On July 1, 1957, a new set-up in the management of Russian industry caine into being. The need for &i change in the administration of industry reflected a deep conflict between the developing productive forces and the social relations of production in Stalinist Russia.
A number of factors incline to affect adversely the rate of growth of industrial output. First there is the population bottleneck.
A census taken on January 17, 1939, showed a population of 170.6 million. In 1940, with the annexation of Lithuania, Latvia, Estonia Western Ukraine. Belorussia and Moldavia, the population rose to 191.7 million. According to Stalin and Khrushchev the population of USSR grows by an average of some 3 million a year. In April 1956, it was officially estimated to be 200.2 million.  It is thus clear that the loss from the rise in deaths and decline in births during the war must have been something like 30 million.
The population not only rose very little between 1940 and 1956, but it also became older. The shortage is particularly felt in the age groups now reaching working age. The number of pupils in grades 1 to 7 of Soviet general schools in the 1940 school year was 32,140,000, while in the 1955-6 school year it was only 22,900,000. 
Some other factors also affect available manpower. Whereas in 1929 women made up 27 per cent of the total number of workers and employees employed in the economy, and this percentage rose to 38 on January 1, 1940. and continued to rise till it was 47 per cent on October 1. 1950 , it later not only stabilised itself, but has even started showing a tendency to fall, dropping to 45 per cent on October 1, 1955. 
In addition, working hours – raised from 7 to 8 (for six days a week) in 1940 – are pledged to be reduced again, so that the standard working week will gradually fall to 40 hours.
Above all, the increased demand for labour in agriculture will affect manpower supply to industry. Ever since the beginning of the Five-Year Plans, the tempo of Russia’s industrial growth has depended largely on a flow of labour from the countryside to the towns. The number of people in the countryside declined by some 7.5 million in the 30 years 1926-1956. This number, together with the natural increase of population. was syphoned off into the towns, the town population increasing in the same thirty years by 60.7 million.
Since 1953, however, the Government’s agricultural programmes have resulted in a sizeable net increase in agricultural manpower. A second impediment to industrial growth is the diversion of capital resources from industry.
Under Stalin, a greater portion of capital investment went into industry than was usual in the United States, for instance, at a similar stage of its development. Thus it was estimated that in the United States, of the total capital invested in the years 1880- 1912, industry took 19.1 per cent, whereas in Russia the share of industry was: in 1928/29-1932, 41.0 per cent; 1933-7, 37.1 per cent: 1948, 49.4 per cent.  Moreover, owing to the more youthful composition of Russian industrial capital to date, and the consequently smaller requirements for replacements, the ratio of net to gross investment has been higher in Russian than American industry (75-88 per cent in Russia as against 50-60 per cent in the US in the same years taken above).  Another factor regarding capital investment that gingered up industrial growth was the fact that a larger ~rtion of capital invested in industry was directed to the means of production industries, which are by nature mote conducive to growth: a machine-making factory makes machines which can make machines; a textile factory makes cloth that “only” satisfies the needs of the people, without directly affecting production. (Thus, during the period 1929-1941, of the 200 milliard roubles approximately – in current prices – invested in Russian industry, about 170 milliard, or 85 per cent, went into means of production industries. )
Now these growth-inducing factors in the pattern of capital investment are to be seriously weakened. In the first place. a much greater proportion of national resources is being devoted to agriculture, housing and armaments. Since 1953, ambitious programmes of agricultural expansion have absorbed tremendous investments. The size of the drive to provide modern equipment for agriculture may be gauged from the fact that the number of combine harvesters promised for 1956-60 is to significantly exceed the total number received by Soviet agriculture up to 1956. The doubling of the rate of housing construction in the Sixth Five-Year Plan also means a large diversion Of resources from industrial expansion. Again, it is obvious that the ultra-modern armaments production – the H-bomb, ICBM, Sputnik, etc. – demand quite a large diversion of resources; however, there is no data available to estimate the size of this diversion.
