IN the past twelve months Nikita Khrushchev, since March 27 Chairman of the Council of Ministers as well as First Secretary of the Communist Party of the Soviet Union, has pressed forward with a major reshaping of both Soviet industry and agriculture. While engaged in dislodging any serious competitors for political power, he has also been carrying out a far-reaching reconstruction of the vast system of production and management. Was there a really dangerous challenge to his power just before his defeat of Molotov, Malenkov and Kaganovich a year ago? Or did he deliberately provoke their opposition to his "adventurous" tinkering with the machinery of production in order to wrench their practiced hands from the apparatus of rule?

Which came first, the political goal or the economic one? This remains a matter of dispute and conjecture. If Khrushchev did, in fact, take on a risky gamble in his revamping of industry, he has now compounded it by scrapping one of the main controls over agriculture. But his elimination of the "old guard" has undoubtedly made it easier for him as undisputed boss of the Party machine to press ahead with a drastic change in the collective farm system: the elimination or reduction of the Machine-Tractor Stations, the mainstay of Moscow's control over collectivized agriculture for nearly three decades.

For Khrushchev, the new methods of management are an essential means for achieving Stalin's goal, that of "overtaking and surpassing the advanced capitalist countries." Today only one of them--the United States--remains to be overtaken. In his speech of November 6, 1957, on the fortieth anniversary of the October Revolution, Khrushchev set a series of ambitious goals for the Soviet economy to achieve by 1972. For example, the target of 100 to 120 million metric tons of steel, as against 51.1 million tons last year, though feasible will be costly.

Actually, this and other targets represent a somewhat lower rate of economic growth than some of those previously attained over the past 25 years. Declines in percentage rates of Soviet growth are inevitable, for the most dramatic increases are normally achieved in the earlier stages of industrialization, against a low initial level of output. In most fields, later increments of investment provide a smaller return, measured in percentages. The Soviet economy, like other maturing systems, will have to make larger investments than in the past for the maintenance and replacement of equipment, for rounding out the mechanization of the productive process and for raising the average productivity of a relatively less abundant labor force. The morale of the Soviet people also requires more attention to consumer goods and services and to housing, as Stalin's successors have increasingly recognized.

To some extent the Soviet economy is now forced to pay a higher price, in real terms, for many of its raw materials. In the first spurt of industrialization, the Soviet Union has used up some of its most accessible high-quality ores. Last year the Kuznetsk Combine calculated a loss of 50,000 tons of pig iron, due directly to the increased ash content of coking coal over the preceding year. Under the new Seven Year Plan for 1959-1965, the Government plans to make large investments either to upgrade poorer ores or to open up more remote high-quality sources. When such unfavorable factors as these have been noted, the fact remains that annual additions to Soviet output will become steadily larger, even though the rate of growth is gradually declining. The reason is, of course, that the Soviet economy--the base on which the rate of growth is measured--is now a very big one.

One very important way to promote further growth is to reduce waste and inefficiency and utilize more effectively the large and rapidly growing investment fund which each year is squeezed out of a slowly improving standard of living. By late 1956 the search for more efficient and expeditious forms of industrial management was made even more urgent by novel and competing demands on Soviet resources.

These resources, of course, are not unlimited, and the insatiable need for new factories and new facilities comes into competition with other demands upon them. Among the claimants, the new military technology is exceedingly expensive, whether its cost be measured in dollars or rubles, or in scientific and production man-hours. Now that the race for nuclear power has passed into the production stage, it faces the Soviet leaders with vast new requirements for resources. At the same time the promise of credits to Communist China and India, to Egypt-Syria and Jugoslavia, and to many other countries, have set up claims to real resources, and particularly to the relatively scarce supplies of new and complex equipment, which are also in high demand for developing the Urals, Siberia and Central Asia. The unforeseen assertion of Polish independence in October 1956, Hungary's revolt, followed by new Soviet costs for restarting their economies, and the smaller sops thrown to the more obedient satellites, have piled new and unplanned burdens on Soviet industry.


Toward the close of 1956, it was clear that Soviet investment resources were severely strained. One way to get the maximum effect from them was to strengthen the administration of the economy. The upshot was an attempt in December of that year to improve the central decision-making processes by placing Mikhail Pervukhin in charge of a considerably strengthened State Economic Commission for Current Planning. In retrospect, this move may have been the final spasm of the strictly centralized, traditional approach to the management of the economy. At the same time the plan goals set earlier that year at the Twentieth Party Congress were tacitly revised downward.

