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Social Sciences
Vol. 29, No. 3/August 1998
Russian Reforms: Utopianism and Pragmatism
By Natalia Pliskevitch *
In the past decade, the pace of Russian history dramatically accelerated. The multitude of events, the rapid changes often make it difficult to identify, in this flight of time, the truly significant events in the country’s destiny that are shaping its future. One of such events occurred 10 years ago. Although at first it had not altered the “Russian economic soil” in any important way, the in-depth “tectonic shifts” in fact determined the course of the economic changes that followed. I refer to the Law “On the State Enterprise (Association)” passed in the summer of 1987, which, according to its authors, was to give a fresh impetus to the Soviet economic system but in fact merely accelerated its deformation and, in the end, collapse in 1991.
The economists who assess modern reforms from the diametrically opposite stands have, in the past few years, repeatedly criticized this law for its adverse effect upon the evolution of the economic situation in Russia in the late 1980s-early 1990s. But why have we chosen this particular route? This question can be answered in a variety of ways. Here, I would like to propose just one explanation of the exposed abyss between the goals declared by the authors of the law and the results it produced. I believe that its sources lie in the traditions of Russian social reforms. In the past two centuries, these traditions often manifested themselves in theoretical terms. However, the results of their practical implementation all but upset the expectations.
The Russian social reformers, whose favorite dream was to radically restructure the regime, whatever it might have been, not only strove for some essentially utopian ideal but also searched real life for “bricks” that, in their view, could be used to begin building their dream edifice right away. A combination of utopianism and pragmatism was an important feature of the evolution of Russia’s socialist thought in the 1830s-1840s. It is no chance that the most popular socialist theory in Russia was Charles Fourier’s. The first Russian socialists (especially members of Petrashevsky’s group) saw his phalanstery as something very familiar and, moreover, suitable for immediate practical implementation. “Practical movement, which had by that time retreated into books, was clamoring to return to practical activity,” wrote Herzen about that period. 1
Although Herzen himself was nurtured by Moscow socialism, which was more susceptible to poetic and philosophically abstract influences and was opposed by its followers to the mathematically cold practicality of the St. Petersburg brand, it was he who proposed the theory of “Russian socialism” which was a model fusion of utopian ideals with the quest for points in real life that would make it possible to implement this ideal “here and now”. By his own admission, “the Slavic commune began to be appreciated when socialism started to spread”, and began to be viewed as the material force which turned Russia into “the most suitable soil for socialist renaissance”. 2
Thanks to the surviving traditions of the village commune, Herzen maintained, in Russia it was much easier to go over to collective ownership typical of socialism than in the West with its long-established private property. The idea was to use archaic forms to avoid repeating the objectively determined development stages: “That European civil forms were incomparably superior not only to those of ancient Russia but also to the modern ones, was indisputable. The question is not whether we shall catch up with the West but whether we should try to do it on a long route while we could take a short cut.” 3 As far back as the mid-19th century, the advantages of our “unique historical route” were already advocated.
But however forcefully the first “Russian socialists” and their ideological successors, the Narodniks (Russian populists) may have urged Russia to take up the hatchet, a revolutionary explosion in the second half of the 19th century did not take place, and so their utopian-pragmatic constructs remained on paper. It is a paradox of Russian history that as a result of the October 1917 Revolution, a version of utopian-pragmatic scenario was enacted by one of the fiercest critics of Narodnik ideas. As a result, the Soviet economic system came into being.
Life Corrects the Dream
The Leninist trend in Marxist thought could perhaps be described as the most pragmatic revolutionary impatience. It is probably rigid revolutionary pragmatism that became the insurmountable wall that separated the Bolsheviks from their Marxist opponents who were leaning towards social-democracy (as it is interpreted now). Gueorgui Plekhanov and his followers regarded the country’s progress along the capitalist route and creating material premises for a new society as necessary conditions for the transition to socialism. Lenin as a Marxist also considered them significant, but as far as he was concerned, the crucial issue was that of power. The Leninists intended to use it as a lever to “overturn the world” and accelerate the progress of history.
When in 1917 the opportunity to seize power became a reality, the classical Marxist ideas that the capitalist development stage is essential and that socialism cannot be built in one separate (and backward) country were discarded. In the new situation, Lenin, gripped by revolutionary zeal, began to look for economic realities that would enable him to realize his socialist dream straight away. And such realities were found.
