm Tmrttii/or Enitirtiitu Inlan. Gosplan established annual targets for reduciion in materials use per unit of output forajor raw materials. These targets were established centrally In enterprise plans, but evidently were not well enforced. Thc fact lhat inccniives were not tied directly to their ruinilmeni probably had something lo cu with Ihc sbortfalb(although some sectors had special bonus arrangements for rewarding workers for saving onThe consumptpoo of particular fuels or raw maicriabl In lhe9 Decree, reduaion in materiabmong tbe plan targets for enterprises designated as "centrallyncentivefor meeting those targets have been, in effect. left up to ministries: they may establish maieri-ab-OSC targets as determinants of incentive funds and managerial bonuses.

A major CPSU-Council of Ministers decree,inhanges these arrangementsajor provisions of thc new decree are:

Caspian and oihcr responsible agencies are directed to expand Ibe Ibt of raieriab for which ue-reduciion targets are set and. beginningo ealabtbh sperifk materials consumption norms for especially large materials users.

In industry, const ruction, and trarupcost targets are to be ftaed centrally and are lo include explidl limits on materialeipressed in rubles per unit of product.

Beginningnterprises will be allowed lo transfer io Ihcir irKCotivc funds any monies saved by reducing material eipenditures below thelimit; conversely, exceeding thai limitreductions in Ibe funds of as much asercent of Ibeir originally planned amount. Inbeginning2nterprisearc to be given bonuses related to lhe material savings achieved com pared who Ihe limits set.

SUrtingdditional groups of workers are lo be paid bonuses for reducing malerial etpcndiluresose set in tbe new -progressive" norms.

Responsible agencies are to review existingfor products and services to reduce theirIs-inleosiveness, and penalties for violating iiand-ards will be suffer. Special tnangemeiiu for economizing on tbe use of scrap metals were msil-luledPSU decree on ihc subject issued in"

et Omtpmt Targees. For de_Jcs bothand Soviei rxonornbts have pointed out thedamage resulting from lhe use of gross value measures of output (GVO) lo evaluate performance of enterprises. In, numerous experiments were

i to tot the ate of the nei output mutuic defined ia various ways The9 Decree ordrrs the chance to ibe ate nt' ihb measure, wherever aporcewiatc. (Kowocr. grots vj'ueand value of taka must nil! he calcaUied ami reported) la general, actefined at grata oarpnt ktss purchased nuieriib and rjepeeciation and blo ihe aunt of wages andr vahae added.t nut ion to the net outputo bc made gradualtt. rnbiistry by ministry; auch targcU were fixed In ihe plant of four ministriesith the real tchedaled to adopt the new measure7 and IMS."

Thc primary purpose of the transition to act outputeasure of plano eliminate the revealed eresercacc of managers for pfodactag mate-rial-mtcftsivc output: theig tiicr and morethe inputs, ihc higher -as the value of total oatpul aad thc easier it was lo meet the plan Wiih plan fulfillment evaluated by net output, thegoes, enterprises no longei will have an incentive io favor material-intensive products, or in the case nf machinery lo goldpLale them. If ibey do. coali will bc increased andajor clement of nei out pel, wiU be reduced.

Net outpai nines (rather lhan gross values aiow to figure in evaluation of plan fulfillment with reaped to output, taborad vahae of products in the highest Qualityhe three rrujjor determinants of bonus fundsrven enterprise, the lotal output will bc determined, as now with respect to gross output, by summing net output values for all products, with lhc net output value lor each one calculated as the produci of Ihe quantity produced and Ihe norma live net ouipul value fined lor lhat product. Thus, normative net oulputiven prodpecies of price. The values were fiaed by the Stale Commiiiee for Prices and issued iokimultaaeouslv with ihc new wholesalei that toot effectormative net output value is cakueaied for each product ai ihr aicragc bnachwuk vahae added for the products calculated as the sum of wages of industrial production personnel, social insurance charges and profiia. expressed per unit of ouipui

Thus, normative net output values arc fixed in accord, ance with ihc principles used for selling prodacn prices in general It should bc noted, though, that the profit raies used in Kiting net output values arcas percentages of com1 after deducting average material expenditures irtrsaded ia the wholesale once for ihc product.

aafleaMra. The9 Decree instructed (ita pi an lo revkw the physical measures lhat (II figure Importantly ia compiling of material balances ineyin enterprise production plans, and (J)anager's right lo bc paid bonuses. Gosplan was directed to find ways of incorporating into physical measures of output such factors at utility. Quality, andhc aim wis to remove lhc distor-fions and reduce the gross wanes created byoutput simply in ions, mcien. or number of units Gosplan has announced that new physical indicators (unipeclfied) have been developedinds of materiab>handling equipment, and "iDTpcovec- meat-urea foraads of machineaving found ao

lo avoid planning feirout metallurgical product!

in tons, Gosptaa has now determined that "dual indicators" arc to be used for lhal sector aod for scene kinds of machinery. Thc indicators ia the case of sieel pipe are tout and linear meters. Under Ihb dual system of iatdaraion. il is not clear which one shall have precedence in determining whether plans have .been met.

lthough relatively lew details of thc new prices thai look effect In2 have been released yei. those for fuelt. clot tricity. and other raw material) arc scheduledncrease substantially. Coal and natural gai prices arc lo rue byo SO percent and oil prices by even more. Substantial increasei have also been indicated for electricily. fcrroosaonfeavousnd commercial lumber (SOn cool rial, pnee* of many liadi of machinery and chemical products are scheduled io decrease. Aside from bringing prices intoth production costs, higher pikes feu energy and raw materials, coupled wub revisions in incentive arrangements are intended to promote conservation in general

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Thi* tceiion considcis an array of innovaiioni notirected at obtaining savings in labor or ru- materials, btjl ralhcr iaicndcdmprove lhe functioning of Ihc economy in general, including, ofcl d.a ilt use of Ihoae specific resources. We group the* mant chinges under lhe followingll upgrading productmproving the functioning of ihe wbotcMk distribution system. |ll revision of whoicsatefaanges ia planning approaches and technologies,rganiiai tonal structures.

