Liberman Reforms

E. G. Liberman, Economic Methods and the Effectiveness of Production. 1965


The September (1965) Plenum of the Central Committee of the CPSU made a detailed examination of the state of affairs in USSR industry. It was noted that the organizational structure of management existing at that time and the methods of planning and of economic incentive in industry were not in keeping with present conditions and with the level of development of the productive forces.

Improvements in the system of management were outlined in the following basic directions: (1) raising the scientific level of planning, the optimization of planning, and the intensification of the role of long-term plans and norms; (2) eliminating excessive regulation of the economic activity of enterprises and allocating the necessary means to develop their production; (3) strengthening and developing cost-accounting and intensifying economic production incentives with the aid of prices, profits, bonuses, and credit; (4) converting to the branch principle of industrial management.

As we know, the economic reform was elaborated in a rather extensive, specific form. First, there was a substantial reduction in the range of obligatory plan indices communicated to enterprises on a centralized basis, a number of indices were replaced, and the new profitability index was introduced.

Plan targets for the volume of output to be sold are being established for enterprises instead of the gross output index. This substitution is very substantial: it places production under the economic control of purchasers and creates prerequisites for the establishment of organic unity between planning and cost-accounting. The basic product-mix is also confirmed from above.

In addition to other indices, profit and profitability calculated as the ratio of profit to fixed productive capital and to normed working capital have been established as indices for evaluating the effectiveness of the work of enterprises. Thus, yardsticks of effectiveness which, although they have existed in our country for a long time, have not played a large part in planning, to say nothing of the evaluation of the work of enterprises, have been brought into economic circulation.

In our opinion, the plan should confront production with ultimate goals but should not directly regulate the means of their attainment within the enterprise, which would deprive the enterprise of the necessary maneuverability in finding optimal solutions for the fulfillment of plan targets.

Although they retain their importance as accounting indices within the branch, such indices as the number of personnel, the average wage, labor productivity, and enterprise cost of production are not included in the number of obligatory indices that are confirmed for each enterprise …

Naturally, the restriction of the number of plan indices confirmed by higher-echelon organizations considerably expands the economic autonomy of enterprises. In no small measure, this autonomy is also promoted by the Statute on the Socialist State Production Enterprise, which extends and legislatively confirms many rights to enterprise heads.

The September (1965) Plenum of the Central Committee of the CPSU outlined such a structure of the incentive system in order to arouse the enterprises’ interest in elaborating and fulfilling higher plan targets and in making fullest use of internal reserves and resources. This goal is realized through the unity of the system of planning and economic incentives for enterprise collectives, which serves to increase the country’s national income. In this instance, the interests of society and of enterprises are combined more harmoniously …

The system of economic incentives makes provision for the formation of a special source of incentive payments above and beyond centrally established wage rates. The profit created at an enterprise is this source. It has been recognized that the amount of deductions paid from profits into the incentive fund depends on the fulfillment of the plan for increased sales or profits and on the profitability level contemplated in the annual plan (provided that the prescribed mix of key products stipulated in the plan is observed). In those instances when an increase in sales volume is not advisable, the size of the material incentive fund is determined as a function of increased profit …

The September (1965) Plenum of the Central Committee of the CPSU emphasized that the price formation system must be improved if the reform is to be successful. Price must more completely reflect socially necessary labor outlays and must assure the compensation of production costs and the accumulation of profit by every normally functioning enterprise. At the same time, prices must also stimulate an improvement in the quality of production and in the expedient service life and reliability of products. Therefore, prices must take into account additional outlays by the producer for the improvement of the quality of goods as well as the effect of such improvement on productive or personal consumption. It has been emphasized that, as a rule, retail prices on consumer goods may be revised only in a downward direction. The reform of wholesale prices was carried out in 1967The new prices reflect socially necessary outlays much more closely and completely. Nonetheless, in the future as well it will be necessary to conduct work to improve prices.

The reform of the system of planning and economic incentive in industry is inseparable from the simultaneous restructuring of industrial management. The national economic councils did a certain amount of useful work, especially in production cooperation locally, i.e., on a territorial level. But at the same time, administration based on the territorial principle has also carried negative effects: it has hindered the implementation of a single-branch technological policy; it has weakened intra-branch specialization and cooperation, which are no less important than territorial cooperation; it has led to a certain irresponsibility due to the lack of strict distribution of functions among national economic councils and branch committees; etc. After all the advantages and shortcomings of the branch and territorial systems of management were carefully weighed, a branch system of management was adopted and appropriate branch industrial ministries were created.

The September (1965) Plenum of the Central Committee of the CPSU emphasized the great importance of measures proposed to improve the organization of management and to intensify economic methods for industrial management. The importance of these measures is that they combine unified government planning with total cost-accounting operation of enterprises, centralized branch management with broad republic and local economic initiative, and the principle of one-man control with the enlargement of the role of production collectives. Moreover, democratic principles of management are further expanded and economic prerequisites are created for broader mass participation in production management and for mass influence on the results of the economic work of enterprises. As stated in the Decree of the September (196S) Plenum of the Central Committee of the CPSU, such a system of economic management more closely conforms to modern requirements and permits the better use of the advantages of the socialist system.

Source: E. G. Liberman, Economic Methods and the Effectiveness of Production (White Plains: International Arts and Sciences Press, 1972), pp. 10-12, 14, 17-18.

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