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1965 Soviet economic reform
The 1965 Soviet economic reform, sometimes called the Kosygin reform (Russian: Косыгинская реформа) or Liberman reform, named after E.G. Liberman, was a set of planned changes in the economy of the USSR. A centerpiece of these changes was the introduction of profitability and sales as the two key indicators of enterprise success. Some of an enterprise's profits would go to three funds, used to reward workers and expand operations; most would go to the central budget.
The reforms were introduced politically by Alexei Kosygin—who had just become Premier of the Soviet Union following the removal of Nikita Khrushchev—and ratified by the Central Committee in September 1965. They reflected some long-simmering wishes of the USSR's mathematically-oriented economic planners, and initiated the shift towards increased decentralization in the process of economic planning. The reforms, coinciding with the Eighth Five-Year Plan, led to continued growth of the Soviet economy. The success of said reforms was short-lived, and with the events of Prague in 1968, fueled by Moscow's implementation of the reforms in Eastern Bloc countries, led to the reforms being curtailed. Economists like Lev Gatovsky and Liberman were instrumental in framing the theoretical underpinnings of the Soviet economic reforms of the 1960s, advocating for the use of profit motives and market mechanisms within a socialist framework.
Under Lenin, the New Economic Policy had allowed and used the concepts of profit and incentives for regulation of the Soviet economy. Stalin transformed this policy rapidly with the collectivization of farms and nationalization of industry, which was the result of the acceleration of central planning as exemplified by the "Five-Year Plans". Since about 1930, the Soviet Union had used a centralized system to manage its economy. In this system, a single bureaucracy created economic plans, which assigned workers to jobs, set wages, dictated resource allocation, established the levels of trade with other countries, and planned the course of technological progress. Retail prices for consumer goods were fixed at levels intended for market clearing. The prices of wholesale goods were fixed, also, but these served an accounting function more than a market mechanism. Collective farms also paid centrally determined prices for the supplies they needed, and unlike other sectors their workers received wages directly dependent on the profitability of the operation.
Although Soviet enterprises were theoretically governed by the principle of khozraschet (Russian: хозрасчёт, lit. 'business bookkeeping', or "accounting")—which required them to meet planners' expectations within the system of set prices for their inputs and outputs—they had little control over the biggest decisions affecting their operations. Managers did have a responsibility to plan future gross output, which they chronically underestimated in order to later exceed the prediction. The managers then received bonuses (premia) for surplus product regardless of whether it was produced in a cost-effective manner or whether their enterprise was profitable overall. The bonuses for output came in amounts sometimes equal to the managers' base salaries. The system also incentivized pointless increases in the size, weight, and cost of production outputs, simply because "more" had been produced.
The economic reforms emerged during a period of great ideological debate over economic planning. More mathematical, "cybernetic", viewpoints were at first considered deviant from orthodox Marxist economics, which considered the value of goods to derive strictly from labor. This doctrine, elaborated in such works as Stalin's 1952 book, Economic Problems of Socialism in the USSR, described the price system as a capitalist relic which would eventually disappear from communist society.
Nevertheless, computerized economics gained an important role for top planners, even while conventional Marxist–Leninist political economy was taught in most schools and promoted for public consumption. The rising influence of statistical planning in the Soviet economy was reflected in the creation of the Central Economic Mathematical Institute (Центральный экономико-математический институт; TSEMI), led by Vasily Sergeevich Nemchinov. Nemchinov, along with linear programming inventor Leonid Kantorovich and investment analyst Viktor Valentinovich Novozhilov, received the Lenin Prize in 1965. The battle between "optimal" planning and convention planning raged throughout the 1960s.
Another tendency in economic planning emphasized "normative value of processing", or the importance of needs and wants in evaluating the value of production.
Major changes throughout the Soviet world became possible in 1964 with the ousting of Nikita Khrushchev and the rise of Alexei Kosygin and Leonid Brezhnev. Economic policy was a significant area of retrospective anti-Khrushchev criticism in the Soviet press. This 'reformist' economic tendency in the Soviet Union had corollaries and some mutual reinforcement in Eastern Europe.