I'FtrmJl't fVndnerIntha changes in working arraagcrncnts stemming from lhe9 Decree strengthen ongoing approaches Thus, meeting plans for raising the ihare of output classified in ihe1 quality category in total production, now to be assessed on the basis of net rather lhan gross output, continues toenerally mandatory indicator for forming incentive fundi and formanagerialrice markups forawarded the State Seal of Quality are increased substantially and the duration of ihe markups isroducer goods la the highest quality category may be priced wiih profit markupso IIS perccnl higher than normally alio-able rates. Profits from sales of goods with these price markups are aliocaied as follows TO percent io enterprisefunds.etcettt K> the ministry's central fund for financing research and development, andercenthe State budget. Price rebates arc imposed on production of goods in ihc lowest quality category (III and oat sales of output lhal wai not certified as to cwahty on tc.Scdutr profits from such sales are corfiv caied in whole or ia Urge pan by tie budget.

Thc procedures for itaic certificalion of lhe qualityproducts arc codified and slrengihencd byof Ministers Docree issued in Decembera folios.up Gosplan methodologicalll inetuslful product* other lhancu rated categories ire to be submittediif kio slate certificationCommissions are sei up for individualgroups of product* as appropriate. Thea commuMon consult of representatives of lhe

producing ministry (but not the enterprise producing Ihche ministry of ihc principal consumer of Ihe product, Ihc ministry designated as "headfor making the product, the State Committee for Sundards fGossuodardk and, if appropriate, the Slate Committee for Construction (Gemtroyt lhe Ministry of Foreign Trade, ihc Ministry of Domestic Trade,epublic Ministry of Services (or thc Population. Thc commission must be chairedepresentative of the consumer ministry or ibc State Committee for Sundards (or Gosstroy) who must vote yes on any quality certification lhat is to be valid. In each case, the commissionertificate of quality, which is formally registered with GosJUn-dard and dates ihc validity of the certificate (one to threel also recrnnmends to the producing ministriesroduct certified in Ihc lowest product category (II) should be modernised or dropped from production. Enterprise annual plans specify schedules for submitting products forWhen products are produced in violation of Standards, tale* of lhal output arc not counted in the value of production for plan fulfillment evaluation, and enterprise incentive funds are reduced as apenally.

Finally, the government continue* to push adoption of plantwide quality control programs, and the presi lauds local and regional bodies lhat adopt areavrldc programs. To encourage enterprise willingness tohigh-quality producU and new kinds ofthe new rules state thai supervising minislries may revise enterprises' plans when failure io meet them occurs because an enterprise is mastering lhe production of high-quality producer goods or new consumer products.

ImprBtiat ike Wkolnale Diuribuiion Sytlrm. First of all. the perennially balky system of rationing and distributing producer goods it to be made to function belter by ensuring that both annual and five-year plans arc balanced. This meant, among other tilings, increasing the number of products for which these balances arc made. Forlan, Gosplan compiled material balancesroducts and

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plant, comparedand noibuiion plaits ia'the prcviouimribuiioo plans ciKompsii0 BS per-ejjrt erfcnitpuf of ihe products concerned. Inyear plan now bring worked on.ompiling balancesroducts. In'annual pUns, Gosplan ,makes balances4alances requiring approval of tbe Council of Ministers. Cess-nab makes annual balances fornd the rnJabtria" For the first time, regional plans contain material balances for five-year periods. Also, for the firs! time the five-rear planeparate section for matcriil-techmcal supply.

9 Decree and icveral fedkwup issuances continue and aricmpt io reinforce pcrvioosly decreed programs. Use of loot-term cooiracts betweeno be encoded.on*-terme supposed to encompassercent of totalproduction of the relevantlready. Ihey cover substantbl shares of iron ore and steel predicts, cement, timber, and agricultural machinery.ere" flQQ of ihem, involvingnterprise* andercent of theroducers of consumer good* are to sign five-year contracts with arnxepriate retail organlrationi.mttti of the Ministry of Trade. These so-called direct ties areemain stable and to bc arranged to promote efficiency in thc tlbtributron process. Two major issuances regulate procedures for concluding these contracts and relations betweenand sellers, providing stiffer financial penalties for violation of contractB addition, failure to deliver goods as specified in contracts malts in deductions from incentive funds of lhc delinquent enterprise and denial of allart of bonuses to iu managerial personnel. Frnally.oth to enlarge its network of small wholesale stores, where enierrwbes can purchase items without ration rickets, and to expand the practice of negotiating contract! with large enterprises or associations to supply ihem with all needed materials and orjuipmentackage deal.

To provide for handling bMikocels and smooth out the production process in general,9 Decree calb for building up Gossnab reserve slocks. Implc-menting ibis provision. Gosplan and Gossnab issued a

decree providing for the setting of newock normsroups of products inlan period. The new norms arc subwaratrally higher than those plannedthree lo four times as high for rolled ferrousS limB foe steel utbin. two limes for trucks, and four limes foe armoredhese slocksan of the system of reserves of the Council of Mlnfaters. Intended for geracral use in the economy as needed, but strictly controlled.