According to Lenin, the most efficient model was the war-adapted economy of Germany; in an extreme situation, that country applied levers which, in his view, were able to undermine the capitalist economy with its exploitation, uncontrollable private ownership, commodity-money relations, etc. “The dialectics of history is such that the war, by extraordinarily expediting the transformation of monopoly capitalism into state-monopoly capitalism, has thereby extraordinarily advanced mankind towards socialism.” 4
In Lenin’s view, “... state-monopoly capitalism is a complete material preparation for socialism, the threshold of socialism, a rung on the ladder of history between which and the rung called socialism, there are no intermediate rungs”. 5 To go from one rung to the other, he proposed to nationalize the banks and syndicates, to forcibly unite the unions of producers and consumers under state control, and to regulate consumption. As a result, one of Lenin’s definitions of socialism appeared: “... socialism is merely state-capitalist monopoly which is made to serve the interests of the whole people and has to that extent ceased to be capitalist monopoly.” 6
It should be noted for the sake of justice that this line of thought in fact carries on and develops the Marxist ideas on the concentration and centralization of capitalist production. Rudolf Hilferding, one of the leaders of Austrian and German social democracy, said that, performing the function of production socialization, finance capital makes it much easier to overcome capitalism. 7 Under his concept, economic power simultaneously implies political power. Control over the economy gives control over the political resources of state power. The higher the concentration in the economic sphere, the more illimitable control over the state is. This strict consolidation of all state resources is the greatest possible advancement of its might, the state becomes an invincible weapon for the protection of economic rule; this is why seizing political power becomes a prerequisite for economic emancipation. As a result, in the great clash of hostile interests the dictatorship of the tycoons of capital finally turns into the dictatorship of the propetariat. 8 Needless to say, in the beginning of the century neither Hilferding nor other social-democrats were able to foresee that not only the monopoly but also the anti-monopoly trends would prove strong enough under capitalism and that this would help them first to deal with the vices of extreme monopoly and then go over to post-capitalism.
As for the Bolsheviks, they chose the development route associated with super-monopoly and began to implement its scenario that was shaped in an extreme situation. However, the very origin of the adopted model also determined the specifics of the Soviet economic system formed on its basis: it was genetically linked with the servicing of wartime needs, when the nation strained every sinew to solve just one problem — defeat the enemy. And such conditions totally overshadow the necessity to meet the people’s various needs at a high enough qualitative level and low enough cost, that is, the very “interests of the whole people” for whose sake the social revolution was carried out. The emphasis is on mobilizing all available resources in the key direction so as to make a breakthrough regardless of the cost.
This is how the Soviet economic model functioned. The successes advertised by its supporters (who seldom mentioned their cost) were scored precisely by concentrating the country’s potential on the priority directions chosen by the leadership, be it industrialization, meeting the needs of the front in the war years, or the postwar arms race. From the very first years of Soviet government, the entire material structure of the Soviet economy was shaped on the basis of this principle. Everything that did not contribute to the chief effort was doomed to pitiful existence. This line was clearly formulated in the resolutions of the 9th Communist Party Congress: “The segments secondary to the main task of each production branch should be developed only to the extent of real necessity. The production links that are not absolutely essential to the main task of the economic period can be supported only in so much as their work does not obstruct the pursuance of the main goal. In view of this, the current economic tasks of the Soviet economic centers should constitute, not a simple sum of recorded demands and needs but should, with ironclad consistency, stem from the overall economic plan calculated for the near-term epoch.” 9
What had earlier been practiced during extreme situations of relatively short duration became a rule of the country’s daily economic life and bred an extremely rigidly monopolized economic system. However, this system’s long-term functioning required not only a vast amount of natural resources (which in a measure made up for the inefficiency) but also an idea that would unite at least a significant part of the nation and make the people uncomplainingly put up with the privations arising from the economy of this type. This idea was to replace the material labor incentives, which in that situation were reduced to naught, to become an extra-economic incentive.
This idea was the declared building of a new society, the dream of the humanists of the past. Strictly speaking, the state-monopoly “bricks” were to serve this purpose. It was the country’s misfortune that the pragmatic dreamers who had found them failed to see the fundamental link between the “building material” that inspired them so strongly and the extreme conditions of wartime. As a result, the pragmatically used reality began to dictate its terms distorting the unrealistic ideal.
Nevertheless, in the prewar and the first postwar years the dream of the new society fascinated many people in this country, especially the new intelligentsia. They really did believe in the loftiness of this ideal, and ascribed many things that were sharply discordant with it to the post-revolutionary economic chaos and the “costs of the class struggle”, and were ready to bear privations in the present for the sake of the future. Those indifferent to social projects were enthusiastic about the technical tasks of unprecedented scope. Suffice it to recollect the conditions in which the giants of the first five-year plans were built and the truly heroic labor of the postwar years when the economy was being restored. The creative enthusiasm of that time was genuine enough. As for the critics, they were too scared of the ruthless reprisals (another non-economic labor incentive) to protest.
True, even at the dawn of the Soviet regime the adopted model revealed its inability to ensure the people a more or less acceptable standard of existence. The leadership was forced to retreat: to introduce the New Economic Policy. But that was a strictly temporary departure from the original plans caused by the weakness of the state power which was failing, at that moment, to force the still unvanquished economic agents (peasants, first of all) to perform in conformity with its ideas. As soon as urban life became more or less tolerable and agriculture somewhat revived, all the efforts were concentrated on the priority tasks set by the earlier plans, and the concessions of the New Economic Policy were quickly forgotten. The 1930s, 1940s and the first half of the 1950s were the classic period of the Soviet economic system.
