Incentives in the USSR

[Louis Proyect <lnp3@xxxxxxxxx>]

As I mentioned a while back, there was a complete absence of planning in
the USSR during the time that Mises and Hayek were busy writing their
critiques of socialist planning. In general these sorts of critics deal
with socialism at such a high level of abstraction that it makes an
intelligent discussion almost impossible. It makes no sense to discuss the
"calculation problem" while ignoring the fact that statisticians, engineers
and economists were being shot, tortured, and jailed. Of course there are
going to be bureaucratic inefficiencies when major decisions were being
made on the basis of whether they conformed to Stalin's mood when he woke
up on a given morning.

Since that post, I have done a little bit more reading that adds some new
information. For my money, Ernest Mandel is the greatest Marxist economist
of the 20th century. While most of his work deals with capitalist economy,
he was also quite sharp when it comes to socialist economies. In the
chapter on "The Soviet Economy" in "Marxist Economic Theory", he points out
that starting in 1935 measures were introduced in the Soviet Union to
counteract tendencies toward irresponsibility by individual bureaucrats.
These measures complied with one aspect of market socialist theory--they
stressed the principle of the 'individual profitability of enterprises'
(khozaschet).

Ironically such incentives often undermined the overall goals of the Soviet
economy, as bureaucrats produced some goods rather than others, solely on
the basis of whether they met the 'bottom line'. On October 5th, 1954
Pravda reported that numerous textile and footwear factories were refusing
to make children's clothers because this line was not 'profitable'.

Urged by the state to continually reduce the cost of their products, plant
managers fulfilled their goals by reducing the quality of the products. A
kind of cockeyed 'supply and demand' mechanism operated as well. In order
to make sure that they met their incentive-based quotas, they also
stockpiled raw materials in excess of what the plan dictated. They wanted
to make absolutely sure that they received their bonus.

Needless to say, all of this was a work-around for a deeply rooted problem
in Soviet society, which was the bureaucratic differentiation between those
in power and those being ruled. A more fluid political environment like
Cuba's would have gone a long way toward resolving these difficulties, but
they would have also risked opening up the system to abolition of the
bureaucratic caste.



Louis Proyect
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