BttmmimJ WKdamUajor revision of iaduttrial -holesalc prices, the first overall revisionook effecthc set ofa norke reform, siace the traditional Soviet approaches lo administrative price filing are retained intact Thus, the new prices, like ihose (bey replace, arc calculated on the batb or avenge anil bbce. material, and derxecbtioa costs plus an average pcrccnuge profit markup over cast. Excepted are crude oil and natural gas prices, forperies of marginal coalsed. Alibough link price information has been released

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First, the new prices will bring costs and prices generally into line by substantially raising prices of fuels, raw materials, and many manufactured prod-new. Thc overall level of prices will be raised by in as. yet urtspedficd amount; retail prices are tc remainnaffected. The new prices are intended to enable thenterprise in each branch toormalrofit, so that branches such ax coal mining, peat, and lumber.once more become profitable. Evenide dbparilyrofit rata win exist, and anany enterprise still -ill make losses. On the average. Ihe new pricea provide profit rates ranging fromoercent among the varioushe profit rales arc calculated relative locoM gfler deduct ing material

Second, tbe aew prices incorporate certain costs thai had been covered by the slate budget from general revenues. Social insurance charges, which io irtdnsiry rangeercentercent arnong tranches.

CantWirrrrr

k h by an average of SOill rules rangingtumum oflx new pekes are lo covet ill costs of geological prospectingonly about half of which had been coverede siumpagc fee.rainmbei oteii and if paid lo lhc badgcl lo finance fores'o be doubted. Finally, produci costs andcrryiug the new prices willharge for ate of water, which beginning) will be imposed differentially on enterprises and will bc paid into local budgets.

According lo tiaicmcaisecent conference oa price filing, thc Stale Committee for Pricea has reticd and promulgatedrice Inn KO all-union listsepublic Ibis: altogether,ndividual prices and tariffs have been reviewed and approvedlthough details arc sparse, tl appears that the new price lists generally provide for finer differentia lion to tike account of relativeutility, and scarcity. In tbe case of crude oil prices, wbkh ire toimes, the number of regional price zones haa been cut from IT to three; within each price cone Ibc base price will be set so as to covet cosls of lhc highest cost producer. Other producers will,as lha caseay rem (fiicd payments) to the ltate budget cakulaied in rubks perniform industrial wholesaleo bc set for allrally new estimate prices aad norma for con.in.ci.oo arc scheduled to lake effect

Siremgimemrtl Fimmaeiml "Lrrrri. 'Several types of so-called levers arc to bc strengthened and encoded under ihc new arrangements. They concern usepayments for bank crcdils. establishment ofmtnbterinl funds to bc used for financingand development, and gradual'transfer of nviniS tries and enterprisesystem of flacd pcofii iharlag with lhc budget aad to self-fiaa rvcing. With rcapcct io bank credits, revised procedures aad rates were introducedouncil of Ministers decree Beginningank monitoring of eatcrpriK fi nances was increased, higher iatercsi ratesimposedarkty of stipulatedsuch as overdue loans, and customers nrre fined for notng for orders oninally, cnicrprises

are capectcd to use bank ncdm raiher than budget grtati to an increasing caicai. and corisi ruction firavi arc to use bank credits raiher than customer advances lo finance projects in progress.

To centralirc funds for financing research andintroduce new technology into production, and promote Its mastery, lhc9 Decreefor establishing in industrial (and presumably other)ingle, "unified- fund to finance the planned RAD program and to rdmbunefor eaperimentil production and startup costs, liaccptew minbtrics eiperimentally using Ihc single fund, such costs had been financedariety ofmainly from funds charged to enterprise prod act too costs, coo tract receipts of research and design aastitates, and the Male budget. The new fund ia eacho be formedevy on enterprise profiiscalculatedranchwidcof ihe value of net oulput (marketed output In somehe rata arc lo remain fiicd for the five-year plan, and expenditure* from the fuad arc to bc baaed on stable planned stations. Levies for the unified fund willajor charge onamounted iooercent7 percent) of profits in some of then addition to profits, theo beart of the price markups allowed oa high-quality products.

Even under the new at rang cm rats,RAD wort will Mill be rmanced fiom budget funds aad bank credits The norm for forming ibe unifiedo be sci by thc ministry concerned, based on lis cipericncc and its planned tasks for research and for mattering new technologies and prodacu. These unified RAD funds are intended to improve ministerial oversight aod direction of the RAD process andatter vchkSc for repaying enterprises prceoptly for ttartup coals: failure to do so under the old amngcmcnll was bit mod, for enterprise reluctance loinrtoviie.ounlaierial RAD institute! and designarc to be completely transferredystem of self-finance, and rewards to iheir person ad are to bc baaed oa profits, la the case of individual protects, bonuaet arc to be related directly to the estimated "useful effect" (ccst savmpl obtained by users from

iaandaralial

adopting ihe results of theontracts are lo eover each large iisdrvislnal project ordereddieiii euirrprac, wilh paytrwstt mad* only when lheytxi his been completed and aecepted by ibehe Kiiinies and design orgaBitituxts arc lo arrange Wwk financing in tbe iaienm

Ostensibly Io eaotivau minrtlncs and Ihcir subordi-Mle tawa la sixfe* anril efficiency and to ihow eraneara for capital assets, lie9 Decree directs thethey arejndustrial ministriesrai sctf-financ-ing basedcheme of profit sharing with ibe stale budget. Longted by tome ceonornisis and resisted by ibc burcsacracy. Ihis arrarigemeni was pui inffect ai earlyI lo Ihc Mlnbtryil ru menu and Meant of Automation (Minpribor) and calender! with modiiVationj lo four other ccnlral ministriesew local units. Two additional central ministries and some union republic minutiesCopied thc system" Procedures for tramfcr to the new arrangenwirti have been spelled outosplanith no laudable sprx>TiedUhinutelf. ihe nsinsstrics are supposed lo apply lhe system of profit drjtribetna and icif- finance lo all subordinate nterprtses and aasocialions.