In those years, the Soviet economic model acquired a strong material and technical foundation of its own—the really existing production structure comprising cumbersome giant enterprises, a military-industrial complex blown out of all proportion, and a pathetic agriculture and production of consumer goods that would have long perished in any other environment. This foundation became a barrier in the way of all reform attempts.
A New Utopia Comes into Being
The country could not remain in a state of pre-war and war tension forever. In the mid-1950s, as the builders of the new world began to lose their former enthusiasm and the fear of total reprisals was fading away, the extra-economic labor incentives began to weaken. The economic machine, inefficient and surviving only thanks to the vast natural wealth and cheap enough labor, began to break down. Of course, at that time most scientists and economic leaders did not have a shadow of a doubt about the huge potential of the Soviet economic system. The USSR’s growth rates were still substantially higher than in the industrialized West—a fact that even foreign specialists recognized. The 1965 report of the United Economic Commission of the US Congress estimated the average annual rate of growth in the USSR in 1958-1963 at 4.5%, while the Soviet estimate was 9.3% (in the USA over the same period, 3.9%). 10 This means that at that time, we did have some grounds for asserting we were able “to catch up with and overtake” the industrialized West, seeing how dynamically the Soviet Union was advancing.
But Russian economists were beginning to ask how justified it was to make an absolute of high production growth rates, which, incidentally, began to slow down by the early 1960s. It became obvious that under certain conditions, maximization of output is no longer an end in itself. It stops being identical with minimization of costs and maximization of efficiency. 11 The most worrying things were the state of agriculture and the manufacture of consumer goods. These spheres needed qualitative changes to raise the extremely low standard of living.
Russian economists were faced with a complicated task: to find ways of giving the Soviet economic system a new impetus, making it dynamic and qualitatively improving the deteriorating agriculture and the manufacture of consumer goods so as to quickly raise the standard of living. The sharp discrepancy between the declared goals and reality was becoming dangerous. The events in Novocherkassk (where a demonstration of industrial workers protesting against the growth of food prices while piece-work rates were cut was shot down) were perhaps an isolated incident but certainly an indicative one.
A search was resumed for suitable instruments for achieveing the set forward, which was, however, essentially utopian, given the matched material and technical conditions, established managerial principles, and development priorities. And it seemed at the time that such instruments were found. The idea was simple enough. The largely “successful” Soviet economic model did not appear efficient enough, was recognized as too capital-, materials- and energy-intensive, and lacking mechanisms of material labor incentives. Consequently, it needed implanting such mechanisms, which were, in principle, known from the current capitalist model. According to the progressive theorists of the 1960s, the advancement of commodity-money relations within the framework of socialism was to inject new blood into the old mechanisms, to encourage the workers to raise labor productivity, to create a favorable environment for resource-saving, and, finally, to give the economy a human face. 12
Many people were convinced, to a varying degree, that expanding commodity-money relations would be beneficial. It was even asserted that “socialist production is necessarily a form of commodity production”. 13 But it did not occur to even the most radical champions of the market to oppose it to the ruling economic relations. Just the other way around, they believed that a marriage of the plan (associated with the Soviet economy) and the market is necessary precisely to improve the Soviet economic system. H. Lisichkin, who was fiercely criticized for his pro-market views, maintained that “to recognize the regulating influence of the law of value upon the economy does not mean to underestimate the significance of plan. On the contrary, this approach raises the importance of the plan.” 14 What is more, “separated from the market, the plan loses the life-giving source from which its indicators are drawn—indicators based on the study of objective processes—as well as the touchstone used to verify how realistic and correct its estimates are.” 15 In fact, Lisichkin recognized also that in Russia, the law of value would manifest itself in a specific manner: “Public property in the means of production and the ensuing opportunities for broad, all-embracing planning on the basis of the study and prognostication of market processes, is what makes the operation of the law of value in socialist conditions drastically different.” 16
Using mathematical methods, market-oriented economists tried to introduce elements of uncertainty into the description of a consciously regulated economic system. N. Petrakov tried to prove that this was not only in line with the principles of central planning but even helped reveal their meaning and substance. The prognostication and planning process was to begin with a detailed study of the working people’s needs, consumer demand and the social requirements of different population groups. Such analysis was to be made before determining the economic optimum criterion and would have served as the basis for revising this criterion in the course of planned management of the country’s social and economic development. 17
But the attempts to construct a plan based on the people’s real needs were unsuccessful. They were resisted by the very logic of the economic system, which focused the effort on the priority directions and left very little resoruces for the rest. They were also resisted by the material and technological production structure shaped by the mid-1960s: it was geared mainly to military tasks. Over the entire Brezhnev’s reign, only in 1966 the instructions of the 8th five-year economic development plan (1966-1970) provided for advancing the manufacture of consumer goods at a faster rate than of the means of production. But, as is known, this target was never met, although the difference between the rates became somewhat smaller. In the 8th five-year plan period, they were 44 and 42% (in 1961-1964, 40 and 28% and in 1971-1975, 41 and 37% respectively). 18 Later, the two indicators diverged even more. But even that failure did not prompt a serious analysis of the foundations of the Soviet economic model. On the contrary, it was found to be quite adequate, since the prevalence of production for the sake of production (above all, weaponry) fit into the law (formulated by young Lenin) of the faster growth of the manufacture of the means of production and accelerated development of the means of production for the means of production.
