Liberman Proposal

E. G. Liberman, Improve Economic Management and Planning: The Plan, Profits, and Bonuses. September 9, 1962


Original Source: Pravda;, 9 September 1962.

It is necessary to find a sufficiently simple and at the same time well-grounded solution to one of the most important problems set forth in the Party Program: the formation of a system for planning and assessing the work of enterprises so that they have a vital interest in higher plan assignments, in the introduction of new technology and in improving the quality of output-in a word, in achieving the greatest production efficiency.

In our view, it is possible to accomplish this if the enterprises are given plans only for volume of output according to assortment of products and for delivery schedules. These must be drawn up with the maximum consideration for the direct ties between suppliers and consumers.

All other indices should be given only to the economic councils; they should not be apportioned among the enterprises.

On the basis of the volume and assortment assignments they receive, the enterprises themselves should draw up the final plan, covering labor productivity and number of workers, wages, production costs, accumulations, capital investments and new technology.

How is it possible to entrust the enterprises with the drafting of plans if all their calculations are, as a rule, far lower than their true potentials?

It can be done if the enterprises have the greatest possible moral and material interest in making full use of reserves not only in plan fulfillment but also in the very compilation of plans. To this end, planning norms of profitability must be worked out for each branch of industry and must be firmly established for an extended period. It would be most expedient to confirm these norms through a centralized procedure in the form of scales fixing the amounts of incentive payments to collectives of enterprises in accordance with the level of profitability achieved (in the form of profits expressed as percentages of production capital) …

One might naturally ask if the centralized basis of our planning would be retained and strengthened under this system.

There is every reason to assert that the proposed system would relieve centralized planning from petty tutelage over enterprises and from costly efforts to influence production through administrative measures rather than economic ones. The enterprise alone knows and can discover its reserves best. But in order to do this, they should not have to fear that through their own good work they will put themselves in a difficult position in the following year. All the basic levers of centralized planning prices, finances, budget, accounting, large capital investments-and finally all the value, labor and major natural indices of rates and proportions in the sphere of production, distribution and consumption will be determined entirely at the center …

At present, profitability is reduced if the enterprises are mastering many new products and a great deal of new technology. For this reason, we have worked out a scale of supplements to and reductions in incentive payments in accordance with the proportion of new products in the plan. The incentive payments will be somewhat reduced for the output of items long established in production and raised substantially for the introduction of new products.

Besides this, the very process of price formulation must be flexible. Prices for new products that represent more efficiency in production or consumption should be set to begin with so that the manufacturer can cover his additional expenditures. The consumer would not suffer from this at all but, on the contrary, would reap benefits for himself and for the national economy. In this way profitability incentives might become a flexible weapon in the struggle for rapid introduction of new technology and for increased quality (durability, reliability) of products. The present incentive system for inducing enterprises to reduce production costs and to increase output above the plan or above the figure for the previous years is a direct impediment to increasing product quality or mastering new products …

Far be it from us, of course, to think that the proposed method is some sort of panacea, that by itself it will remove the shortcomings. Clearly the organizing, educational and controlling job done by the Party and economic apparatus will remain a decisive force. But this force will grow many times if it is supported from below by a firm stake in the success of the cause, and not for the sake of “Indices” but in the name of true production efficiency. Then the apparatus of the administration will decrease sharply.

Let us note that the proposed procedure forces the enterprises to put out only products that are capable of being sold and of paying their way. Further, the enterprises will calculate the efficiency of new technology with some care and will stop thoughtlessly ordering any and all kinds of new equipment at state expense.

It is now common practice to assume that any evaluation of the enterprises’ work and any incentive for them must proceed from plan fulfillment as the most trustworthy yardstick. Why is this so? Because the plan creates supposedly equal conditions for enterprises, takes into account different natural conditions, different degrees of mechanization and other “individual” circumstances. In actuality, the plans of enterprises are now set according to the so-called “record basis,” i.e., proceeding from the level attained. What this creates is completely unequal conditions, privileged for those who work poorly and strenuous for those enterprises that really uncover and use their reserves. Why strive for good work in these conditions? Is it not simpler to try to obtain a “good” plan? It is time to amend this system!

Is it not clear that truly “equal conditions” can be created if there is the single standard of profitability for enterprises finding themselves in roughly the same natural and technical conditions? It is less dangerous to ignore a few differences in these objective conditions than to level off the quality of economic guidance. By such leveling, we are preserving backward methods of production. Let the enterprises themselves, having the production program from the center and the long-term standard of profitability to go by, show what they are capable of doing in competition for the best results. It is right that we have no rivalry, but this in no way means that we have no competition for the best methods of leadership. On the contrary, such competition must receive full scope here.

Source: Current Digest of the Soviet Press, Vol. XIV, No. 36, October 3, 1962, 13-15

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