The9 Decree and Goapian's instruct inn describe ihe aystent aa follows. The alTecicd ministry (and iubuwii) shall beiled arnouai of profit in rabies that rausl be paid into lhe Kateach year of ihc five-year plan; Ihe rest of lhe profits arc to belong, to the ministry lor subutu'l) lo finance planned opera liotu. but strictly in accord with plan. Theallocation must be paid, even if the annual profit plan it not met- If the profitverf ulfallcdercent or less, half ihe excess profits go to the budget; ifreater.ercent of the caceas profitsbc budget. The budget's fixed amounts as well as al rather rules of the game are supposed to remain unchangedcar period. The budges's share of pUneurlupuoaad lo be set as thc turn of (l| thc planned capiul charge aad fixed paytneauffer-eacc between Mtal planned profnt and afl other planned uses. Budge! fundi and bank credits may be tated in cases where planned profits are not sufficient to cover planned invesimeni and other requirements.

Finally, ministries and their uniis must pay the capiia) charge on above-norm inventories out of Ihe part of profits planned to be retained by ibem. Units using less ratals! than planned, and therebyavingt on the capital charge, may keep the savings.

FltwBiag Affromtkes umdajor section of the9 Decree ii devoted lo the thane of improving planning, continuing the Idee/ixe lhat better plans will produce better, that ia, more efficient performance- Although none of thcadopted in ibb round of reforms isome of ihem receive much greater stress than in the past.

Hist, lhe decree aims io accomplish inl-SS plan whal was supposed lo (bul did not) happen in the past two piimaking ihc five-year plan the center of focus. Theo remain liable, ii is to be subdivided by years, and Ihe incentive ntccha-nbm is geared to meeting five-year goals; lhat is, ihe site of bonus funds and rights lo bonuses depend on meeting an annual plan thai reflects its cumulative contribution to meeting ihosc goals.

Second, even greaterlaced on the system of mpierpUnrung. wberrby enterprises and ihcirare rewarded for vdaniarily adopting anor five-year plan that sets higher targets than those SCI for Ibc enterprises in Ibe original plan.

Third, Ihc dusive "balance" in the input-outputembodied in lhe plans is to be ensured, Ibb lim: by considerably increasing lhe number of pUnned balances developed at the center, notably Ibe already numerous material balances and plans of distribution. Regional plans arc to be made more realistic and balanced byarger role to local planning agertcses. Tab aim was embodied in yet another government decree (publishrd inthe powers of local soviet! with regard to ccnlral ministries by reouMus that the Utter obtain concurrence of the Soviets for those parts of their plans (and any changes in them) lhat concern matters of -'land use. environmental protection, construction.

of labor resources, production of consumer goods, and local infrastructure serving ihcaterial balance* arc lo be developed by republic for the five-year plan, and labor halancei by region and locality for annual and five-year plans.

fourth, more plan targets and associated norms are to be specified for enterprises by Ihc center, and in greater detail than before.

Fifth, the second phase of Ihc counpuSeriaed planningo be pot into opera! -w. its purpose is lo speed up planning- aad raise ihc quality of plans through use of mathematical optiminng models aad input-out put lechniQuei

Siaib. great stress is placed on ensuring thai, plant remain stable for lhc five-year period, particularly Invcstmeni plana that arc lo bc fully backed by appropriate allocations of inputs and, once approved, notc altered

Seventh, (hit round of planning Innovations lubstan-tially upgrades Ihc status of and importance attachedo-called comprehensive or program-goals planning approaches.iih the aim of focusing aiicoiioa and resources on nationalgroblems thai cut across many sectoral lines. The desire lo base five-year and long-term plans oa ibc most realistic and comprehensive long-term scientific aad technicalpossible is also involved, la that way. Sonet planners hopeeap the fruits of theihn.ca! revolution Thc rhetoric on thai theme haslood tide, whose ctuacc is frcojuently nsarty. There arc three basic types of these corner hensrvct. fie technical progratntitlkmekeskiy* profommy)uide iciennfic research and development, targeted economic programs Uirlfryrr kompltkintvt aarodnokhoTrmyunimrtr avogvammH aimed alwith an economy wide problem, andprograms furarticular region item-roriofkomplrkiyi Gosplan has promulgated mttliodologKal dirrxiivcs for preparing plans for such comprehensive programs"

In. according lo A.osplan deputy chairman, Gosplan. Ihc State Committee for New Technology, and the Academy ofilt ofomprehensive scientific-technical proiramsrograms to icjvc specific scientific and technical problems: most of thesearc io be implemented inlan and ibe rest inhc same spokesman alio states thatey "economic social, aadprograms" will be developed on the basis of published GospUn methodologies "in ibe nearAmong tbem are programs for reducing the use of manual labor, stimulating wxe efficient use of fuels and energy, cortscrvatioiimetals, espanding production of new consumer goods and development of the Baikal-Amur railroad (BAM) area. Thcspokesman then states, "Development of the food program will be important for then editorial in thc1 issue ofiano-voyt khoiyayttvo states that "comprehensiveshould become an integral part of Ibe new five-year plan. Priorities arc food, development of Ihc production of consumer goods and services, reduction of mannal.libor, upsurge of machinery, energy and transport, and likewise other large-scale