On February 14, 1957, Khrushchev proposed a sweeping reorganization of Soviet industry, breaking up many of the industrial ministries and replacing the vertical structure of management with a territorial organization, to be centered in an unstated number of regional Councils of National Economy. The publication on March 30 of his detailed "Theses" was followed by numerous discussions at meetings in which some glimmerings of doubt and dissent were allowed to show through the mantle of praise. In early May the new structure was enacted by the Supreme Soviet, to take effect on July 1. A review of production goals must also have been proceeding in the inner sanctum of power, for in late September Moscow announced officially that the current Five Year Plan for 1956-60 had been scrapped and would be replaced after two years of annual plans by a Seven Year Plan for 1959-1965.

Just what are the powers and responsibilities of the new regional councils? Has over-centralization given way to over-localization? What powers have been retained by the central authorities in Moscow? Has Soviet industry been "decentralized," as has been widely assumed in the West, or merely "reorganized," as Khrushchev insists?

The advantages sought through the change-over can be summarized briefly. The ministries were making decisions in Moscow --or not making them--without an adequate knowledge of the problems or opportunities of the individual plants. The regional councils will be familiar with local resources and will be able to use them better. The Soviet press has been peppered with descriptions of the bad results of remote control by the ministries. Horrendous examples of the waste of compound ores have been cited. At Mizur, because of departmental barriers, only zinc, copper and lead were extracted, and seven other elements, including sulphur and tin, were discarded as waste. At the Nerchinsk deposits, only lead and tin were extracted; indium and cadmium were thrown away, because they came under the authority of another ministry. At Yaroslavl the new oil refinery is to supply by-products to a new chemical plant; this was allegedly not possible under the régime of the centralized ministries of the Oil and Chemical Industries.

The chairman of the Azerbaijan Economic Council has reported that his new agency has gotten the production of synthetic rubber under way, after it had been delayed during several years of inter-ministerial negotiations; it has organized the byproduct utilization of industrial carbon and found unused space in factories formerly controlled by central ministries for setting up the production of cables, electric equipment, insulators, airconditioners, electric stoves and fans, and kerosene heaters. To save on transportation costs, the Krasnoiarsk Economic Council is preparing to shift several factories to the use of local coal and to produce packing materials locally.

While the new regional councils are designed to break down the vertical industrial empires of the former economic ministries, they have shown some tendencies of their own toward empire-building. A. G. Sheremetiev, chairman of the Cheliabinsk Economic Council and formerly minister of Ferrous Metallurgy, has complained that very few of the 2,050 officials in his former ministry have shown any desire to exchange Moscow for Cheliabinsk; in building up the new councils it has therefore been necessary to draw upon, and hence weaken, the managerial staffs of the local enterprises. Other former ministers have also turned up in the new regional "command posts."

Each of the 105 regional councils has worked out a substructure, supposedly based on the size and needs of the industries it administers. But according to one complaint, the Arkhangelsk Economic Council, like the ministries it supplanted, is three links removed from actual production. Within the economic councils of Group I (apparently those with the most important industries), the number of subdivisions varies from II to 35, and the size of the professional staff from 350 to 1,600. The Irkutsk Economic Council, perhaps an average one for Group I councils, has a total staff of 520.

The Moscow City Economic Council, responsible for some 8 percent of the country's industrial output, was established with 16 branch administrations, 4 trusts, 38 research organizations, 33 construction-design bureaus, 2 main administrations for supply and distribution, 8 functional administrations (production, technology, planning, etc.), 6 functional departments (bookkeeping, transportation, arbitration, etc.), and a technical and an economic council. No wonder Khrushchev has recently admitted, though in guarded terms, that, ". . . although the new system of administration underwent a period of establishment in the first months, and this undoubtedly affected its work . . . , yet, the management of enterprises has considerably improved. . . . In the future the favorable aspects of the reorganization . . . will be manifested to an even fuller extent . . . ."

One difficult problem facing the regional councils results from Moscow's temptation to cut through the decision-making maze by turning them into direct operating agencies. An example of this is the decree of April 20 on the reorganization of the Machine-Tractor Stations which places ". . . on the chairmen of the Councils of National Economy the personal responsibility for the production of spare parts and ball bearings for tractors, automobiles, agricultural and earth-moving machines . . . ." Even if the decree presumably applies only to regional councils of provinces in which spare parts and ball bearings are actually produced, rather than to all 105 councils, it is easy to predict that their chairmen will tend, under Moscow's concept of "personal responsibility," to usurp and divide the authority of the managers of the plants, and not merely to supervise them.


