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Perestroika in Perspective
The Design and Dilemmas of Soviet Reform
By Padma Desai PRINCETON UNIVERSITY PRESS
Copyright © 1989 Princeton University Press
All rights reserved.
ISBN: 978-0-691-04243-5
CHAPTER 1
Why Reforms?
In the final years of Brezhnev's leadership, the Soviet Union was by all accounts going downhill. The decay was visible on all fronts. While economists cited the declining growth rate of the economy (see fig. 1.1) as a surefire index of the malaise, others concentrated on recurring shortages, increasing corruption, and massive alienation. Moral and social values, an enduring concern in the Russian tradition, were widely held to be in jeopardy.
The declining growth rate was the result largely of the declining productivity of resources. More factories were built, but their output record was lackluster. The work force lacked the motivation to work hard and well. Besides, the growth of the labor force was slowing. Natural resources, coal and ores among them, were deteriorating in quality, and the best of them (in the wilderness of Siberia and beyond) were increasingly costly to extract. The drag on output growth could have been countered by the Schumpeterian drive to innovate. But except in the military and isolated industries, the Brezhnev-era record on innovative breakthroughs and new product and process technologies, and on their successful adoption, was scanty.
These problems persist. Perhaps in no other society, at a comparable level of per capita income, is the impact of an ongoing economic malaise so oppressive as in the Soviet Union. The pervasive shortages give a bizarre flavor to the daily life of the people. "The whole country is covered with blast furnaces," an exasperated friend told David Shipler (1983, 173) of the New York Times, "but I can't get a table knife."
Elsewhere, the creative artist manages to capture the essence of the Soviet predicament in a few, luminous strokes, as in the following encounter from The Master and Margarita (Bulgakov 1967, 10):
"A glass of lemonade, please," said Berlioz.
"There isn't any," replied the woman in the kiosk. For some reason the request seemed to offend her.
"Got any beer?" inquired Bezdomny in a hoarse voice.
"Beer's being delivered later this evening," said the woman.
"Well what have you got?" asked Berlioz.
"Apricot juice, only it's warm," was the answer.
"All right, let's have some."
The apricot juice produced a rich yellow froth, making the air smell like a hairdresser's. After drinking it the two writers immediately began to hiccup.
More suggestive than the indifference of the saleswoman and the continuing thirst of the two customers is the pseudonym Bezdomny, given by Bulgakov to the young poet Ivan Poniryov. It literally means the "one without a home." Perhaps in no other sphere is the wheeling and dealing, the endless scheming and the trading of favors (blat), more pervasive than in the citizen's search for an apartment in large cities.
Shortages breed alienation. There is not much point in working hard, in doing one's best, if one cannot spend the money on a color TV or a dishwasher. The Soviet social contract is aptly described as "They pretend to pay us and we pretend to work for them."
Shortages breed corruption, too. The have-nots must grease the palms of the haves. In the Soviet case, the "haves" are generally party members, who can procure almost anything in short supply — a Moscow apartment, an attractive job, a place for a child in a prestigious school or for a sick relative in a better hospital — but for a price. And there is nothing more alienating for the masses than the knowledge that those in power are corrupt. The legitimacy of the rulers, of the party in general, and above all of the socialist system, becomes suspect.
While the poor performance of the economy has created a pallid social fabric, political and cultural constraints have also played a role. Political participation of the Western variety does not exist. Literature and the arts, after a short thaw culminating in 1962 with the publication of Solzhenitsyn's One Day in the Life of Ivan Denisovitch, were forced back to the colorless world of ideological conformism and socialist realism. No wonder that foreign books and magazines are still among the most coveted items. Law and legal practice have continued to be restrictive of civil liberties. As for education, while Ivan can recite Pushkin and the multiplication tables, and excel in science and mathematics, the creative impulse and the incentive to translate ideas into concrete realities are lacking. All in all, the failures of the economic "base" are magnified by a restraining "superstructure." As a result, life is so disheartening in the Soviet Union that it prompts the wry witticism: Religion comforts the masses by assuring them that there is life after death whereas communism does so by assuring them that there is death after life.
Yet there was a silver lining to the Brezhnev leadership in the decisive emergence of the Soviet Union as a superpower. But that status has proved to be a double-edged sword. For there is no denying that substantial amounts of the best resources are diverted from the civilian economy in order to maintain the superpower status. Continuing along that route will only exacerbate the current predicament.