Inc directives forlan do not list any specific comprehensive programs, although they do refer to seven specific territorial-produciion complo-es on regional comprehensive programs: WesternKansk-Achinsk, South Yakutia. Timano-Pechora. Kursk Magnetic Anomaly. Sayan,he directives also state the inlcal

lhc comprehensive program forNon- Black Soil Area. Writing in thcissue of Gotplan't journal, D. Zhimerin.of Ihc Stale Committee for Newalso refers torograms approved forplan, stating further thatf themtingled out as especially imporlanl,He Slates thai irtese programs providenecessary measures and assignments offor carrying them out. He also mentionsof complea programs for fuel and energy.

for machinery, androgramslhc agro-industrial complea. sii of them

10

scheduled for implementation wilh tpecific resource allocations. Coordinating commissions consisting of leading scicntisls and specialbu have been approved for lheome of ihe program* for the plan period provide timetables for organizing aerialof new products based on completed research and design work. Iherebr reducing the usual large delay beiween completed research and the mastery and production of products. Inosplan Deputy Chairman A. Baehurin wrote that onlyesignated comprehensive programs had beenin the approved five-year plan."

rtaxliatitmalhe9 Decree sr*cUics lhal the formation ofassoda lions as the basic production unit in industry fralher lhan enterprises) is to be rajmpkled ia ihc "next iwo to threeroduction associations are amalgamations of enterprises producing similar products or located in ihc same area. Seaence-prcduc-lion assodatirjns include research institutes, along with producing enterprises. Al the endhereroduction and science-prod actionthey accounted2 percent oflthough ihc associations arc supposed to merge enterprises, more lhan two-fifths of their constituent units are independent enieiprises.

In his speech toh party congress inrezhnev stressed the need lo developerns io better coordinate aclivnics of the numerous branch ministries in matters lhal cross sectoral lines. Bul the9 Decree is silent on Ihc mailer, andlan directives are vague. The decision seems lo havc been taken to accomplish the coordination by proliferations of specialof Ihc Council of Ministers and GospUn and by appropriate reorganization of lhe internal structure of Gosplan. Thc following actions have been reported:

A commission of the Council of Ministers was established, probablyo overseeof lhe Wesi Siberian oil and gas cootplcs; an intcrdepartmental commission under Gosplan was located in Tyumen'."

arty-government decree of1 established an interdepartmental commission under the Council uf Ministers for conservation of raw materiab. fuel.

N.ead of the Stale Cotttmillee for Material-Technical Supply. Counterpart commissions are to be set up in republics, krays, and oNsits and also in individual ministries.

ew Slate Commit lee for ihc Supply of Petroleum Products was established under lhe Council of Ministers: lu. Z. Kfauram-shin" Apparently, this new committee takes over the functionsetwork of petroleum product supply administrations lhat were subordinate to republic Councils of Ministers and lo the State Committee for Materia II Supply.

Gosplan has established several inierdepanmenulor energy.iorts of freight shipments, use of secondary raw materials for the food program, and comprehensive use ofa. P.osplan deputybeads the last Iwo commissions mentioned

The internal structure of Gosplan has beentoumber of comprehensiveconcerned wilh major targetedDetails of the new internal structure have not been revealed.

Two new minbtries with activities related to ihe so-called food program have been created. They are thc Ministry of ihc Fertilizer Industry and ibe Minbiry of the Fruit. Vegetable, and Canning Indutlry.

TV New Working Arrangements- In Ihe Right ttrectsou?

Thc working arrangements set forth in (he9 Decree and subsequent issuances do noteform of the economic system.ore centralized, rigid, and detailed than ever: Ihe scope for initiative of the producingoreproducer goods are mure rightly rationed: administratively set. inflexible, average cost-based prices are retained: and intricate incenirve systems are lied to meeting plans for many poieniulfy conflicting variables, with priority given io production plans

expressed In physical unils. These changes move ihc .system away from -hai most Western (and some .Soviet) observers agree is

ITexibiliiy. and the introduction of market elements.

lacrwed CtHUaUuuion. The "nc- dear now being implemented substantially increases the scope ofplanning and lhe authority of Gosplan aad ihe central ministries, it docs so by increasing (be number of products whose production is planned and allocated by GosptaR itself. Moreover.aking on thc role of quasi-mints'iyrowing number of special projects; technically, these projects arc allocated ma teriabprnent separately from'the minbtries normally responsible. Gosplan itself determinesrequirements, and the number of specific agencies or productshich Gosplan allocates materiab and equipment has proliferatedesult (from56ltic over ooc-third of fundholdcrs1 were ministries and [be like, and thc rest were various special projecii (mainly inhe changes also reinforce the central role of lhe industrialwhich under the new arrangements arbitrate lhe formal rules and norms that fovcrn lubordinntcenterprises or associations, laihe minbtries admWsier ihe marc of incentive arraauixments, interpreting them in ways thatdelen-ine lhe incomes and careers ofrise ma oaten. They have aa array of discretionary reserve funds that car. be used to affect Ihe fortunes of subordinate units and Ihcir employees. Above all, lhe minisiries areey poaiiion to delay formal arrangements (for example, profit sharing) lhat Ihey regard as inimical to ihe welfare of themselves and their enterprises. By ailempting to do more and more in greater and greater detail in Moscow, the centralother state eorrurutiees, and thein tbe words of Alec Move, become more than ever "leaiher-jacketed Commissarsaround ibc clock to replace thc free enarkel."

New /Vanning Commullaiomt. Three themesthe new emphases and arrangements pertaining to plans themselves: liability of plans and thenormative base oricnicdive-year oeriod. plana net, and comprehensive, prograirt-grjab ap-proaci es The goal of plan stability is to bed largely by fiai. by declaring that plans and

Ihcir normative underpinnings shall not be altered for Ibe plan period. To pursueohimera. Planners cannot foresee the fuiure. forecasts frequently fail, and change and uncertainly are lhe essence of life. Frequent alterations in plan targets will and must continue. Failure to adjust targets to actual changes in supply and demand would simply compound ihe rigidities and ineffrbencaes endemic to lhe Soviei production system, perhaps even bringing italt."