On the whole, without accepting the extreme view that socialist production could be regulated on the basis of a free fluctuation of market prices around the cost price or production under the impact of the correlation of demand and supply, Soviet reformers of that period believed that their function was “not to give illimitable space to the law of value and turn it into the regulator of socialist production, but to use the law of value as one of the most important economic levers of planned management of our economy.” 19 Attempts were made to bring together the incompatible: a rigid extreme monopoly that demanded an unconditional redistribution of resources to the advantage of the identified priorities, and market relations with their implication of equivalent exchange, the violation of which was a signal of imbalance in production. This is why an argument in favor of “building-in” commodity-money relations was also that “central planning and management are not embracing the entire range of public needs; the needs not registered in a planned manner are to be recorded and met through the market mechanism, by opening up a broader field of operation for the law of value.” 20
To avoid recognizing the principle of equivalent exchange some researchers proposed replacing it by the principle of compensation: this made it unnecessary to observe the “exchange of equal values” and permitted “a planned deviation of prices from cost”. “At the same time, the principle of compensation implies compensation of production costs and ensuring of profit for all normally performing enterprises.” 21 Severe criticism was launched against the consistent market champions’ assertion that “to deny the law of value its regulating role would mean, in fact, to abandon the attempts to manage the economy thriftily, to turn the categories of cost into the categories of accounting.” 22 The accepted view was that the law of value “as a regulator is inadequate and performs only subordinate functions.” 23
It is only natural that in such an environment, the attempts to reform the system were extremely timid and halfhearted. This was noted by Western economists. Here is just one opinion: the September 1965 reform proposed only halfhearted measures for remedying the ills of the current system. A company’s autonomy increased, but the continued central supplies reduced it practically to naught. The introduction of payment for the capital and a company’s interest in getting a profit lost a part of their effectiveness as a result of administrative price-setting. 24 But even that halfhearted reform became more and more formal, the original plans were not carried out.
This turn of events could, of course, also be explained by the leadership’s conservatism. But one cannot help seeing that the extra-monopolized Soviet planning system rebuffed even timid attempts to introduce market relations into it. Under their impact, its carcass began to erode, and the major levers of government regulation of the economy began to break down. As a result, the whole economic structure was threatened. But when monopoly principles are deformed under the pressure of market principles, the weakening of economic monopoly is followed by encroachments on political monopoly. This was clearly demonstrated by the attempt of market reformation of the economy in Czechoslovakia, although one of its ideologists, Ota Sik, called his program a “program of cost accounting interpreted in a truly Leninist manner”. 25
The Communist Party leaders of the time became quickly aware of the looming danger, and serious reforms were folded up, especially as they were no longer urgently needed thanks to the discovery of a new mighty resource of extensive development: vast Siberian oil and gas deposits. Having received this boost, the system was able to continue unchanged for some time. Most resources were still going into the military-industrial complex, and the deepening imbalance was partly compensated with petrodollars. As a result, the production structure became even more lopsided. While in 1940, the last prewar year, consumer goods accounted for 39% of industrial production, by 1960 their share dropped to 27.5% and continued to go down, reaching 24.7% in 1986, the lowest ever in the world. 26
For all practical purposes, the economic reform was confined to the introduction of “cost accounting” and “material labor incentives”. However, even this insignificant adjustment of the carcass of the economic system provided an impetus for its deformation. The quasi-market indicators like profitability or profit came up against plan indicators. The former frequently contradicted the latter. For example, a plan expressed in terms of “tons” made all attempts to reduce the consumption of materials unnecessary and even harmful for an enterprise. The struggle for reducing the cost of a unit of output also was at odds with the determination to meet the gross plan targets expressed in ruble terms at any price. The performance of enterprises still depended mainly on the vertical relations with the higher-ranking administrative bodies.
In the meantime, even the slightest hints at the possibility of allowing “initiative from below” paved the way for the so-called “bureaucratic bargaining” procedures. Gradually, increasingly large spaces were involved into the “economy of agreements” and the “bureaucratic market” (to use V. Naishul’s phrases). The agreements based on the barter principle also extended both to the horizontal relations among subcontracting enterprises and the vertical relations of enterprises with industrial and Communist Party bosses. This emphasized the classic plan-based relations and undermined the old “administrative command system”.