In addition, more capital resources will have to be and actually are being directed to transport. This branch of the national economy was sadly neglected for many years. The emphasis in the past has been on a minimum allocation of new resources to transport, which sharply intensified the use of existing equipment. Now, however, the discrepancy between the level achieved by industry and that of the transport system turns the latter into a bottleneck and greater investments in transport are most necessary.
Furthermore, as the average age of Soviet enterprises rises, a greater portion of capital investment must be devoted to replacements, that is, to keeping present equipment intact instead of increasing the total quantity.
Moreover, an increasing portion of capital goods is intended for export to India, Egypt and elsewhere.
Again, the Kremlin is compelled-under social and economic pressure from below and in order to persuade the people to work better-to devote a slightly larger portion of the capital invested in industry to the consumer goods industries than hitherto. These industries are of course less growth-inducing than heavy industries.
During Stalin’s industrial revolution, practically the whole of industry was built up from scratch. So long as Russia could copy the best techniques of the more industrialised countries, the productivity of labour could take great strides. Now this premium on backwardness fails to accrue to the same extent as in the past. Relatively less remains to be borrowed. Russian industry is backward no more, hence the gain in labour productivity must be on the whole more gradual than in the past.
There are a number of factors working in the opposite direction to those mentioned above, and these make for a rise in the rate. of industrial growth.
First, Russia’s labour force is much more highly skilled than it was during the industrial revolution. At that time the extremely rapid growth of the industrial working class was accomplished by absorbing into industry large numbers of peasants who were unskilled in industrial techniques and unaccustomed to a factory regime. The move from job to job is, and will continue to be, much less common than in the past.
Secondly, the number of technicians and scientists is increasing and their quality improving. It presupposes the better equipment of industry and improved use of it.
Thirdly, a higher standard of living is sure to bring in its wake more efficient labour power.
In face of the many difficulties mentioned above, the Russian authorities find it necessary to emphasise intensification-raising the output per worker.
Up to now, the productivity of labour in Russian industry has lagged far behind the technical level of its equipment. Being new and built in very large units, it has equipment which does not fall short of the level of American industry, and is certainly far more advanced than that of the countries of Western Europe. However, this does not show up in comparative labour productivity. Before the war comparisons of labour productivity in Soviet Industry with those of other countries were quite common. Thus in 1937 a special committee of Gosplan calculated the relative productivity of the USSR, US, Germany and Britain and came to the conclusion that the average productivity of all industries in the USSR was 40.5 per cent of that of Germany,. and 103.1 per cent of that of Britain.  These calculations probably somewhat exaggerate the achievements of Soviet industry compared with that of Germany and Britain. However they are on the whole supported by the excellent study – the only one available – comparing labour productivity in Russian and US industry, namely W. Galenson’s Labour Productivity in Soviet and American Industry (New York 1955). According to him Soviet labour productivity in industry in 1937-9 was about 40 per cent of that of America at the time; he goes on to say that between the pre-war years and 1950 – the last year with which he deals – the gap did not diminish. 
At the end of 1957 the number of industrial workers in the USSR was 12 per cent larger than in the USA. At the same time the number of engineers employed in Russian industry was double that in the United States. Nevertheless, even according to Soviet estimates, the product turned out annually by industry in USSR in 1956 was only half that in the USA. [9a]
.What has been dealt with so far is based on productivity per man-year. If output per man-hour were taken rather than output per man-year, a corrective factor of at least 16 per cent in favour of the United States would be in order because of the prolongation of the working week in Russia since the war.
Over the whole Plan era, however, the rate of growth of labour productivity in Russian industry has markedly surpassed that in the US. Thus, according to the calculations of Donald Hodgman, which do not incline to an underestimation of Soviet achievements, during the years 1928-40, man-hour productivity of the Soviet industrial worker increased at an average annual percentage rate of 4.4. This may be compared to the 4.2 average annual percentage rate of increase in man-hour productivity in American manufacturing (excluding mining) for the period 1919 to 1939 (indicated in Solomon Fabricant’s study Employment in Manufacturing 1899-1939, New York 1942, p.331). Over the longer period 1899 to 1939 the annual average percentage rate of increase in man-hour productivity in American manufacturing was only 2.9. 