In thii round of adjustments in economic working arrangement's Ihe long-sought balance (conMsicncy between planned outputs and the rcqabitco be accomplished In both annual and five-year plans through proliferation and modernization of the limc-honorcd"system of norms relating inputs to outputs and through an ukax declaring lhat no invesimenio be includedlaniven year or five-year period unlessully backed with the requisite input allocations. In pursuit of lhe elusive balance and tbe even more elusive cITrCseocy in plans, Gcaplan has beenassive effort to rrnnew, update, and proliferate norms of all kinds throughout Ibe economy. Presumably, aome initial results of ihis undertaking have formed the underpin-nings forlan. On paper, of course, the production plan can be balanced by adjustingnorms and norms governing schedules for constructing and assimilating production capadiics-No doubt thb plan and all future plans when an-nouriced will be declared to havc been carefully balanced.o reason to ibink, however, thai in practice matters will be any different from Ihosc of Ihe pail. Events will show no doubt that :be original norms were loo optimistic about input requirements and mastery of new capacities. Moreover, even if the planned normative relationships were realbtic at the time of formulation, tbey involve technical forecasts and output projectweii both of which may be in error becausc of unpredictable real worldunexpected crop sires and difficulties innew plants and processes. Meanwhile, lhe ni-lesnptreatly increase the number of input-saving targets thst arc set for emerpraes increases the potential for error, and monitoring and enforcing the

t.UiridralTal'

saving* aill add greatly to the administrative burden on ihe bureaucracy's higher ichcloni. Finally, an added contradiction is inherent in Ihe scheme of cownicrpianning, whereo inoic than thc approved plan requires and arefor doing SO.

The notion of comprehensive, goal-orieaicd planning seems sensible, ln fact, however, superimposing Ihis type ofsolving large-scale problems orargethe planning processes in an economy lhat bas always beenadministered along sectoral lines. Because ofincreased centralize "ion and retention ofrnanagernenl. al1 the existing planning routines and computa. uiusl be retained. Now, the already over burdened c il bodies must compile detailed plans for each u. tne many complexensure lhat their inputs and outputs are provided for and are consistent with all other sectoral plans, and sec thai thc detailed requirementsiven program arc introduced as separate line items in thousands of ministerial, sectoral, and enterprise plans so as io ensure implementation of the program. Tbiserculean task. Al the moment. Gosplan evidently is trying to cope with al leastomprehensiveand perhapscientific-technical programs. In ihb effort,pawning new departments and commissions, not nf.ly lo plan (he programs bui also to participate in Iheir impiemenuikwi. Thus, tbe admin -Ulrative burden on higher echelons multiplies, and so will the economic inefficiencies stemming fromcentralization of decision making.

Ftutrlm* Ikt frpdueimi Vail. Although production associations are slated to become Ibc bask producing unit for industryxperience with them inuggests lhat their formation has made tittle difference. Tbe press confirms that forma non of associations has involved muchsm. with many of their constituent units still rcuining tbe status of independcnl enterprise* with separate balance sheets. Many associations consist of only two or threet. the desired concentration and specialization have not' taken place to any extent- and the anticipated large benefits have yet lo materialise. Rather, iheirto the cxteni that actual merger has taken place, has increased the average sire of Soviet industrial

enterprises, already decisive by intcrnalionalThe millions of small, independent,art of Ihc industrial structure in Western countyel lo appear coi Ihc Soviet scene. Thc latest set of changes in working arrangements, including formation of theot conducive to their emergence. Because of the scarcities of real inputs looming in, lhc pressure for self-sufficiency will be greater lhan eve/.

Although one objective of the new arrangements itprovide for Ihc proper combination of centralized planning with enterprise independence and initiative, ihc new rules of the game enmesh ihe producing unit and its managerial staff in an even denser thicket of targets, norms, rules, and incentive scheme' lhan did Ibe previous working arrangements. The list ofset plan goab and norm; foronger than before and covert everything that matters:

Growih of output (na or grots) in value terms.

Production of principal products in physical unilv many more than before.

Growth of output of products in the highest quality category.

Growth of labor productivity.

- Normative wages per ruble of output.

Number of employees.

Assignment (or reduction of manual labor.

Norms for forming three incentive fundi and Ihe fund for financing research and development.

Total profits.

Commissioning new product too capacities.

Ruble ceiling on investment.

Assignments for new products and introducing new

Indicators of the technical level of production, for example, exf automation or quality of products.

Economic benefits Io be obtained from introduction of RAD work.

Allocations of principal raw materials and machinery.

for reduction in use of principal physical 'resources) miny more than before.

cf products and payments to and assignments from ihc State budget to be in annual plans (also set for five-year plans,ixed profit-sharinghas been adopted).

OirafWiwlar

Moreover, (be1 decree adds, beginningoals for productioneiling on thc value of raw ma (trials included in cost. Besides these centrally set targets in it, plans, the association or enterprise is supposed lo conform to Ihc requirements of labor norms and staffing patterns."productand requirements for product certification, and numerous other rules govcrauur one or another aspect of iU operation!

