Paul Gregory and Robert Stuart, SOVIET AND POST-SOVIET ECONOMIC STRUCTURE AND PERFORMANCE, HarperCollins, 5th edition, 1994 Chapter Six, "Soviet Economy in the Postwar Era," Excerpts KHRUSHCHEV REFORMS Khrushchev was the first Soviet leader to allow open discussion of the deficiencies of the Stalinist system. In 1962, a paper by the then-obscure Kharkov economist, Evsey Liberman, entitled "The Plan, Profits, and Bonuses," was published in Pravda. Its publication signaled an official sanctioning of reform discussion by the party leadership. Although a lively discussion of reform alternatives ensued between 1962 and Khrushchev's ouster in 1964, very little in the way of real reform occurred during Khrushchev's tenure. The official government reform, the response to the reform discussion initiated under Khrushchev, was announced in September 1965, about one year after Khrushchev's fall from power. The 1962-1964 reform discussion, however, set the agenda for later reform discussion. THE BREZHNEV YEARS Leonid Brezhnev came to power after Khrushchev's ouster in October 1964. He remained as general secretary of the Communist Party until his death in November 1982. Brezhnev was succeeded by the ailing Yuri Andropov, the former head of the KGB, who died in February 1984. Konstantin Chernenko succeeded Andropov, only to die in March 1985 after only 13 months in office. The 54-year-old Mikhail Gorbachev was chosen to replace Chernenko in March 1985. Although Brezhnev died in 1982, it is appropriate to call the entire period from 1964 to 1985 the Brezhnev era. By the time of Brezhnev's death, the Soviet Union had established a form of collective leadership, which became increasingly 'dent as the Communist Party continued to conduct its business despite the obvious incapacitation of three general secretaries. The Andropov and Chernenko years were far too short to alter the basic policies and strategies put in place during Brezhnev's 18-year tenure. Declining Economic Performance The most important feature of the Brezhnev era was the declining - economic performance of the Soviet Union. Table 6.3 compares economic growth during the Khrushchev years (1955-1965) with those of the Brezhnev era and early Gorbachev years (1966-1987). The pattern of decline is obvious. From an annual GNP growth rate of over 5 percent, GNP growth dropped close to 2 percent during the 1980s. Industrial growth declined from near 8 percent in the 1950s to mid-1960s to around 2 percent in the 1980s. The agricultural growth rate showed extreme volatility, even declining at over 2 percent per year from the beginning to the middle of the 1970s. Both investment and consumption growth rates faltered, with investment falling from 9 percent annual growth to 3-4 percent in the 1980s. The decline in growth rates was due to deteriorating productivity growth after 1970. From 1970 to 1987, productivity growth was actually negative in most years. Output per unit of labor and capital input was actually declining; for the period 1970-1987 as a whole, output per unit of input declined at a rate of more than I percent per year. The pattern of decline so characterized the Brezhnev era that his successor came to refer to the 1970s and early 1980s as "the period of stagnation. Economic Reform During the Brezhnev Years Khrushchev initiated the reform discussion by encouraging open discusSion of change in the Soviet economic system between 1962 and his ouster in 1964. It was the task of the Brezhnev team to decide the issue of economic reform. In September 1965, the Soviet leadership announced the official government reform, often called the Kosygin Reform after Alexey Kosygin, Brezhnev's chief economic official. Kosygin announced a general reform to be implemented over the next five years. In light of the high expectations raised by the debates of the preceding years, the official response must have been disappointing to the proponents of significant reform. The basic thrust of the 1965 reform was a reduction in the number of enterprise targets and, most important, replacement of gross output by realized output" (sales) as the primary indicator of success for an enterprise. In addition, the number of indicators for labor planning was to be reduced to a single indicator: the magnitude of the wage fund. An enterprise manager was now to face the eight targets established within the central plan, compared to the earlier system of 20 to 30 targets. Enter- prises were to be allowed to keep more of their profits for incentive payments and investment. One-fifth of investment was to be determined by the enterprises themselves. The 1965 reform recentralized the Soviet economic bureaucracy. Power was returned to the ministries, and the regional economic councils (the Sovnarkhozy) created by Khrushchev in 1957 were abolished. Decision-making authority shifted from regional authorities to national authorities. Movement away from Reform The 1965 reform revealed the areas most resistant to change. The idea was to create a system whereby managers would be encouraged to respond spontaneously to various economic "levers"- profits, bonuses, increased authority over investment, and so on-so as to make enterprises more efficient and release "hidden reserves." Between 1965 and 1971, there was evidence of greater managerial spontaneity. As managers began to exercise their newfound authority, planners and bureaucrats began to react against "undesirable" spontaneous enterprise actions and to press for amendments to the 1965 rules. Changes were introduced that significantly modified the spirit of the reform. Rigid regulations governing enterprise incentive funds replaced the more flexible system. The ministry was to determine the size of enterprise incentive funds. The ministry again had the authority to determine the conditions under which incentive funds would be accumulated and disbursed. The number of enterprise targets was expanded. New targets were reinstated. Many of the administrative changes proposed by the 1965 reform were thwarted. In practice, the formation of industrial associations meant little more than "changing the names on doors" in Moscow; supervisory power remained in the hands of the ministries. There was a 60 percent expansion in the bureaucracy between 1966 and 1977. The ministries continued to be the centers of economic power, allocating materials and equipment, dictating the incentive systems of enterprises, and controlling investment. Strengthening Central Planning With the reform abandoned and economic growth continuing to decline the Brezhnev team sought to improve economic performance through other means. From the mid-1970s to Brezhnev's death in 1982, scarcely a year would pass without the announcement of some "reform" or "experiment" that would solve the nation's economic problems. It is not worthwhile to review these reforms or experiments. The reforms and experiments of the Brezhnev years did not change the Soviet resource allocation system in any material way. Their common ground was the desire to make centralized planning work better. Rather than seeking to reduce the role of planning from above, efforts were directed toward improving Soviet planning. Considerable emphasis was placed on devising "scientific" input norms, computerizing planning systems, and finding qualitative indicators. The culmination of this effort was the July 1979 decree entitled "On Improving Planning and Strengthening the Economic Mechanism's Influence on Raising the Effectiveness of Production and the Quality of Work." Systems for gathering better information were to be created; scientific norms were to replace directive indicators; enterprises were to be encouraged to take on more difficult "counterplans"; greater emphasis was to be placed on long-term plans; and the material supply system was to be improved through the greater use of contracting between enterprises. New plan indicators of enterprise success were to be based more on net outputs than on gross outputs, and greater emphasis was to be placed on quality. The ambitiousness of Soviet economic plans also declined during the Brezhnev era. Statistics show that Soviet planners aimed for higher growth rates in the late 1960s and early 1970s than in the late 1970s and mid-1980s. As growth targets became less ambitious, plan fulfillment performance deteriorated. Whereas actual growth was three-quarters of planned growth in the second half of the 1960s, it fell to less than 50 percent of planned growth in the mid-1970s and early 1980s. Why did the Brezhnev team not mount a serious reform program in light of the Soviet Union's deteriorating economic condition? Brezhnev's critics maintain that he was a captive of status quo forces. He led a corrupt and listless regime. A more benevolent interpretation would be that economic reform was extremely difficult to impose on the Soviet bureaucracy. Significant reform cannot be carried through without an imposing mandate that significant reform cannot be avoided. Brezhnev's choice was "muddling through" in the hope that the prevailing system would generate sufficiently good performance to allow the Soviet Union to continue its existence.