As a result of the quicker rise in labour productivity in Russian than US industry in these years, the gap between the two countries narrowed. Even a productivity of 40 per cent of. the US level is no mean achievement when we remember that in 1913 the productivity of labour in Russian industry was estimated to be only 25 per cent of the American. 
While in a generation the gap between labour productivity in American and Russian industry was narrowed from 75 to 60 per cent, the gap in the level of industrial output was narrowed even more, because the number of industrial workers grew much quicker in Russia than in the United States.
The number of workers and employees in Russian industry grew from 3.8 million in 1928 to 17.4 million in 1955 , or some 4½ times. As against this the number of industrial workers in the US rose only by a third during the same period. The Russian industrial labour force in 1928 was about a third of the American; in 1955 it was slightly larger than the American.
The tremendous increase in the number of workers in Russia explains the fact that the rate of growth of industrial production has been considerably greater in Russia than in the United States.
Increased output of selected items in Russia and USA,
However, with the increasing difficulties being encountered in the recruitment of labour for industry, this compensating factor disappears and the Kremlin has to rely on raising the productivity of labour in industry if it wishes to close the gap between the level of industry in America and Russia.
The urgency to do so is aggravated by the fact that in absolute terms the gap between the output of industry in the United States and Russia has hardly narrowed throughout the last generation, as can be seen from the following table:
Absolute growth of output of some important products
Pig iron (million tons)
Electricity (milliard kwh)
Khrushchev is set on eliminating the lag in labour productivity in Russian industry. A chief item in his inventory must be the improvement of industrial management. However, before dealing with the recent changes in this sphere, we shall have to deal with the administrative set-up in industry before July 1, 1957.
The organisational structure of Soviet industry under Stalin was very hierarchical and centralised. Beginning at the lowest level, it had the following rungs: the brigade; shop, department (comprising several shops), firm, trust, chief subdivision (glavk), Ministry, Economic Council attached to the Council of Ministers of the Soviet Union. and finally the Council of Ministers.
In each shop there were several brigades, a number of which worked during each shift, each led by a brigadier. He took part in production alongside the other members of his brigade, but was in charge and set the pace for the, brigade. Like all other executives, he was appointed from above, by the department superintendent. Foremen were selected from among the brigadiers.
Above the brigadier was a junior shop foreman, a senior shift foreman, and iii large shops a separate senior foreman who was in charge of all the shifts in the shop. All the orders of the management were transmitted to the workers through him : he had the right to hire and fire (with the approval of the department superintendent), to impose fines on workers and distribute premiums within designated limits, and to rate workers’ skill for the determination of appropriate wage scales.  In the words of a Soviet commentator: “The foreman is the junior commander of production, the direct organiser of production processes, and the full master of his section.” 
Above the foreman stood the department superintendent. He worked out the annual plan of the department, set the labour norms and piece-rates within over-all designated limits, and was responsible for the smooth running of the department as a whole. The department was considered an independent entity managed on a business-accounting (khozrashchet) basis. The superintendents of major departments were considered important enough to be nominated or dismissed by the Minister himself.
Above the department superintendent stood the chief engineer, who was “in charge of production, of the planning of flow between departments, of working out norms and standards and of making improvements, and of distributing materials, equipment, and the firm’s labour force.” 
The commander-in-chief of the whole factory was the manager (or director), whose orders all personnel had to obey, and who had final rights of hiring and firing.
The manager was assisted by a number of staff sections: planning-production, technical, labour and wages, finance and bookkeeping. technical and quality control, chief mechanic’s, procurement and marketing.
There were also auxiliary units under the manager’s control, including transport, housing, children’s nurseries, etc.
The manager of the firm was appointed or dismissed by the chief of the glavk or the Minister.