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1965 Soviet economic reform
The 1965 Soviet economic reform, sometimes called the Kosygin reform (Russian: Косыгинская реформа) or Liberman reform, named after E.G. Liberman, was a set of planned changes in the economy of the USSR. A centerpiece of these changes was the introduction of profitability and sales as the two key indicators of enterprise success. Some of an enterprise's profits would go to three funds, used to reward workers and expand operations; most would go to the central budget.
The reforms were introduced politically by Alexei Kosygin—who had just become Premier of the Soviet Union following the removal of Nikita Khrushchev—and ratified by the Central Committee in September 1965. They reflected some long-simmering wishes of the USSR's mathematically-oriented economic planners, and initiated the shift towards increased decentralization in the process of economic planning. The reforms, coinciding with the Eighth Five-Year Plan, led to continued growth of the Soviet economy. The success of said reforms was short-lived, and with the events of Prague in 1968, fueled by Moscow's implementation of the reforms in Eastern Bloc countries, led to the reforms being curtailed. Economists like Lev Gatovsky and Liberman were instrumental in framing the theoretical underpinnings of the Soviet economic reforms of the 1960s, advocating for the use of profit motives and market mechanisms within a socialist framework.
Under Lenin, the New Economic Policy had allowed and used the concepts of profit and incentives for regulation of the Soviet economy. Stalin transformed this policy rapidly with the collectivization of farms and nationalization of industry, which was the result of the acceleration of central planning as exemplified by the "Five-Year Plans". Since about 1930, the Soviet Union had used a centralized system to manage its economy. In this system, a single bureaucracy created economic plans, which assigned workers to jobs, set wages, dictated resource allocation, established the levels of trade with other countries, and planned the course of technological progress. Retail prices for consumer goods were fixed at levels intended for market clearing. The prices of wholesale goods were fixed, also, but these served an accounting function more than a market mechanism. Collective farms also paid centrally determined prices for the supplies they needed, and unlike other sectors their workers received wages directly dependent on the profitability of the operation.
Although Soviet enterprises were theoretically governed by the principle of khozraschet (Russian: хозрасчёт, lit. 'business bookkeeping', or "accounting")—which required them to meet planners' expectations within the system of set prices for their inputs and outputs—they had little control over the biggest decisions affecting their operations. Managers did have a responsibility to plan future gross output, which they chronically underestimated in order to later exceed the prediction. The managers then received bonuses (premia) for surplus product regardless of whether it was produced in a cost-effective manner or whether their enterprise was profitable overall. The bonuses for output came in amounts sometimes equal to the managers' base salaries. The system also incentivized pointless increases in the size, weight, and cost of production outputs, simply because "more" had been produced.
The economic reforms emerged during a period of great ideological debate over economic planning. More mathematical, "cybernetic", viewpoints were at first considered deviant from orthodox Marxist economics, which considered the value of goods to derive strictly from labor. This doctrine, elaborated in such works as Stalin's 1952 book, Economic Problems of Socialism in the USSR, described the price system as a capitalist relic which would eventually disappear from communist society.
Nevertheless, computerized economics gained an important role for top planners, even while conventional Marxist–Leninist political economy was taught in most schools and promoted for public consumption. The rising influence of statistical planning in the Soviet economy was reflected in the creation of the Central Economic Mathematical Institute (Центральный экономико-математический институт; TSEMI), led by Vasily Sergeevich Nemchinov. Nemchinov, along with linear programming inventor Leonid Kantorovich and investment analyst Viktor Valentinovich Novozhilov, received the Lenin Prize in 1965. The battle between "optimal" planning and convention planning raged throughout the 1960s.
Another tendency in economic planning emphasized "normative value of processing", or the importance of needs and wants in evaluating the value of production.
Major changes throughout the Soviet world became possible in 1964 with the ousting of Nikita Khrushchev and the rise of Alexei Kosygin and Leonid Brezhnev. Economic policy was a significant area of retrospective anti-Khrushchev criticism in the Soviet press. This 'reformist' economic tendency in the Soviet Union had corollaries and some mutual reinforcement in Eastern Europe.