Against this background, "Why reforms?" is a question that one can answer in various ways. "The Soviet Union will at this rate cease being a superpower" is the familiar response. "It could degenerate into a Third World country if technology and living standards continue deteriorating" is perhaps the economist's version. Gorbachev's answer, articulated appropriately to suit the time and place, takes a wider view. What is at stake, he believes, is the survival of socialism, a system that can be made to harness the productive forces of the economy to improve the welfare of the people. Economic arrangements must be changed with that end in view, as must certain features of the "superstructure." The external environment must also be altered, which brings the arms race and the conduct of foreign policy into Gorbachev' s multifaceted agenda for perestroika (restructuring).
CHAPTER 2
The Legacy of the Economic Malaise
The Soviet economy is overplanned and overadministered. The special problems arising from this arrangement and the analysis of them have kept Soviet-area specialists busy for years. Indeed, if perestroika were really to succeed, it would take quite a bit of the wind out of our professional sails.
There is much that ails the Soviet economy, and the problems have been analyzed extensively. In assessing Mikhail Gorbachev's challenge and response, however, it is necessary to review briefly the salient failings of the system that he has inherited and that his reforms address.
Two events of momentous significance have left an enduring mark on the Soviet political and economic system: the October Revolution of 1917, which brought Lenin into power, and the industrialization drive that began under Stalin's leadership in 1928.
Lenin's hardheaded organization of the political life of the nascent state under the leadership and authority of a single Communist Party was matched by considerable pragmatism in guiding its economic evolution. During the crisis years of the civil war, the economy was organized along command lines under the system of War Communism (1918–1921). The available agricultural and industrial resources had to be mobilized and steered to the military. "The use of money was virtually eliminated, private trade was abolished, workers were militarized and paid virtually equal wages in kind, and farm output was requisitioned." The civil war was won but the economy had become a "besieged fortress." The peasants lacked incentives to produce and sell grain, and industry "operated essentially without direction, either from the market or from planners" (Gregory and Stuart 1981, 37–38).
Lenin's response to the economic chaos was to free the economy in 1921 from the heavy burden of War Communism by introducing the New Economic Policy (NEP), which combined elements of the market and socialism. As a result, the ownership of land stayed with the peasants whereas the "commanding heights" of the economy, among them heavy industry, transport, banking, and foreign trade, were kept under state ownership. But the management of industry, especially light industry, was freed from administrative controls, and private trade was restored. The NEP did provide the framework for an impressive recovery of the economy until 1928. But the economy was soon thereafter to be taken back in the direction of central planning and away from the market mechanism.
To understand the reasons for this, it is important to appreciate that increasingly, rapid growth rather than recovery became the pressing economic issue. It was therefore considered necessary to establish new factories in heavy industry that would provide the means for further growth of the economy. Workers in large numbers had to be drawn from the countryside for the purpose. The more rapid the process, the greater the need for adequate provision of "wage goods" (e.g., food) to sustain the industrial proletariat. In the historical experience of the West, industrialization had proceeded in a market environment; the peasant proprietors had responded to market signals to satisfy urban demands for grain by the workers and for materials by factories. While the process had not been altogether benign for all the participants — witness the descriptions of urban plight in the writing of Charles Dickens and of "bourgeois exploitation" in that of Marx — it had worked, on the whole, without serious imbalances: agriculture and industry had operated in tandem. By contrast, if the aim had been to push industrialization beyond this balance, with substantial investments in heavy industry — more steel and more machines aimed at more growth — then the market could not have been left to function on its own. The populace might have wanted to spend income on bread and shoes, but if the priority of the state had been to build steel mills, the populace and the market would have had to yield to the state and its objectives. Administered allocations would then have been a necessary policy requirement, a natural consequence of the state's objectives.
The Soviet First Five-Year Plan launched under Stalin in 1928 embodied precisely such a vision of rapid industrialization and, therefore, the need for administered direction. (The basic features of the planned system that Gorbachev inherited nearly six decades later were laid out then.) Industry, which was largely under state ownership, began to be administered by production targets and materials allocations. There had to be a plan, and bureaucrats to supervise and enforce its implementation. There was also the problem of extracting surplus grain from the peasants (who still owned the land), so that the urban population, increasing by leaps and bounds, could be fed. In a market system, the peasants would be offered attractive prices. But Stalin's answer in 1929 was collectivization and abolition of independent farms. The peasants on the collective farms would not be left free to decide how much to produce and what amount to sell to the state. Even the free choice of occupations by workers was suspended during the 1930s when factories were outbidding each other in their search for skilled manpower. While freedom of occupation was restored after World War II, the remaining features of the Stalinist overplanned and overadministered system were more or less intact when Gorbachev rose to leadership.