Just as significant was the deformation of the Soviet economy as a result of the transition to “material labor incentives”. The sharp increase in the manufacture of consumer goods and food required for this step could not really be achieved through import from the COMECON countries, and domestic enterprises working in this field were steadily deteriorating, unable to make progress on the basis of own profits. Director of the Avtovaz automotive plant V. Kadannikov said in an interview, with good reason, that the company’s current problems were rooted in the past, when it had been forced to surrender all the profits and was, therefore, unable to expand, implement new projects, and introduce new models into series production. The money earned by the plant was needed for other, supposedly more important things and was redistributed accordingly. And that was the case with all the other consumer goods. The huge sums spent to support agriculture were, in fact, sucked in by the subcontracting machine-building enterprises, which were manufacturing large numbers of tractors, combine harvesters and other machinery of very low quality, which had a very short service life and required early replacement. Given this policy, the industries and production links that “were not absolutely essential to the main task of the given economic period” deteriorated still further. 27
As a result, the people were unable to get even many of the essentials, trips to Moscow and other big cities to buy food and food coupons became a common practice. The state was unable to meet the growing solvent demand it had itself brought to life; this was especially true of the employees of the military-industrial complex, where the wages were substantially higher than on average and large bonuses were paid on a regular basis.
Some of this money assumed the form of delayed demand and in the end perished in the years of overt inflation. The other part found suppliers of goods and services outside the official economy. It became quite customary to go to black market dealers for high-quality goods, both imported and domestically produced. Underground factories and even state enterprises began to manufacture consumer goods as “surplus, unrecorded products” made from “saved” raw materials. Extra charges were also paid for some services, and a few services were available only from “underground businessmen”.
The scope of such phenomena made it necessary to recognize that a shadow economy was formed in the country. It emerged and flourished only due to the enormous money injections unsupported by corresponding changes in the structure of the economy. The shadow economy accumulated means channeled into the economy by the state predominantly through the wages paid to the employees of defense enterprises and the “armed ministries”. By the mid-1980s, we already had a large sector that became the criminal-market component of the country’s real economy.
The Soviet economic model became progressively more inefficient. The new world prices for oil and gas caused the hard currency revenues to drop sharply and dealt a severe blow at the country’s extremely lopsided production sphere. By the first half of the 1980s, the leadership already realized that the pressing problems facing the Soviet Union brooked no delay. The attempts to at least alleviate them by the introduction of Andropov’s administrative measures to tighten labor discipline and raise responsibility were futile. The “acceleration program” proposed at the outset of Gorbachev’s reign implied investment of enormous means into the modernization of machine-building. But such means were not available, and in any case it was too late. What is more, the program would have inevitably increased the chief structural deformity of the Soviet economy, the gap between the vast volume of production for the sake of production and the negligible volume of consumer goods. An attempt to implement this program would have only aggravated the situation, which in mid-1987 was officially described as pre-crisis. 28
The New Utopia Realized
This is when it was deemed expedient to revive an idea first advanced in the 1960s, namely, a synthesis of plan and market, a “socialist market economy”. The failure of the previous attempts was explained, not by the incompatibility of Soviet monopoly and market principles but by the insufficient persistence of the authors of reforms. Gorbachev said that the economic reforms of the 1950s-1970s “were incomplete and inconsistent because all the emphasis was on some issues while others were neglected. And, frankly speaking, the proposed solutions were not radical enough, were halfhearted, and sometimes did not go to the core of the matter.” 29
Economist G. Popov also explained the failure of the 1965 reform by the absence of sufficient determination. In his opinion, the very concept of the reform “contained the idea of accord between economics and administration. This attempt ended in the victory of the side that proved the strongest administration.” 30 True, unlike many authors Popov realized that the reform was halfhearted not only in the economic sense; he said one of its mistakes was its “proceeding from the idea that in-depth economic changes were possible while the social and political aspects of society’s life were left intact and the mechanism of the Party’s economic management and of Party life itself was not overhauled.” 31 In this, he was supported by N. Shmelev, who said that the earlier reforms “drowned because the political structure of society remained immobile.” 32
But even Popov visualized the reforms strictly within the boundaries of socialism, even if cleansed of its administrative vices. As he saw it, “the purifying economic tempest ... will wash away all inefficient enterprises... Self-supporting enterprises will assume the entire responsibility (having gained all the rights) for current economic matters. Having shaken off the need to calculate how many pairs of women’s tights and of what sizes will be required, the Center would be able to channel all its might into dealing with the key long-term problems: robotization, computerization, biotechnologies, creating an up-to-date health service and educational system.” 33
A new attempt to practically implement the old idea was the Law on the State Enterprise (Association), which was passed in the summer of 1987 and came into force on January 1, 1988. Needless to say, Gorbachev had not the slightest suspicion that the steps he was proposing could undermine the very essence of the Soviet economic system. He confidently replied to the suggestion (which was made during the discussion of the Law) that plan should be abandoned and unemployment allowed: “We cannot permit this: we are going to consolidate socialism and not supplant it with some other regime. What the West with its different economic system is trying to smuggle in is unacceptable to us. We are sure that socialism is capable of much more than capitalism, provided its potential is put to real use, its main principles are observed, the interests of the common people are promoted, and the advantages of a planned economy are used.” 34 His slogan was: “What we need is not ‘pure’ doctrinaire, invented socialism but real Leninist socialism.” 35
A curious statement: it was the Soviet-style economic model that was real enough in all the socialist countries, not the model based on the brief experience of the New Economic Policy in Russia, which was now presented as the truly Leninist version of socialism so as to prove that socialism can and should be reformed. The socialism of the 1920s as the model for the new reforms was widely popularized at that time to demonstrate how the introduction of market relations had revitalized the Russian economy after the period of war communism. But it was conveniently overlooked that the war communism economy had neither a material and technological foundation specific to it nor an established system of economic management operating throughout the whole country. War communism can, in fact, be reduced to a limited range of administrative-distribution measures not yet incorporated into the economic tissue of the country, which was relieved to get back (although not completely) to the methods familiar to both the peasants and the small businessmen who had survived the revolution and the civil war. The economy subject to reform in the 1980s was a long-established and integral enough economic system.
