Soviet Economic System and History

Soviet Economic Institutions

Soviet Economic System and History

In our discussion of a capitalist economic system, we first considered the existing economic institutions and then studied how the economy actually operates within that institutional framework. The primary characteristics of a command economy like the Soviet model have been outlined by Pro­fessor Montias:

1. Political authorities have the power to make ultimate decisions affecting the allocation of resources;
2. Basic allocation decisions are either taken directly by central organs or coordinated centrally;
3. Decisions regarding the future are enshrined in national economic plans;
4. The plans are broken down into concrete tasks "addressed" to specific organizations;
5. The plan and the operational decisions taken during the year to execute its provisions determine how the key resources of the economy will be rationed out;
6. The socialized enterprise (nationalized firm or producers' co-operative) represents the basic economic unit of the system;
7. Prices of both producer and consumer goods are either fixed by administrative organs or approved and controlled by such organs on the basis of enterprises' cost estimates.
We will therefore discuss the institutions in the Soviet Union that pro­vide political direction, plan the economy and keep track of financial ac­counts, and receive orders from central authorities concerning the produc­tion and distribution of goods and services.

The Communist Party, Soviet Economic Policy

In the Soviet Union the Communist Party is the only political party; there is no other to represent any opposing point of view. Prerevolutionary par­ties disappeared, the Communist Party now alleges, not because they were violently stifled but because their policies were not attuned to the workings of historical forces as outlined by Marx. The rationale of the one-party system is "that after the expropriation of large-scale private ownership of the means of production society gradually moves toward homogeneity . . . as time goes on the social-political unit of the new society becomes stronger and stronger. ... In those conditions there is no social basis for the polit­ical parties having different ideological and political platforms. The trend toward a one-party system can therefore be regarded as quite natural in a socialist society.

The organizational structure of the party is based on the principle that for every geographic or functional government there should be a cor­responding body of the party. Thus for the shop or department within an industrial enterprise, for the enterprise as a whole, for the collective farm, for the store, and so on, there are thousands of party units called cells. Sor3e half-million of these cells are the base on which the entire party struc­ture rests. Each cell is governed locally by a committee. The committee secretary is the individual who, through a hierarchy of area, district, and republic party organizations, draws instructions and authority ultimately from the secretariat of the Central Committee of the Communist Party. The party hierarchy thus parallels the economic planning bureaucracy and provides a dual system of reporting and control on the success of economic performance at the enterprise level, even though fewer than 5 percent of Soviet citizens are actually Party members.

Planning Institutions

Virtually all the different general organs constituting the diverse govern­ments are in some degree concerned with resource use, but from this standpoint the most important by far are bodies wielding executive power: in the all-union government, the Council of Ministers: at the republic level, the body with the same name: and at the local level, the executive committee. Headed by a chairman, the all-union council has a diverse membership, including chiefly persons occupying senior posts in subordinate organizations.

The central planning agency, Gosplan, has responsibility for preparing economic plans to be approved by the Council of Ministers. Under it a vast planning machinery spreads out, characterized by vertical intercon­nections between its several layers, horizontal linkages, and regional con­nections with bodies that plan land use, city development, and so on.

The actual responsibility for plan implementation lies mainly with industrial ministries. Except during the experimental attempt to organize on the basis of geographic units between 1957 and 1965, product lines such as coal, iron and steel, or textiles have served as the basis for minis­terial boundaries. The minister and his senior deputies and department heads form the collegium of the ministry; they function mainly as adminis­trators and technicians rather than as politicians. Since ministry depart­ments (glavki) usually administer a group of enterprises, an individual plant manager deals with only a small sector of the ministry bureaucracy.

Financial Institutions

It is possible for the Soviet economy to give priority to physical potential­ities of production and to adapt financial arrangements to physical goals because of the nature of bookkeeping procedures in the Russian socialized economy. All accounts for the individual enterprises, industries, stores, farms, and so on, are ultimately merged into one gigantic set of accounts. This merging thwarts purely financial limitations on production and means that every functional part is coordinated with the planned goals of the economy as a whole.

In the Soviet system government finances, economic planning, and industrial production are intimately connected. The Ministry of Finance is the government agency responsible for most budgeting activity. A large share of investment projects are financed by grants from the government budget issued through investment banks.

The State Bank of the USSR plays an important part in auditing and controlling transactions between enterprises. It provides working capital to firms, settles contractual obligations with bookkeeping transactions, regulates the money supply, and serves as banker to the government. Since enterprises and agencies are required to keep all liquid funds in the Bank as deposits, payment cannot be made in any other way; thus, the Bank becomes a key observation point in keeping track of specific financial obli­gations placed on any enterprise by the economic plan.

Of less importance are the savings banks that hold small deposits of individual savers. As income levels increase and there are more consumer durable goods to save up for, it is likely that the level of private savings will increase.

Productive Units

The enterprise is the unit for administering property owned by the state. Its director and other officials are civil servants. Profits are transferred to the state or deficits are made up by central-government grants. Output, of course, is dictated by the plan targets handed down by higher authorities. State farms follow this general form, but collective farms are organ­ized as producers' cooperatives, whose members share the surplus left over after expenses (including taxes) have been met. Often, as we shall see, the revenues have been outweighed by expenses at various stages of the effort to industrialize, leaving little incentive for farms to contribute toward the work of the collective as distinct from their own private plots.

Marketing Institutions

A system of state-owned retail stores accounts for most retail trade in the Soviet Union, with consumer cooperatives and collective farm markets also in the picture. State stores obtain their merchandise through contractual relations with producing enterprises or wholesale organizations. Prices are set by the central authority.

One of the few remaining expressions of freedom of enterprise in the Soviet Union is the market where goods produced on collective farms and private plots are bought and sold. Prices are uncontrolled, and much of the fresh produce in Russia is obtained through this source. Limitations on freedom of enterprise are one reason why maintenance and repair services are generally poor. Some of this deficiency is the result of a lag in repair facilities behind the rapid introduction of new consumer durables. Amer­icans who remember the early days of television will understand this phe­nomenon; life would be made considerably easier for the average Russian if a way were found to service the goods that are becoming widely distrib­uted to private citizens.
This cursory survey of historical and institutional perspectives puts us in a position to see how the process of economic planning operates in the Soviet Union and how the individual industrial and agricultural enter­prises respond to planning directives.