The Responsive Economy

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Subject essay: James von Geldern

Once a rural economy in the throes of forced industrialization, the Soviet Union boasted a complex modern economy by the mid-1960s. Alongside kolkhozes and traditional heavy industries, economic planners now managed a variety of sophisticated enterprises that demanded educated workers and technological innovation, and served an evermore complex population. Growth could no longer come from forcing higher targets on industrial behemoths such as Magnitogorsk. The most desirable growth was in the consumer sector (light industry), which needed to be responsive to shifting tastes and standards. Aleksei Kosygin, who became prime minister as part of the triumvirate that succeeded Khrushchev, introduced a series of reforms in 1965 designed to make the economy more flexible and responsive. Enterprises now received their planning targets in terms of goods sold, not goods produced; and to encourage efficient investment, they were charged a small interest fee for capital funds and equipment, and allowed to reinvest their profits as they wished.

Several factors undermined the reforms. Although they received latitude in investing capital and setting targets, managers had no ability to fix prices, effectively depriving them of flexible response. Managers often turned to unofficial middle-men (nicknamed “tolkachi,” or pushers) to steer around the impediments of central planning. Human factors weighed heaviest against change. Implicit in the reforms was an improvement in the quality of labor, and tightening of labor discipline, yet in a society where, according to popular opinion, “they pretend to pay us, and we pretend to work,” workplace discipline seemed a violation of the social contract. The quality of production remained low, and the service ethos necessary for a consumer economy could not develop. Reform also demanded technological innovation, implying a degree of intellectual autonomy for an intelligentsia that was increasingly prone to question the Soviet system. Thus the very forces that made economic reform necessary also made it difficult.

The failure of reform did not remove consumer demand, which turned to the booming second economy for satisfaction. This shadow economy consisted of goods smuggled in from abroad, and goods and services produced by Soviet citizens, some in underground facilities, more often by workers moonlighting during or after work hours. A huge but incalculable portion of total economic activity, the second economy was officially illegal, yet it so pervaded Soviet life that nobody could avoid participation. An unfortunate side effect of the second economy was that most citizens were forced to engage in activities undermining the Soviet system, which fed a cynicism that eventually destroyed popular trust in authority. Actions deemed normal in most societies were subject to prosecution in the Soviet Union; and the entrepreneurial spirit was channeled into mafia-like enterprises that spawned an epidemic of criminality.

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