Factories engaged in the production of the same goods and located in the same area were under the control of a glavk either directly or through an intermediary – in heavy industry a trust, in light an industrial combine. The glavk carried out the direct and daily management of the factories under it. It elaborated technological plans and organisational set-up, worked out the details of production, capital development and finance of each firm, determined their procurement and material supply plans, fixed the prices of the finished products and made the final decision on norms of output and wage scales. 
Intertwined with these chains Of administration in industry were a number of different chains which criss-crossed at different levels, thus making the set-up much more discordant and irrational, and which also caused a series of tensions in the factory.
Overlapping the administration of industry described above there were a number of systems of control. There were first of all what was usually called the “Soviet apparatus”, secondly the secret police, and thirdly the Party. They will be dealt with in that order.
The Soviet apparatus included, besides the Ministry administering the particular industry, agencies whose primary task was to check the performance of other ministries: for example, the Ministry of Finance, the District Prosecutors, the State Planning Commission, the State Arbitration Board, the Ministry of State Control.
The Finance Ministry controlled economic activity through a Control and Inspection Hoard, which was a highly centralised organisation with a network of inspectors who, operating from special “control stations, had the right unexpectedly to audit the books of any industrial plant and report all deficiencies found in the books to the District Prosecutor.
The District Prosecutor commanded a network of agents who, acting independently of any other government agency, saw to it that managements observed the laws, government decisions and orders.
The State Planning Commission Dot oily drew up economic plans, but controlled the planning operations of the individual plants.
The State Arbitration Board was empowered to iron out disagreements emerging from contracts between different plants, and to supervise the fulfilment of business contracts.
The Ministry of State Control functioned through a complex hierarchy of Controllers-General (one for each glavk), under whom there were senior controllers, controllers and junior controllers. The powers and functions of this Ministry were very wide, and it had supervisors in all the “more important plants, railroads, storage warehouses, military districts, naval units, ports, and certain districts of the country that have special economic importance.” 
The Secret Police had its agents in every rung of the economic administration. Each factory of any size had its “special section”, a branch of the political police. This “special section” was not responsible to the plant manager, the administration of the glavk or the appropriate industrial Ministry, but only to the Ministry of Internal Affairs. The “special section” maintained a dossier on every worker and had its network of informers scattered throughout the factory.
The last, but by no means least, organ of control over industry was the Party. Managers of industrial enterprises came under the scrutiny of the Party Central Committee apparatus before their appointment. And, after appointment, Party control over the manager. as well as the rest of the factory personnel, did not cease for a moment. Id factories of some size, there was a full-time Party secretary appointed by the town, regional. territorial or Republican Party Committees, who was responsible not to the management of the plant, but to his superiors in the Party hierarchy. The Party organisations in the factory had the “right of supervision over the work of the administration.  Their wide functions. were largely intertwined with those of the management.
The factory Party secretary had the power to compel the manager to change his decisions, including the annual production pup of the plant or of an individual shop. He could appoint technical brigades of specialists, whose suggestions to the manager were irrevocable orders. He could also compel the manager to change his subordinate personnel.
The number of bodies controlling the individual firm was so great, and their inspections so frequent that they sometimes reached ridiculous proportions. Thus, for instance, manager N. Egorov complained that in five months of 1940 his plant was inspected once by a brigade of the Commissariat (later renamed Ministry), four times by representatives of the glavk, three times by the representatives of the Commission of State Control. 
The control apparatus under discussion was additional to the controllers appointed by the director himself. These were also very numerous, making up, we are informed, as many as 10-20 per cent of the productive workers employed in many machine-building enterprises.  In 1957 Khrushchev referred to the inflated adminpistration of control in the following terms:
At present there are many controllers over the works manager and foreman ... At the enterprises there is a vast network of agents from various Ministries and departments which is not always justified. In addition to controllers from departments of technical control, certain clients who have given orders maintain a staff of their own inspectors at the enterprises ... at the enterprises of the automobile and tractor industries, of agricultural and transport machine building alone, about 50,000 controllers and inspectors are employed. For instance, at the Michurin gear-wheel works and at the No. 1 bearing works, these controllers and inspectors are equivalent to about 20 per cent of the operational staff of workers. 
