Variations on the Soviet Model

Variations on the Soviet Model

Incentive Systems in Yugoslavia, China, and Cuba

Not too many years ago, American high-school students, were asked ex­amination questions like the following: "Name three reasons why socialism is bound to fail." Among the "correct" answers was that socialism offered no incentives whatsoever for human endeavor. It is doubly ironic to note that many recent reforms in centrally planned economic systems turn out to be largely efforts to adjust incentive mechanisms—if no incentives exist, why pay so much attention to them?

The sources of human motivation are complex in any economic sys­tem, but to say that no incentives exist is simply untrue. The industrial growth of the Soviet Union followed a zig-zag course of methods to bring forth productive effort; contrary to the impression held by many Americans, economic motivation was not a result of unmitigated police-state tactics.

To illustrate the variety of incentive systems that can prevail within the command type of economic systems, we will survey three nations that have deviated from the Soviet model: Yugoslavia, the People's Republic of China, and Cuba. In stressing only the aspect of incentive systems, we go to the heart of the problem of harnessing economic institutions to the task of achieving rapid economic development. This seems the quickest way to understand innovations that have aroused considerable interest among outside observers.

Incentives may exist in material or nonmaterial form. Higher wages and salaries, access to housing or other scarce goods and services, and free vacations at company resorts are examples of increased material living standards. Honorary titles, an audience with a top political leader, and more decision-making responsibility on the job are nonmaterial incentives, as are the internal sanctions that seek the favorable regard of one's relatives and fellow workers. Nor should we underestimate the negative incentives involved in the prospect of incurring the displeasure of one's immediate boss or higher authorities; leading a "quiet life" free from investigative scrutiny was seen to be one of the major factors in the mind of the Soviet plant manager.

It is appropriate to speak of an incentive system because the tangible and psychological motivating elements together form a pattern of stimuli that produce the overall effect. The incentive system changes when new elements are added (profitability as a bonus criterion in the Soviet Union, for example) or when the relative emphasis on existing factors shifts (the periodic waxing and waning of tolerance for private agricultural plots on the part of Russian economic planners). Once the incentive system is con­ceptualized, consideration can be given to how the individual goes about achieving his "quota" of effort. A cynical view might hold that people are inherently lazy and therefore try to meet personal goals while minimizing inputs into the life of the community, but a reading of history and of our own personalities reveals periods when people get "carried away" into "unselfish" actions by the force of events or by inspiring leadership. Whether such unselfishness works for extended periods is an interesting question for study and debate.

Goals must be set, performance evaluated, and rewards dispensed at all levels of a planned economy. Planning bureaucrats, managers of farms and factories, and individual workers all respond to their own pattern of incentives. The possibility that one group, in meeting its goals, may sabo­tage the efforts of another group is always present. Adjusting success indi­cators so that the spirit as well as the formal provisions of rules are met is a problem every central planner, like every parent, experiences. Consid­erable ingenuity is demonstrated in the ability to subvert the intent of new regulations designed to patch up weaknesses in old ones.

The development of the incentive systems of Yugoslavia, China, and Cuba is closely connected with political developments in each nation. War or revolution played a leading role in the establishment of their present political structures. In each case there remained an external political threat that served to rally the population and, incidentally, to provide a rationale for the austere living conditions that are a concomitant feature of efforts to achieve a high rate of investment. It is probably not coincidental that char­ismatic leadership existed in the critical period of innovation in the persons of Marshal Tito in Yugoslavia, Chairman Mao Tse-tung in China, and Premier Fidel Castro in Cuba. Radical changes in incentive systems are undoubtedly made more easily if a forceful appeal for support is made by a generally respected and trusted political leader.

In each of these nations significant experimentation with incentive systems occurred and is still going on. This presents no small problem of justification, since each phase must be made consistent with the prevailing political and economic ideology. Each policy shift also dislocates adminis­trators who have a vested interest in the implementation of the old policy. Finally, there is likely to be an unsettled interval calling for interpretation of pronouncements when incentive systems are changed. The overstatement needed to publicize desired changes in direction seems to lead to "over-compliance" in some situations where the new policy is inappropriate. The agricultural sector seems especially vulnerable to this dilemma.

We will use a unique feature of each nation as the focus for discussion of their incentive systems. In Yugoslavia that feature is an institution—the Workers' Councils, which attempt to give some degree of control over eco­nomic decision making at the corporate level to the employees who actually work there. In China it is an event—the Cultural Revolution of the late 1960s, which among other things seems to have been aimed at eliminating the elitist authority and prestige usually associated with responsible posi­tions in an economic hierarchy. In Cuba our interest will center on a prod­uct—sugar—and how the existence of a sugar monoculture prior to Castro's revolution imposes significant constraints on attempts to modify economic incentives.