The devolution of some measure of economic control to the regional councils points up a further problem: the presence of two "masters" within the same district. For example, side-by-side with the new Moscow City Economic Council, the Moscow City Soviet also administers a network of 900 enterprises with 440,500 employees in the fields of construction, building materials, automobile transportation, garment industries, bakeries, etc. The Kherson Economic Council has complained that, while it has control of wall-board making, granite and some lime quarries, the executive committee of the province has taken over the brick-yards, all gypsum and some lime plants, and sand quarries; it has urged that all construction materials should be brought under the council's own control.

Even more serious has been the outcry against "localism," the tendency of the regional councils to meet the planned and even the "above-plan" demands of "their own" plants ahead of deliveries to "foreign" regions. "Coöperativized deliveries" destined for other areas under the detailed central plan have often suffered. Whether territorial "parochialism" will prove less serious than the ministerial "parochialism" which the new organization is designed to cure, it is impossible to say, at least on the basis of the scattered data available. That the central government is deeply concerned about it is shown by the announcement on May 19 that officials who fail to carry through the planned deliveries to other provinces and republics will be subject to measures of "disciplinary, material or criminal responsibility," including prison sentences for a second offense.

One of the main complaints against the new system has been the uncertainties which have arisen in the handling of both supply and distribution. Formerly, each centralized ministry had its own mammoth administrations charged with procuring equipment and raw materials, and with distributing the products of its factories more or less according to the central plan. Now, each regional council has been ordered to set up two "main administrations," for supply and distribution, and each of these will have numerous subdivisions to serve its various industries.

Even more striking has been the move of the State Planning Committee (Gosplan) in Moscow to take over the functions and staffs of the former ministries in the fields of supply and distribution. Instead of 30 marketing organizations existing under the former ministries, Gosplan was ordered to set up 17 new ones, and to turn over the local offices and warehouses to the economic councils. Last month Gosplan was instructed to organize central divisions for inter-republic deliveries.

There have been many complaints against the malfunctioning of supply under the new system. The Azerbaijan Economic Council has raised its voice against the failure of Perm Province and the Georgian Republic to carry out their deliveries to it. The Irkutsk Economic Council has complained that 46 economic regions had fallen short in their deliveries to it of steel sheets and other products; the Irkutsk Heavy Machine Plant had piled up 3,000,000 rubles' worth of incomplete equipment because of the failure of plants in Kharkov, Cheliabinsk, Stalino and elsewhere to deliver components according to the plan.

Last December, a deputy from Estonia raised an especially plaintive note: "The U.S.S.R. Ministry of Agriculture used to order and allocate spare parts for equipment; true, not in sufficient quantity; but now one does not even know where to obtain these goods. Several economic councils of the Russian Republic that used to send us these goods report that they are reducing their output and can no longer deliver anything to us." In general, the response to this crucial problem has been to re-centralize the control of supply and distribution within the industrial and distribution administrations of the State Planning Committee.

Subject to the final decisions of the Council of Ministers of the U.S.S.R. (and the Party Presidium), the State Planning Committee has taken on the main functions of top industrial management. By July 1957, it had 23 industrial departments, roughly corresponding to the ministries which had been abolished, and since then it has presumably added to this number, and to its staff. The central ministries of Medium Machine Building, Chemical Industry and Electric Power Stations, among others, have survived, but the ministries of Aircraft Industry, Defense Industry, Radio-Engineering Industry and Shipbuilding Industry have been replaced by State Committees of similar names. Presumably, the State Committees deal with problems of research and development, and the operational control of the industries has been integrated into the structure of Gosplan.

From this reshuffling, Gosplan has emerged with enormous powers, not unlike the All-Union Council of National Economy of the early 1930s. Its chief, I. I. Kuzmin, is one of the six vice-chairmen of the Council of Ministers and seven of its vice-chairmen and directors of departments also have ministerial rank. What is more important, it exercises (subject to higher control) the main authority in making decisions on new investment, in managing the supply and distribution system, and, with the Ministry of Finance, in drawing up both the national and republic budgets. It also exercises a direct supervision over the fulfillment of the plan, both by receiving constant reports and by sending out its own teams of inspectors.

