Courtesy Reuters

Economic Revolution in the Soviet Union

On the eve of the Fiftieth Anniversary of the Communist Revolution, the Russians have embarked on yet another economic revolution. With hardly a word about ideological purity, Premier Alexei Kosygin has announced that by 1968 profits, sales and rate of return on investment will replace fulfillment of quotas as the main standards of success for every Soviet firm. Moreover, Soviet managers will have to pay interest or capital charges for the capital they use. Profits will be divided up in a form of profit-sharing, and some enterprises will even have to pay rent. The economic reforms are matched in their significance, according to one Russian economist, A. Birman, only by the transition to N.E.P. in 1921 and the launching of the Five Year Plans in 1929-32. Clearly what the Soviets are currently attempting amounts to a repudiation of formerly sacred doctrines.

Why have the Russians picked this juncture to make such basic structural changes? It is not an impetuous action. The call for reform originated with Professor Evsei Liberman in September 1962.[i] This was followed by more than three to four years of active debate and about two years of actual experimentation. During this period the majority of Russian economists came to acknowledge that there was a need for a drastic overhaul. They were obviously shocked when they saw their rate of economic growth fall badly during their Seven Year Plan from 1959 to '65. Most observers came to realize that a long-run upturn in the growth rate would depend on the resolution of some basic underlying problems. What was needed was improvement of day-to-day operating procedures as well as reform of the process by which longer-run changes were made. All of this would require a more productive use of the country's capital and the stimulation of innovation.

By the early 1960s, the Soviet economy had become a very complicated mechanism and was in serious danger of self-strangulation. The central planners were finding it harder and harder to make efficient decisions without

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