To understand the working of the administration of Russian industry, a study of its formal structure, the chains of command directing it, is insufficient. One must also study the informal relations, the actual internal workings which, as will be seen, are far from constituting the streamlined structure usually described by the Stalinists and also by most of their critics.
One of the worst bottlenecks that disturbs the smooth, harmonious running of the administration of industry is departmentalism Ι the trend towards the carve-up of the economy into tightly closed compartments. Each Ministry, each glavk, and even each factory, tends to become a separate empire. Most factories make their own hand tools, large factories have their own small foundries.
“There was a time when the war forced each factory to make everything for itself – nuts, bolts, angle-bars and other small components. But why must I make an angle-bar now? At a specialised factory it would cost 20 kopeks, but it costs me 20 roubles?” complained Glebovsky, Director of the Urals Engineering Works. 
In similar vein Bulganin complained:
In the specialised plants making metal articles the cost of production of a bolt 12 by 60 mm. in size amounts to 10 kopeks, whereas the cost of production of the same bolt in the workshops run by the consumer amounts to 1 rouble 40 kopeks, that is, 14 times dearer. While a specialised plant needs 1,100 kilograms of metal to make 1 ton of bolts, a non-specialised plant consumes 2,000 kilograms. 
The reason for this trend towards self-sufficiency is the fact that it is easier to order “your own” factory about, so the Minister prefers not to depend on supplies from factories of other Ministries. The same principle applies to the head of the glavk or the individual manager of a factory.
What dependence on supplies from other factories may mean was shown by one Demyanovich, chief engineer of a Stalingrad tractor factory. He lamented that there were 753 tractors worth 18 million roubles piled up in the yards of the factory because parts worth 100,000 roubles to be bought from other plants were missing. This led to a serious interruption of production. 
It is to avoid situations such a that factories, glavks and Ministries try as far as possible to produce all they need. Thus, for instance, the Commissariat of Medium Machine Building reported that in 1939, 98 per cent of the machine parts replaced in the enterprises of this commissariat were reproduced in tile enterprises themselves. 
Another result of this tendency to self-sufficiency is the practice of doing a large proportion of the maintenance work in the plant itself. Thus, a comparison of an American steel plant and a similar one in Russia (the former producing 1½ times as much as the latter) showed that the American plant had 298 people engaged in maintenance whereas the Soviet plant had 1,519 people. 
Even as regards electrical power supplies Ministries and glavks incline to self-sufficiency. Khrushchev pointed out:
In the power industry too departmental fragmentation has had an unfavourable effect in our country. Ministries and departments have, in a number of cases, insisted upon the building of smell independent power stations when this was often economically most unprofitable. At present (there are) many thousands of departmental power stations. These small departmental power stations are considerably less economical. While the ration of fuel consumption per kwh. at power stations of the Ministry of Electric Power Stations was 463 grms. in 1956; it was 680 grms. at the power stations of all other Ministries and departments – i.e., almost one and a half times as much. It has been calculated that as a result the excess consumption of fuel at departmental power stations was more than 13,000,000 tons of coal a year, compared with enterprises of the Ministry of Electric Power Stations. 
A further result of departmentalism is tremendous wastage on the unnecessary transportation of goods. To give an example:
The Ministry of Non-ferrous Metallurgy ships thousands of tons of pipes annually from the Urals to Kazakhstan. It is threaded at a plant there, then sent back to the Urals and other regions of the Soviet Union. Thus the pipe travels up to 8,000 kms. in both directions.
Threading is an “extremely simple operation”. 
