1965 Soviet economic reform
[1] The reforms were introduced politically by Alexei Kosygin—who had just become Premier of the Soviet Union following the removal of Nikita Khrushchev—and ratified by the Central Committee in September 1965.
Economists like Lev Gatovsky and Liberman were instrumental in framing the theoretical underpinnings of the Soviet economic reforms of the 1960s, advocating for the use of profit motives and market mechanisms within a socialist framework.
Collective farms also paid centrally determined prices for the supplies they needed, and unlike other sectors their workers received wages directly dependent on the profitability of the operation.
'business bookkeeping', or "accounting")—which required them to meet planners' expectations within the system of set prices for their inputs and outputs—they had little control over the biggest decisions affecting their operations.
[7] Managers did have a responsibility to plan future gross output, which they chronically underestimated in order to later exceed the prediction.
[10] This doctrine, elaborated in such works as Stalin's 1952 book, Economic Problems of Socialism in the USSR, described the price system as a capitalist relic which would eventually disappear from communist society.
[11] Nevertheless, computerized economics gained an important role for top planners, even while conventional Marxist–Leninist political economy was taught in most schools and promoted for public consumption.
[12][13] The rising influence of statistical planning in the Soviet economy was reflected in the creation of the Central Economic Mathematical Institute (Центральный экономико-математический институт; TSEMI), led by Vasily Sergeevich Nemchinov.
[14] Nemchinov, along with linear programming inventor Leonid Kantorovich and investment analyst Viktor Valentinovich Novozhilov, received the Lenin Prize in 1965.
[16] Another tendency in economic planning emphasized "normative value of processing", or the importance of needs and wants in evaluating the value of production.
[17] Major changes throughout the Soviet world became possible in 1964 with the ousting of Nikita Khrushchev and the rise of Alexei Kosygin and Leonid Brezhnev.
[22] He presented a plan, including the ideas expressed by Liberman and Nemchinov, to the Communist Party Central Committee Plenum in September 1965.
It was recognized that the existing system of planning did not motivate enterprises to reach high rates of production or to introduce organizational or technical innovations.
Aircraft engineer O. Antonov published an article in Izvestia on November 22, 1961, with the title "For All and For Oneself"—advocating more power for enterprise directors.
[31][32] V. Trapeznikov advocated a position similar to Liberman's, in Pravda, August 1964, writing that [...] the time has come to discard the obsolete forms of economic management based on directive norms, and to pass over to a simpler, cheaper and more efficient type of control of the activities of enterprises.
[35][36] One experiment in Lviv involved a coal mine and factories producing clothing, shoes, and heavy lifting equipment.
[36] The Mayak plant faced a dilemma in trying to implement the centrally mandated experimental reforms, while simultaneously receiving contradictory orders from the local sovnarkhoz (regional council).
It consisted of five "groups of activities": The most important changes resulting from the Liberman/Kosygin reforms involved the role of profit in the Soviet economic system.
Rentabelnost' was defined in terms of the ratio between profits and capital, while realizatsiya (also meaning "implementation") depended on the total volume of sales.
[48] In practice, the bonuses had the greatest impact on the payment of elite personnel (technicians and "employees" as opposed to "workers"), thereby counteracting the effect of Khrushchev-era wage reforms.
[64] For the "optimal planners" this limited decentralization was inadequate, and the new importance assigned to "profit" was incomplete because enterprises did not control enough of the factors which might affect it.
[65]The plan also called for the cultivation of a new breed of managers;[66] As Kosygin in Pravda (September 28, 1965): ...initiative based on know-how, efficiency, a businesslike approach, a feeling for the new, and the ability to use production resources in each specific circumstance with maximum effectiveness, herein is the essence of the new demands.In previous eras, an important layer of administrative control over production had been sovnarkhozy (совнархо́зы, a contraction of words meaning "Council of National Economy"), the regional economic councils created on December 1, 1917, under the control of the Supreme Soviet of the National Economy (VSNKh, Vesenkha, a similar contraction).
[67] Under the New Economic Policy beginning in 1921, enterprises were classified based on their relative interdependence (and necessity to war production) or autonomy (i.e. those "endowed with complete financial and commercial independence").
The many enterprises in the latter category were not nationalized, but instead placed under the guidance of the VSNKh, with the plan to group them into "trusts" based on production chains or geographic proximity.
[70] Complaints immediately arose that these councils did not optimize overall production chains, due to their regional focus, and that they conflicted with the authority of Gosplan.
[78] The authors of the reforms knew from the outset that changes would take effect gradually, based on the careful writing of plans through the years 1966 and 1967.
[88] The plan met with considerable initial confusion from enterprise managers who, throughout their careers, had underestimated their potential output in order to later exceed their quota.
[89] And the reluctance of certain bureaucrats to comply with the new policies was the subject of sustained criticism in the press, including multiple editorials by Liberman himself.
[90] Officials the higher administrative levels (i.e., the ministries), continued to issue orders at odds with the profitability plans of the enterprise managers.
Kosygin commented on June 10, 1970: The essence of the reform is, while perfecting centralized planning, to raise the initiative and interest of enterprises in the fullest use of production resources and to raise the efficiency of production in order to unify the interests of workers, enterprises, and society as a whole by means of the system of economic stimuli.