It was assumed that this system would let the market in without any detriment to itself. “The reference is to the market in conditions of public ownership, a planned economy, total cost accounting described in the new edition of the Party Program; the market based on full-bloodied business relations among enterprises, equal and responsible partnership, and agreements between the supplier and consumer enterprises recorded in economic development plans”—this is how A. Strelyanyi, a well-known advocate of reforms, saw the future. 36
A. Ivanenko, one of the authors of the Law on the State Enterprise (Association), stated that the introduction of total cost accounting and self-financing based on market principles “would make it possible to build an up-to-date economic mechanism for the operation of enterprises, a mechanism that would provide effective internal stimuli for their development, oblige producers to proceed from the interests of the consumer, save resources, and introduce the scientific and technological advances on a broad scale.” He specially stressed that “all the reforms envisaged by the Law have a comprehensive character, combining to produce a qualitatively different economic mechanism.” 37
By mid-1987, the line at improving socialism with the help of market relations was obvious. We did not confine ourselves to attempts to build a market sector alongside the state sector; indeed, in our conditions such “peaceful coexistence” would have probably been impossible. Owing to the deformations of the previous years and the presence of an advanced shadow economy, a significant part of cooperatives and joint ventures set up at enterprises flourished only thanks to the pumping of state means to the new private sector. Managers of state enterprises pressed for de jure recognition of the rights which in the years of the old system’s slow deterioration they had gradually acquired de facto. 38
This was done by the new Law on the State Enterprise (Association), which in fact broke up the most important element of the old system, the economic vertical. Plan was replaced by the government order, the enterprises were given a right to independently conclude agreements with customers and suppliers, to set “contractual” prices, etc. True, since January 1, 1988, the date of the Law’s coming into force, many of its provisions were not implemented. On the excuse that the five-year plan targets had been set earlier, that the supply plans had been approved, etc., the ministries did not hurry to translate the innovations into practical terms. Their principal instrument was to replace the plan targets (canceled by the Law) by one-hundred-percent government order. The ministries’ officials’ general plan was to place the market in the service of the socialist economic model; in a short while they produced a mass of instructions to help incorporate the provisions of the new law into this model.
This could not pass unnoticed, and the champions of reforms sounded the alarm. On the one hand, protests came from enterprise managers themselves, especially if their products enjoyed a demand: the new law gave them unheard-of opportunities. On the other hand, the economists demanded unswerving observance of the law, fearing that the 1960s situation would repeat itself. N. Shmelev sharply criticized the fact that government orders were often bigger than even plan targets, that the ministries began to set the enterprise profit tax to their advantage to the amount of 80-90%, that the enterprises’ opportunities to dispose of their profits were reduced to naught by the current departmental instructions, and that the number of production indicators prescribed “from above” even increased. In Shmelev’s view, “there was a sort of tacit conspiracy against perestroika, with the interests of a certain segment of the local leadership and a number of Central departments drawing closer and closer together.” 39
Under this pressure, the restrictions gradually weakened. The law began to work. But it turned out that instead of new effective elements being incorporated into the old structure, its significant components were invaded by another and more viable structure incompatible with the Soviet system. 40 This gave an impetus to a rapid spontaneous process of its disintegration. For instance, enterprises naturally did their best to benefit by their new right to sell their products to the clients of their choice and at “agreed” prices. They tried to turn their new opportunities to their own advantage, but at the same time counted on the benefits given by the old state system of supplies at fixed prices. The suppliers, however, had the same ideas. The system of economic agreements began to malfunction straight away. In the end, guaranteed supplies stopped, while an advanced enough infrastructure did not yet exist. In addition, the loss of government control over noncash and cash circulation accelerated hidden inflation — the shortages. By 1991, the ruble as a payment unit was quoted at an extremely low rate. For all practical purposes, the country had ended up with a subsistence economy, barter rleations and payment in kind.