Again, Khrushchev complained:
Some departments carry various articles and building materials for their enterprises over thousands of kilometres, while other departments are bringing back from these places similar materials and articles. Here is an example. Last year, the Ministry of the Construction of Metallurgical and Chemical Enterprises sent 20,000 sq.m. of prefabricated houses from Karelia to Krasnoyarsk Krai. A large number of prefabricated houses were also sent to Krasnoyarsk by the Ministry of Construction, from Kirov Oblast. At the same time, the Ministry of Timber Industry and the Ministry of the Construction of Petroleum Industry Enterprises sent some 170,000 sq.m. of prefabricated houses from the Krasnoyarsk Krai to other parts of the country ... This is all due to departmental chaos. Uneconomical transportation costs the State more than a few hundreds of millions of roubles every year. 
A multiplication of enterprises doing one and the same job in one and the same locality is also an inevitable result of departmentalism.
In Chelyabinsk region ... construction work is carried on by 182 building and assembly organisations of 25 Ministries and departments. In Sverdlovsk region it is done by 203 building and assembly organisations of 30 Ministries and departments, often working concurrently in one district or even one street. Things have come to a point where the construction of eight blocks of flats in Kuzbasskaya Street in Sverdlovsk has been entrusted to building organisations of seven different ministries and departments. Such a regional centre as Bielogorod has six building and seven specialised organisations of eight Ministries and departments, doing no more than 90 million roubles’ worth of construction work altogether ...” 
Among examples quoted by Pravda (April 15, 1957) was the case of a large quarry worked by eight small quarrying enterprises, each representing a different user Ministry, each seeking to ensure its own supplies; and two steamer fleets operated under two Ministries on the same river: one sailed empty in one direction, the other in the opposite direction.
Departmentalism also causes inflation of the material and equipment supply organisation of industrial and construction enterprises. Khrushchev pointed out:
Each Ministry and department has its own large sales and supply apparatus. The network of supply organisations is bulky and expensive. In industrial centres, as a rule, departments function parallelly with one another. In Leningrad, for instance, there are 123 supply organisations, in the Kharkov region 74, in the Novosibirsk region 76. The Ministries frequently organise several supply offices and agencies functioning parallelly with one another in one and the same town. The USSR Ministry of Construction, for instance, had 15 supply organisations in Moscow, nine in Leningrad, seven in Minsk, six in Novosibirsk. 
These inflated supply organisations do not, however, ensure the satisfaction of the needs of industry and construction:
Despite the existence of a large apparatus of departmental supply organisations, raw materials and supplies are often delivered to enterprises and construction sites with delays and not in complete sets. This impedes the work of enterprises and construction sites, disturbs the rhythm of work, and sometimes leads to standstills of workers and equipment, to the accumulation and freezing of considerable material values at some enterprises and to a shortage of them at others. The Ministries, being territorially separated from the enterprises, have only a poor knowledge of their needs and frequently do not take timely measures to cater for the demands of enterprises and construction sites. 
Departmentalism also leads to one Ministry’s ignoring of the urgent requests of other Ministries. Why should the Ministry of Tractors and Agricultural Machinery Industry heed the needs of the Ministry of Agriculture, or the Ministry of Sovkhozes, when it produces tractors? As Khrushchev tells us:
“Workers of agricultural bodies and machine builders are well aware that wheeled tractors have considerable advantages over crawler tractors in many kinds of work. The experience of several machine and tractor stations and of agriculture abroad shows that to achieve the best results, crawler tractors should account for some 10 per cent of the total tractor fleet; with wheeled tractors accounting for the other 90 per cent. To arrive at this proportion, the output of crawler tractors should be reduced by several tens of thousands in 1957, arid that of wheeled tractors increased accordingly. Such a move would produce the following advantages per tractor with the same engine capacity of 55 h.p.: 2.2 tons less metal will be spent; the tractor’s weight to h.p. ratio will be cut by 33.4 per cent; almost 30 per cent less non-ferrous metals and 50 per cent less labour will be needed, making it possible to increase tractor output with the same production facilities. The tractor’s production cost will drop by approximately 20 per cent and that of repairs and technical maintenance per hectare of field work by almost – 50 per cent ... Notwithstanding the tremendous economic advantage of such a replacement, the question was not settled in time because of departmental disputes between various Ministries. 