Thc new arrangements add considerably to ibemazelikc intricacy of lhe incentive schemes to motivate enterprise personnel, particularlystaffs, lo sirive to produce more wiih less. Although there is considerable diversity, thc general rules are as follows. First, morecore of diverse bonus schemes are in efTcci. Second. Ihc basic bonus fends from which the bulk of managerial bonuses are paid arc formed from profits, and their sire depends on enterprise performance wiih respect to laborand ihc share of products in the highest quality category. Because various kinds of profiu are omitted in figuring deductions into the funds, their size is affected by the system of counterplant. by enterprise performance ia meeting contracts, and by some other variables. Third, even with mooey in (he bonus funds, the amount of an individual manager's bonusarticular month or quarter depends on meeting thc plans for labor productivity, product quality, and profits; his rniiiltmetii to any bonusart of il requires fulfillment of those three plans and also meeting ihe plans for production of key products in physical units and for product deliveries underBonuses arc reduced for ovcrcxpenditurcs of wage funds, and ministries may specify additional rcouiremenis. Moreover, ihere are ceilings on the totalanager may be paid. Finally,anagerial bonuses are to be made dependent also on the actual amount of material expenditures aswith the limit set. Obviously, (be scope for conflict among these multiple factors determining managerial rewards is great, the potential for(economically efficient) calculation* by managers is small, and the potential for new behavioralis enormous.

Although it is unlikely that minisiries and enterprise* will shift soonrofit-sharing system and financialome observers believe ihai ihc proposed

change has considerable potential for inducingrn; enterpriseo us, however, the scheme has no suchayor reason being that it creates an Incentive nrrtngenieiwwlrere the ministry or enterprise assumes all the risk for failureharply decreasing share of Ihc reward for stsccrss The new arrangements, thus, arcrue profit-staring system, rather. Iheyined amend of Uaes to the budget during each year and frre-year period IO be pan! regardless of the amount of actual prof lit The enterprise bears the entire coat of failure io mod the profits plan, regardless of the reasons for thai failure; convericly. if the enterprise makes additional profits above those planned, thc budget auiomailcally receives half or more of Ihe eitra profits. Thus, should an (oletpriie seek io maximize iu prefils, moat of lhe reward for extra effort would go to thc suie treasury. Moreover, under both this and Ibe present system, lhe enterprise is in no sense ibe residual claimant lo profits withas so Iheir use Under both, the uses lo which all profits can be put arc ipeeifred by plan orbe government evidently believes lhat managers cannot compelllocate the fruiu of enterprise endeavor.

Profit sharing is panroader scheme of requiring minisiries and ullimaicly firms lo Operate under complete financial antonomy. paying for s'lfrom profits and bank credit without budget subsidies or investment allocations. This step, il is argued, will induce anils lo use inputs morelo be more demanding of mi pollers of rawaad isvesiment goods, and to cater to customers' wifJtcs. The relevant entities, while remaining parttale-managed production lytscra. areespond like businessxnpetiuve market environment. Such aa caawxuiionrand iDusaon Without any alteration in the economic environment. financial autonomy can amount to no morehange in accounting rules. To Induce tbe desired behavior, firms would have to be given broao freedom of action, alternative suppliers would have to be available, prices would have io reflect relativeand utilities reasonably well, and government

full tu Itt

CnmfldlMial

would have io rrtrcit toIhc economy lather thin directing it through detailed plins. None of these systemic mouificaiieni form* any part of Ihc bitesi reform package.

Impact aa Maaagcauewl af Hainan aad Material Rctourcaa

Together with the reduced rate of inmiaient. Ihc complo of measures directed mainly at limiting enterprise demand for labor and better ccordinatint supply aad demand in local labor marieti any ease those difficult tasks somewhat IYr>babty. thc meat effective labor-sariaf factor, however, will be that Use extra weaker* will simply not bc there, so lhal manag-ers will be forced to malic do as best Ihey can. They will find il hard io bid workers away from other firms by oUcrinf higher wages, for il Is evident thai ihc financial authorities arc determined to enforce strict control over wageines and stalTing patterns Their record in this area has been ratber good in rccenl yean. Thc delegation of rexportsibiuiy toovernments for compiling supply-demand balances for their regions and taking more responsibility for dealing with localositive step

These revisions ia working arrangements, betides being directed at copingong period of low growth In labor supply, are aimed ai reducing thc demand for inierrnediaie goods (raw materials and energy) These exstuct include aa expanded role for ptan targets focused on tuch savings, tying these targets to the formal incentive system,hift from grots to net output at tbe primary value measure for enterprise production. The new wholesalelso arc structured to the tameb, pricea of focti. metals, and lumber will rise sharply relative to crates of final goods tuch at machinery The entire syVem of norms, bott for materials andeing revised lo make ihem taut:hese acw aorms that will underlie plan targets for specificesource tarings, for labor productivity, and for cost. Tightened input norms and limits on resource use are partsrovensystem of rout met and pressure* thai in the past has trebled the economy so Improve ia the physical efficiency of resourcetons of Meet orfer million rubles of machinery or construction. Tying material resource tarings and cost reduction to the bono*

system is new. despite the abortive attempt madcln lhc. The difficulty is that these incentive arrangement* are only pan of an incredibly complex tysiem of rewards and penalties. The most notablehe adoptmw-of net oulput. in place of grots output, as the primary measure of Ihe value of enterprise production.