What is more, in 1989 it was already clear that in our environment, market concessions far from promoted higher efficiency, which is the very reason why they had been introduced. “The economists had long fought for the enterprises’ greater independence, seeing it as the highway leading to a new economic mechanism. It was assumed that independence is an absolute good, a panacea, if not of all, then at least of most ills besetting the economy. Well, they were given a lot of independence. An honest observer would, however, be forced to admit that things have become worse, not better. The enterprises are using their new rights to the detriment of society, shamelessly raising the prices of their products and their employees’ wages; it has become more difficult to place orders for scarce goods whose manufacture does not guarantee high profits. Hence the inflation, the shortages of both consumer and capital goods. And the most worrying thing: enterprises are unwilling to invest into the renovation of production facilities. If this trend persists, we shall fall even more behind the industrialized countries as regards the scientific and technological advances,” wrote V. Selyunin. 41 He clearly stated that the attempts to combine the incompatible, revive one system by introducing elements of another system into it, are doomed. “It is obvious,” Selyunin continues, “that under socialism, there will be no law of value, no value itself, no commodity production; a socialist market is an eclectic utopia, it is impossible to borrow the good things from capitalist production and discard the bad things.” “Only the owners of labor, products of labor, and means of production can compete in the market. As everything official, state-owned, the market will be either a toy or a smoke screen for the plunder of the treasury and society, which we are already witnessing.” 42
In late 1990, at the 4th Congress of People’s Deputies of the USSR, much the same (although from a different angle) was declared by N. Ryzhkov, one of the advocates of the marriage of the market and the plan, although in his view, the failures were caused not by objective processes but by the actions of extreme elements: “In 1985, we declared perestroika, whose substance and objectives was renovation of socialism and removal of its deformations. But it failed to hold its ground under the impact of destructive forces, many of which (as is now obvious) are trying to change the character of the social system. The facade was rejection of socialist ideology; in actual fact, this was supplanting one ideology by another.”
“The prevalence of ideology over economics is not a trifle, not a small detail, not voluntarism, not the stupidity of leaders,” Ryzhkov continued. “It is the substance of the model in which we used to live, its foundation.” 43 The attempts of the old system’s supporters to reverse the situation were, however, futile: the destructive consequences of the “grafting” of alien principles proved too strong. Besides, reversal had no prospects. The inefficiency of the old model would have sooner or later again brought the country to the threshold of reforms in an even more difficult situation. The search begun back in the late 1950s was not for nothing. There was no alternative to a replacement of the economic development model. This is also the goal toward which China is moving, although by a different route.
Our route with all its complications was in part predetermined by the fact that we had approached the reform frontier without first getting rid of our illusions about the potential of the Soviet economic model. But, of course, reforms would have been impossible in the absence of such illusions. In that case, the system would have most probably collapsed as soon as the resources of extensive development came to an end, and the cost for the people would have been much higher than under the current (also far from painless) scenario.
One must say that the trend toward fusing illusions with reality also manifested itself after it had become clear that the plan and the market were incompatible. The market itself, as presented by many of its champions of that time, acquired features of an illusory “society of a dream ”. In Russia, the seemingly pragmatic hopes that our problems would be quickly solved on the basis of market self-regulation became the collapse of yet another utopia. This is why we are so sensitive about our new reality, which is so unlike our recent dreams. It is largely because of this view, of our excessive expectations, that we often miss real chances for improving the situation.
But it is much worse if we are again falling under the spell of yet another utopian project built from fragments of current structures. This could be an attempt to help the “impoverished masses” by fusing the old Soviet economic principles with market relations and even private property. A revival of the illusions of “market socialism” would be particularly dangerous now, especially as these illusions are still alive among large population groups. The country has neither enough time nor fatigue life for a new attempt to united what is mutually exclusive. Also dangerous is the wish to create market structures patterned after Western models (sometimes mixing these models up) without account of the distortions that our local color would inevitable cause. Our history shows clearly enough how such attempts end.
Translated by Natalia Belskaya
Endnotes
*: N.Pliskevitch, an editor of the department of socioeconomic problems of the journal Obshchestvennye nauki i sovremennost, author of works on the sociocultural aspects of economic reforms. The article was published in Russian in the journal Obshchestvennye nauki i sovremennost, No. 1, 1998. Back.
Note 1: A. Herzen, 1831-1863, Collected Works, Vol. 8, Moscow, 1975, p. 168 (in Russian). Back.
Note 2: A. Herzen, On the Evolution of Revolutionary Ideas in Russia, Ibid., Vol. 3, pp. 460, 469. Back.
Note 3: A.Herzen, “Russian Germans and German Russians”, A.I. Herzen, “On Socialism”, Selected Works, Moscow, 1974, p. 464 (in Russian). Back.
Note 4: V.I. Lenin, Collected Works, Vol. 25, Moscow, 1964, p. 359. Back.
Note 7: See: R. Hilferding, Das Finanzkapital, Berlin, 1924, p. 398. Back.
Note 9: CPSU Through Its Central Committee Decisions of the Congresses, Conferences, and Plenary Meetings, Part 1, 1898-1925, Moscow, 1953, pp. 478, 479 (in Russian). Back.
Note 10: L. Speranskaya, “Bourgeois Economists’ Distortion of the Essence of Central Planning in the USSR”, Critique of Bourgeois Political Economy, Issue 2, Moscow, 1969, pp. 163-164 (in Russian). Back.