Industry
Soviet industrial enterprises operate within the framework of a production-financial-technological plan assigned to them by state planners. The bonus earned by the workers and managers depends on the fulfillment of this plan. The bonus is over and above the earnings based on payment scales set by the planners and distinguished by type of skill, the nature of the work, and the location of the factories. The workers in Siberia, for example, are paid at a higher rate than similar workers elsewhere.
The main elements of the production plan are the output targets, the allocation of the required inputs, and a wage bill. What are the criteria, or rules, in terms of which planners decide that enterprise managers have fulfilled the plan assigned to them? The story here is that of a continuing hunt by the planners for the best rules.
It began with the infamous gross output (val) targets: so many tons to be produced, so many acres to be tilled, so many pages or books to be printed, so many patients per day to be examined by a doctor, and so on. The managers have kept ahead of the planners, and the cartoonists have had a field day. A particularly telling cartoon in Krokodil depicts a factory manager who has produced a single gigantic nail in fulfillment of a target specified in tons rather than as an assortment of nails. And why would anyone want to plough the fields adequately if the mere number of acres ploughed was the only target to meet? Alec Nove's (1977, 139) favorite story is of the farm apparatchik who tells the tractor operator to "plough deeper" because the inspector is visible on the horizon. Successfully meeting the target for books can be managed by changing the size of the page or the print, or, in desperation, the margins. Naturally enough, val targets do not encourage a concern for saving materials, labor productivity, or for product quality.
It was not until the Kosygin reforms of 1965 that sales revenue and profits appeared as additional criteria. What was produced was now to be sold so that inventories would not accumulate. And profits, hitherto barred as a bourgeois contamination, could help raise productivity and save materials. However, managerial bonuses (while related to profits) are still contingent on the fulfillment of the gross output target. Like Jaws in James Bond films, val cannot be vanquished. General Secretary Gorbachev referred to it in his speech at the Party Conference in June 1988, somewhat in exasperation: "Oh, how many faithful followers we have of 'gross output!'" (Pravda, June 29, 1988). How can it be otherwise? The national plan is mandated and worked out in terms of physical targets; clearly, the plan would fall apart if these are not met. So val continues to dominate, while rules aimed at mitigating its outrageous consequences have proliferated.
The overall wage bill is specified by the planners and cannot be exceeded. It is hoped that labor productivity will then keep ahead of wage payments. That is more easily said than done because, while managers can shuffle workers around, there are legal restrictions and trade union pressures against dismissals. Nor are managers keen to cut down on the use of materials, because they are under pressure to fulfill val rather than make profits. Therefore, in the 1965 reforms, economy of materials use was sought through setting upper limits on their use. In practice, however, given the shortages and unreliable supplies from the state agency, managers tend to hoard materials and spare parts. When their stocks dry up, these same managers can count on the tolkachi, the special breed of Soviet middle-men, to cut through the bureaucratic red tape and procure the item, if necessary, from illegal sources.
The production plan has a matching financial plan. Revenues, costs, and profits are calculated in terms of prices set by the State Price Committee. The price, so-called, is the average cost of a product plus a normal profit rate. When these official prices deviate from prevailing average costs, prices are revised. So far, this ritual is the essence of the successive Soviet price reforms. But the Price Committee cannot cope with the task of fixing prices of the new items that appear every now and then. Therefore, enterprise managers can legally charge higher prices on new products of better quality. And they certainly do, because higher prices, given the gross output targets, add to sales revenues, profits, and bonuses.
A technical, cost-accounting detail of the financial plan is the budgetary system of khozraschet whereby enterprises are expected to finance their operating expenses out of their sales revenue. In actual practice, however, if receipts exceed expenditures, a portion of the profits is handed over to the state budget, whereas if receipts fall short of expenses, the enterprise gets a subsidy from the state budget. Bankruptcies are not permitted in this "squatters' rights" paradise; Soviet enterprises do not go out of business because they have losses. This seems like an advantageous situation for Soviet workers, but, in fact, the persistence of the resulting inefficiencies damages the performance of the whole economy and ultimately hurts the workers as well.
The most damaging feature of the arrangement is the technical plan for an enterprise that sets out targets for technological innovation in products and processes. The planners have sought to promote innovation via command rather than demand. If a proposal for a new item or process is approved, it is incorporated in the enterprise plan. Such a proposal may originate from the R & D laboratory of the enterprise or may be suggested by the design bureau of the relevant ministry. Once the proposal is included in the plan, the enterprise is responsible for carrying it out. The enterprise planning, design, and technological departments collaborate on the choice of the production technique and the required changes in the plant layout for producing the new output. Could Steve Wozniak have invented the microcomputer in such a system?
(Continues...)
Excerpted from Perestroika in Perspective by Padma Desai. Copyright © 1989 Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
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