Tbe new rales add new indicators ha" not replace cad ones, thus prol<fe.-aling conflicts ats ia the tuuetarc ofewards, and penalties that confront producing anils and shear managers. Thus, great value measures eortiiaac toeature of the system, because firms arc act targets for sales, which are the sum of contractualbroken down as always into physical units and their corresponding prices. Maaagcrt* bonuses depend on meeting plans for contractual obligations and for key products an physical units. In such anrife with potential conflicting signab. the need to pay at leal! some altcnlion lo yei anotherproduce its own abenaliont. Indeed, tome press rcporiing has already alluded to such possibilities, and hat repotted their appearance in Ibc behavior of enterprises already experiroeniing with thc net outputecause tbe principalages, enterprises may bc led to prefer La bor-intensive prod uas Alto, the revealed preference for producing those products thai aa arbitrary pricing system has made most profitable may bc enhanced by the new indicator; one preuranent mirullcr has already declared ihai to be the case"

These new working arrangements attack the problem of upgrading ihc quality of Soviet products and prolong the incentive arrangements and the grading of raronocu by quality lhal hat been in effectn outpouring of statistics would seem to support beliefreat leap forward-he average quality of So-iet product* A*0 products, accounting2 pcreenl of the gross value of industrial output, had been awarded the Seal of Quality, signifying thai ti.eii specifications were thc bat in the USSR and met worldbe shareercent. During0

15

five-year plan, the shares of output assigned loqnaliiy categoryof machin-

ery reportedly increased aietal-Cut ting2orge andnd machinery indut trieshole- 'rem IIS" In light industry,the (hare waiata of this kind are alto given for particular minhlricav. These siatit-tic* may nol actually reflect acntevcaneraU becaate (exceptewnch ai can andov.ct ea ports of machinery io the Wast dad not rile, aad because factor productiriiy la industry aaa coa-linued to deteriorate, despite thc mfuaioa of al of those luppoaedly nighuuaaiiy machines

The new price mark apt provide higher profit rate* for new and higfccjualrty products, to a* to encourage their production in com politic*highly profitable old product* that constitute lhe bulk of output. Thus, talc of highest quality products0 contributed onlyoerccnl of lhe total profit* amoogachinery mlniilrlea. wilh an averageercent for allhe new mandatory product certification procedures, along wilh lubitaofially higher pro/ii markup! and ihc longer dura ironon new and more efficient products andmay indeed induce prrsduoert to put out inch products. Whether ihc outcomes will be real ordepends on whether products ccnified asworld standards actually do to. One would expect to find evidence of product quality in the increated as la Cuf Soviet manufactures in world markets. iiKreased efficiency of dornstic production,untenable stocks, and fewer complaints by eeeoum-

gtm

The extremely intricate working arrangmenu thai eoostitute thc laicsi round of changes in planning and incentive arrangements arc no panacea for the Soviet economy. Those ilh stem largely from threefeatures fficient) guide to choice. Ill Ihe attenuated influence of consumeri on producers,he absence of the discipline of competition amongven lhe reformed prices will be poor indicators of realcosts. Thc sbsence of efficient prices deprives all derivative valuevalue of net or

gross output, profits,genuinecontent. Thus, efforts to induce economizing behavior from producers by tying rewards andto meeting targets for any-ne all of thesearc doomed. Enterprises can be eapectcd toto the modified Incentive structure by focusing on those aspects of performance lhal they perceive have highest priority in lhe judgment of tuperior bodies. Manipulation of product mixes In the interest of meeting one or another value targets, for example, profits, is likely lo be pursued in the interest of meeting the plan rather than ihc retirement* of customers. Response to new relative prices for labor and materials is likely lobe stow and limited. Because most of these prices are based on average rather than marginal costs, widely varying profit rates willAs in ihe past, efficient firms will have their excess profits confiscated by thc budget, andfirms will continue to be subsidized. There is no reason to think that "wcialist" firms will be allowed to go bankrupt.

Indeed, an argument can be made lhal any really serious effort lo implement widely thc latestnnovations in ptanninz and management wjll make mailers worse. The greatly increased centralization and compleiiiy of planning will push theto the limits of their capabwlicsv Thc perennial changes in Ihc rules of the game facing the producing units distract Ihcir managerial staffs from Iheof running their firms and make decisionmaking al lhal level caircmely difficult. Thc avalanche oforms, and incentive rules directed al reduced use of physicalogether with thc campaignlike approach that is being used to help solve this problem, is unlikely to induce resource tarings ai rates any higher than in the past. In fact, many economically inefficient consequences could ensue from this approach, which seems to be based on Ihe notion lhat "any reduction in energy or metal or labor per unit of outputniversalhis fixation would preclude decisions in particuiai cases, forloroduct with higher content of steel per unit of output, even thougn thai product would sell easily or enable some producer to reduce hi* product costs. These economically efficient choices

(vstnTeWTITF

BLANK PAGE

ElTecl of New Arrangement*ifa

of Ihe nc-H2 -ill affect tome series of economic data, certainly for induairy and Pfohabljoe moti Mho/ sector*.

FVc<*KUou coalo- miU imlvdcgeological preupecttag emuan of Mchpreviously included

Cosi -ill .neiude increased siumpngcw all cosu of forest roavatrnsac*.

Cosl will include an averageercent increase in social insurance laaea. which differ amoni branches

Cosi will nowew differentially levied charge for industrial use of water.

< Cost will no longer include the etphcii charge levied differentiallyom pan of ministerial research and envelopment outlays

will now be chargedtuev, io finance the new centraliied RA I) runsels of

mintslriea.

Soviets mayeleci to calculate (be official indea ofproduction on lhe basis of net output mstead of gross output. In an, case, they guobabi, wiO thitt the pnee base for ibcV luaain, .be indca la constant pr-ae, for esrlierxyears lo the indeai calcuUledrion.

Paymcnit for bank credit arc likely toignificantly larger charge on profit, than before

' Isodget revenues will be eanandede new or hrghcr charges for |cological prospecting emu siumpage fees, water levies, and social insurance charges. The contribution of profiu to budgei rev-enues can be expected lo drop relative to that of ths lurnover laa and other revenues.

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