Note 11: A. Anchishkin, Forecasting the Growth of the Socialist Economy, Moscow, 1973 (in Russian). Back.
Note 12: Simultaneously, attempts were made to make a more efficient use of old extra-economic incentives connected with enthusiasm. The entire propaganda campaign to promote the building of communism by 1980 can be viewed in this context. Back.
Note 13: Ya. Kronrod, The Laws of Political Economy of Socialism, Moscow, 1966, p. 387 (in Russian). Back.
Note 14: G. Lisichkin, Plan and the Market, Moscow, 1966, p. 63 (in Russian). Back.
Note 17: N. Petrakov, Cybernetic Problems of Economic Management, Moscow, 1974 (in Russian). Back.
Note 18: Political Economy. Encyclopedia of Economics, Vol. 3, Moscow, 1979, p. 168 (in Russian). Back.
Note 19: K. Ostrovityanov, Selected Works in two volumes, Vol. 2, Political Economy of Socialism, Moscow, 1973, p. 240 (in Russian). Back.
Note 21: Commodity-Money Relations in the System of the Plan-Based Socialist Economy, Moscow, 1971, p. 99 (in Russian). Back.
Note 22: G. Lisichkin, Two Years Later, Novy mir, 1967, No. 2, p. 181. Back.
Note 23: K.V. Ostrovityanov, Op. cit., p. 530. Back.
Note 24: Quoted from: Yu.Ya. Olsevich, Efficiency of the Socialist Economy, Moscow, 1972, p. 276 (in Russian). Back.
Note 25: O. Sik, “The New System of Economic Planning and Management”, Economic Reforms in the Socialist Countries, Prague, 1967, p. 152. Back.
Note 26: The Economy of the USSR in 1987. Statistical Yearbook, Moscow, 1988, p. 84 (in Russian). Back.
Note 27: What is more, these production branches became directly dependent on the inflow of petrodollars into the country. Concentrating on a narrow range of problems, we began to import not only consumer goods but also the equipment for their manufacture inside the country, as well as individual types of raw materials and semi-finished products for such purposes. Although this is, of course, quite normal for an open economy, in the closed domestic economy with the foreign trade monopolized by the state, problems began as soon as the inflow of hard currency from raw meteials sales was interrupted. This situation formed in the second half of the 1980s, when the incoming amounts were no longer sufficient to cover all the needs. The supply of spare parts for the imported equipment and even of printer’s ink for domestic printing presses became inadequate. The Council of Ministers kept receiving desperate cables from enterprise managers begging for hard currency. The press often wrote about this. Many enterprises were on the point of going out of business or stayed idle for long periods. Back.
Note 28: Materials of the CPSU Central Committee Plenary Meeting, June 25-26, 1987, Moscow, 1987, p. 40 (in Russian). Back.
Note 29: M. Gorbachev, Perestroika and New Thinking for Our Country and for the Whole World, Moscow, 1987, p. 81 (in Russian). Back.
Note 30: G. Popov, “Restructuring of Economic Management”, There Is No Alternative, Moscow, 1988, p. 624 (in Russian). Back.
Note 32: N. Shmelev, “New Troubles”, Guided by Conscience, Moscow, 1988, p. 394 (in Russian). Back.
Note 33: G. Popov, Op. cit., p. 631. Back.
Note 34: M.S. Gorbachev, Op. cit., p. 84. Back.
Note 36: A. Strelyanyi, “Incomes and Expenditures”, Guided by Conscience, p. 348. Back.
Note 37: A. Ivanenko, “The Foundations of Management Restructuring”, Obshchestvennye nauki i sovremennost, No. 6, 1987. Back.
Note 38: Those rights were, in fact, much the same as the rights of real owners without, however, the latter’s responsibility for the efficient performance of enterprises and the risk of failure caused by erroneous decisions. Since that time, the owners’ rights began to be seized by managers; later, during privatization, this process was merely legalized. Back.
Note 39: N. Shmelev, Op. cit., p. 369. Back.
Note 40: It should be recognized for the sake of justice that even at that time, some authors, such as L. Piyasheva and B. Pinsker, were already saying that market principles were incompatible with the socialist economic model. But that was an “extreme” point of view, which made no impact on practical economic policy. Besides, their recommendations were confined to the state’s faster withdrawal from the economy. The real transition process showed that the worst problems arose precisely in connection with the state’s painful attempts to find its place in the new environment. Even consistent liberals gave priority to this problem (see, for instance, V. Naishul, “The Key to Reforms Can Be Found in the Non-market Sphere”, Obshchestvennye nauki i sovremennost, No. 4, 1994). Back.
Note 41: V. Selyunin, “Planned Anarchy or a Balance of Interests?”, Znamya, 1989, No. 4. Back.
Note 42: Ibid., pp. 209, 218. Back.
Note 43: “The 4th Congress of People’s Deputies of the USSR, Stenographic Report”, Bulletin No. 5, December 19, 1990, Moscow, 1990 (in Russian). Back.