Extreme centralisation leads to much waste of time and energy on paper work. Khrushchev, in a report on agriculture delivered to the Plenum of the Central Committee, pointed out that while the output of agriculture had hardly risen since before the war, the volume of reporting by each kolkhoz had increased nearly eightfold.  The situation in industry is scarcely better. Machine-building factories have to submit information on 193 different forms, each form including hundreds of items. For example, the monthly report on machines used and in store lists 500 kinds of goods and calls for 3,500 figures. A monthly form on transactions with other plants accounts by itself for 18,000 pages of reporting annually, etc. etc.  In one electrical machinery plant, the introduction of any technical improvement required 78 signatures. 
In a speech to a miners’ conference in Stalino, Khrushchev stated:
Officials of the coal industry have a great passion for paper. For example, in seven months of 1956 the Chief of the coal glavk of Voroshilovgrad received 915 orders and 1516 telegrams and itself issued 190 orders, 1124 telegrams and 6375 letters. Special “order writers” are needed for this purpose! I am convinced that the person who signed these pages not only did not write them but did not even read them. After all it is simply impossible to read everything.
The Nikanor Mine of the Voroshilovgrad Coal Trust last year received 1800 orders and instructions ... Comrade Bukharenko, manager of the mine, states frankly that so many orders are received that they have simply stopped reading them and just send them on. Furthermore, this has become the main duty of the technical secretary. And this is “technical supervision”! 
With the extreme centralisation of administration, and the mountains of paper work, the number of administrative workers is naturally very large. Thus, for instance, the Georgian Oil Trust “has three oil fields and 12 offices to serve them. There is one official for every four or five employees. It is not surprising. therefore, that the administrative expenses alone for one ton of oil drilled by the Trust total 60 roubles, while in certain areas the full cost of drilling one ton of oil amounts to only 22 roubles.”  Again, in the Moldavian Fishing Industry Trust “there are 112 officials as against 163 workers at the fisheries, of which only 98 are employed in catching fish.” 
A Pravda editorial pointed out that in the Ministry of Building Materials 16,700 people, or 26 per cent of all administrative personnel are busy with accounts and records. In addition, other “employees, technicians and foremen are taken from work to complete all sorts of reports”. 
The organ of heavy industry, Industriya, compared two coal mines, the Pittsburgh Coal Company in Pennsylvania and the Lenin Mine of the Kizel Trust in the Urals. Production in the former was three times as great as in the latter. However, the Russian mine had 165 administrative and technical personnel, compared with 15 in the US mine, and there were 8 office workers in the US mine, compared with 67 employed in the Russian mine. The number of actual miners was only twice as big in the Russian mine as in the American. 
Again, Voprosy Ekonomiki compared the United States Steel Corporation mill in Pittsburgh with a similar Soviet mill (not mentioned by name) which was one of the largest, most recently built and smoothest running mills. While the output of the American mill was some 1½ times that of the Russian, the latter employed four times as large a managerial staff, and four times as many technicians. 
The directives issued are often quite absurd and totally unnecessary. Thus the above-quoted Pravda editorial states: “The Ministry of Lumber Industry of USSR distributed this year to the localities a voluminous work entitled Technical, Industrial and Financial Plan for Lumber Camps ... It demanded that lumber workers plan a year in advance rest periods for foaling mares’, ‘days-off and holidays for horses’, ‘idle-time of wagons for lack of good roads’, ‘the number of non-working horsedays’, ‘efficient horsedays’, etc.” 
With a top-heavy bureaucracy spreading out in many branches, bureaucratic fiat causes quite serious contradictions in the production plans of factories. A few examples will be quoted. It was reported that “the basic figures of the plan of Riga Plant (of electrical equipment) are not related to each other. Simple calculations show that the value of production under the various categories adds up to 118 per cent of the value of total output.” “In order to produce all the articles called for in the plan, the plant would need to increase its labour force by one-third” above the employment plan, and the productivity of workers would have to be increasing not by 8.4 per cent as specified in the Plan, but by 39.9 per cent! 