The new regional councils are expected to exercise more responsibility in making full use of local resources, in supervising local enterprises more closely, in making more rapid decisions--but all within the over-all plan laid down at the center. They have a little more elbow room and more responsibilities. But the plans, drawn up by the regional councils and integrated by the republic Gosplans, undergo final decision in Moscow. Aside from the day-to-day control now exercised by the industrial divisions of Gosplan instead of by the former ministries, the regional councils are also under constant supervision by the executive and Party committees both of the provinces and the republics. The success or failure of the regional councils is judged on the basis of their record in meeting the national production plans, not by their local popularity. "Decentralization" is a misnomer. There has been a devolution of decision-making functions to strong regional agencies, but all important decisions are still made in the center and are now coördinated through an expanded super-ministry, Gosplan.


A parallel transformation is being carried out in the management of collectivized agriculture. The proposal to eliminate many or most of the Machine-Tractor Stations was first presented by Khrushchev in January of this year at an agricultural conference at Minsk. It was implemented on April 20 by a joint decree of the Central Committee of the Party and the Council of Ministers. This latest reform means that in many regions of the Soviet Union the state-owned Machine-Tractor Stations are transferring most of their machinery and their machine-operators and a part of their repair equipment to those collective farms which are able and willing to buy them. The basic aim is to do away with a situation in which "the field has two masters"--the collective farm and the M.T.S. The argument is that the collectives, having grown stronger in management and resources since the reforms of 1953 and 1955, will now make better use of the equipment than was possible when they had to "coördinate" with the M.T.S. to get their plowing and harvesting done. This, Khrushchev believes, will lead to an increase in the productivity of land and labor and thus "overtake America."

The discussions of the failings of the M.T.S. system have thrown a clear light on many disadvantages of Soviet agriculture. The M.T.S. have not found it to their interest to carry out deep plowing of long-fallow or unused lands, since they were paid according to the amount of "soft plowing" completed. Even when not in use for plowing or harvesting, their machines were often hoarded and were seldom made available to the collective farms for other productive purposes. On the other hand, an M.T.S. had to take whatever assortment of machines was assigned to it by "the center," as in the case of the useless cabbage-pickers and potato-diggers assigned to the Crimea. Between 1954 and 1957 more than 1,200,000 mechanics were trained at a cost to the Government of over nine billion rubles, but sample surveys showed that only a small proportion were subsequently employed at their new skills.

The basis for transferring the farm machinery to the collectives had been prepared by the consolidation of many collective farms into larger units, which Khruschev pressed for in 1949-51. Between 1949 and 1957, according to Khrushchev's speech of March 27, the average size of collectives, measured in hectares of plow-land, had risen from 557 to 1,954; the average monetary income had increased from 111,000 to 1,247,000 rubles; and the number of collectives had declined from 250,000 to 78,000. In some regions of very large collective farms, as in the Kuban and in Stavropol province, the experiment of turning over the M.T.S. equipment had, it now appears, been tried out successfully during 1957. In such regions the change will probably work out well; in others, made up of small and scattered collectives, it may be long delayed and have little benefit.

One of the effects of the change is to encourage the absorption of small and weak collectives into their larger neighbors. Many instances of this are being cited in the Soviet press, without making it clear how the two unequal partners to the fusion may feel about it. One manager felt that ". . . there is no need to maintain the M.T.S. for several years, even with reduced staffs, just to serve the weak farms; these collective farms should be advised to merge with large, economically strong farms." On the other hand, in Khabarovsk Province there is no one zone or district in which all the collectives can dispense with the services of the M.T.S. And in the Georgian Republic, the industrial crops, the most valuable ones, are still carried on intensively by hand labor and will benefit least from the sale of the M.T.S. machinery.

One further reason for the change was mentioned casually by Khrushchev in his speech of March 27. The grain and other products by which the collectives pay the M.T.S. for their services have recently been costing the Government more than its direct purchases from the collectives. In addition, the Government will benefit to the tune of some 20 billion rubles through payments to be made by the collectives for the M.T.S. equipment. By comparison, in 1957 the collectives set aside some 16 billion rubles in their "indivisible funds" (out of a total cash income of 94 billion rubles) to pay for all types of improvements, such as new buildings, purchases of equipment, livestock, and so forth.

Many of the collectives are planning to set up small repair stations of their own, but the main reliance for this service will be placed on the Repair and Technical Stations (R.T.S.), which will, where necessary, continue to supply tractor and harvesting services to those collectives which cannot buy the former M.T.S. equipment. But they are to do so on a cost-accounting basis, which will save money for the Government but raise the cost to the collectives. The R.T.S. are also to provide repair services through mobile units as well as at the station, and they are to check and report to the Government on the condition of the collectives' equipment. After much dispute over what agencies should provide spare parts, fuel, lubricants and other requirements for the collectives, it was decided in April that the R.T.S. should supply these materials and also fertilizers, insecticides and other production needs. In addition to the control exercised by the R.T.S., the district soviets are to establish a system of inspectors to watch over and "guide" the work of the collectives, in place of the control previously exercised by the M.T.S.

While there have been many published reports boasting of the smooth transfer of the M.T.S. machinery to the collectives, some new problems have come to light. In many places, the tractor drivers of the M.T.S. would have received a lower wage than before, if paid as members of the collective on the basis of workdays performed; the Government has intervened to insist that the collectives provide them with a "guaranteed minimum" equal to their former wages. In some villages the new equipment has been abused or fallen in disrepair. Many collectives have also insisted on buying only the newer machines, and in at least one district they were ordered to take machines they did not want. Large numbers of houses must be built to accommodate the farm experts, veterinarians, mechanics and tractor drivers as they are transferred to the collectives. The cost of setting up even small repair stations in the collectives will be considerable, and for several years payments for the machinery will reduce sharply the amounts that would otherwise be available for improving farm production directly.

Whether the change will work out favorably for the economy as a whole will not be clear for some time. Its effect should be to strengthen further the productivity and management of the stronger collective farms--those which, in any case, provide most of the marketable crops. Like Stolypin, Khrushchev is "betting on the strong," only this time on the economically strong collective farms and on the tens of thousands of experienced Party administrators who have been sent out over the past three years to stiffen the collectives. The M.T.S. represented a steady, reliable channel of control and a sure source of foodstuff deliveries, but they have tended to inhibit the growth of productivity. Now, without releasing the collective farms from the system of centralized planning and centralized pricing, Khrushchev expects to raise farm production rapidly by placing the collectives under unified leadership at the local and district level.

From the discussions of the change-over have come several indications of further problems which worry Soviet leaders. Some have urged the establishment of a pyramid of district, provincial and national "collective-farm councils" which would represent the interests of the collective farmers at the various levels of the Soviet administration. A sharp rejoinder to these "Populist" echoes was given by one correspondent in Pravda. "Some comrades say that collective-farm councils will allegedly protect the rights of the collective farmers; but does or can anyone in our country infringe upon these rights?" Instead, the district collective-farm councils are to be heavily weighted with soviet, Party and administrative officials to watch over the work of the collectives.

For the time being, Khrushchev has rejected the proposal to pay uniform country-wide prices for collective farm deliveries. In order to avoid ruining the weaker collectives and also to force the stronger ones to contribute more to the state, differential prices will continue to be set for deliveries and purchases of farm products. On January 1 of this year the Soviet Government abandoned the collection of taxes in kind from the private gardenplots and private livestock of the collective farmers, at a cost to itself of three billion rubles, but it had previously raised to 14 percent the income tax on the collectives' net cash income (net of production costs and state deliveries). One proposal has been made that the Government should provide a stronger incentive to improved work by announcing its deliveries requirements for five years ahead, instead of one year. Another proposal, echoing an abortive reform of several years ago, has been to change the tax on the cash incomes of the collectives into a land tax, based on the area and quality of the arable land. Even though it would provide a strong stimulus to raise production, this proposal has been rejected as involving "great difficulties."


Both of Khrushchev's major gambits point in the same direction. Their purpose is to push operational decision-making downward, away from the congested bureaucratic maze of Moscow ministries. Khrushchev is betting on the accumulated experience, administrative judgment and material ambitions of tens of thousands of Party executives in the provinces, republics and enterprises, and even in the collective-farm managements, to take on-the-spot decisions in harmony with a detailed central plan. The central authority, as has happened repeatedly since Stalin's death, is increasing the size of the "carrot" and reducing the size and visibility of the "stick."

Khrushchev, who has had much practical experience away from the "center," appears confident that the machinery of industrial and agricultural production will respond favorably to these new methods of management. At the same time he has taken care to keep the basic levers of plan, investment, supervision and control in the hands of the central government. For this purpose, he has strengthened the control of the Party apparatus over the economy, while tightening his own control over the Party.

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  • PHILIP E. MOSELY, Director of Studies, Council on Foreign Relations; former Director of the Russian Institute, Columbia University; Adviser to the U.S. Delegation, Moscow Conference, 1943; European Advisory Committee, 1944-45; Potsdam Conference, 1945; and Council of Foreign Ministers, 1945-46
  • More By Philip E. Mosely