A report on the Leningrad Electrical Equipment Factory, one of the largest in the country said: “The factory is plagued by a substantial discrepancy between the production and financial plans ... the financial plan calls for an output valued at 13,200,000 roubles above the approved production programme.” 
Where the price-mechanism is efficient and rational, the managers of industry have a compass to help guide them in their activities. In capitalism based on private property the prices of materials, machinery, labour power and the finished products are elements determined by the play of market forces, to which the manager has to adapt his enterprise. In Russia all these are centrally determined factors, which can also be changed by this same bureaucracy. The result is that the factory director spends quite a large proportion of his time and energy on influencing the decision of the higher authorities; this being so, there is a persistent need to keep a tight hold over the manager, lest he influence these decisions too much.
However, if the prices decided by the central authorities were rational, i.e., clearly reflected the cost of production of different elements, there would be less place for bureaucratic pull on the part of the managers, and consequently less need to control the managers.
On the other hand, if there is no rational relation between prices, and the tie-in between the prices of different goods is faulty, the management of the factory is forced to revert to quite arbitrary decisions in its operations. A complex industrial economy, like that of Russia, needs a very exact price mechanism to help guide it. Without this, which acts as an automatic warning, its place is taken by the arbitrary warning of the higher bureaucrats.
The defectiveness of the price mechanism in Russia is shown quite clearly by the spasmodic rise and fall of prices and the absence of harmonious relations between them. Dr. Jasny has illustrated this very clearly. One of the examples he gives is this:
The development of the prices of timber and lumber during the Plan era was fantastically inconsistent. After a small decline in 1927-28, the lumber prices were raised by more than 100 per cent, effective April 1st, 1936. They remained unchanged, thereafter, for almost 13 years in spite of inflation, the extreme shortage of timber, and the cutting of forests far in excess of what was economically reasonable. The lumber prices were raised almost 3-fold, effective January 1st, 1949, to become about 7 times as high as in 1926-7.
Round timber, large quantities of which are used directly in construction in the USSR declined in price 14.7 per cent from 1926-27 to 1927-28 and then was raised only moderately in 1936. Timber prices were raised slightly again in 1944, but even after this they still were only moderately above prices of 1926-27. Then, to make up for all such arrears, timber prices were boosted in one stroke more than 4.5-told in 1949. Roughly the timber prices were close to 50 per cent of those of lumber (sawn timber) in 1926-27; in 1936 they became little more than 20 per cent of the latter; the percentage was raised to about 30 in 1944 and exceeded 40 in 1949.
The prices of railway ties, a simple timber product, showed yet another course: doubled in 1936 and again more than doubled in 1943. Again they were more than doubled in 1949, with the result that the prices effective January 1st, 1949, were almost 10- fold their 1927 level. 
In another book Jasny gives further examples of the lack of tie-in between the prices of competing goods or between the prices of raw materials and finished products: “In 1933,” he writes, “the price of Kerosene for technical purposes, f.o.b. destination, was raised about 10-fold, to a level about 45-fold that of good Donbass boiler coal, f.o.b. mine. In 1949, the same kerosene cost not quite six times as much as coal. There is no justification – there cannot even by any explanation – for such shifting ground. The varying rates between kerosene and coal prices are an extreme case, but the number of unjustified large shifts in price and rate relationships is almost infinite. In 1949, important types of rolled steel cost about 5-6 times as much as coal; in the second half of 1950 the relation was only about three to one.”  And again: “It was a great blunder to raise machinery prices 30-35 per cent in one year (1949) and then to eliminate the entire increase and more the next year (1950); or to raise railway freight rates on short distances much less than on long distances (rate revision of 1939) and to do exactly the opposite in the next revision (1949).” 
Again, according to A. Zverev, the Soviet Minister of Finance, during the years 1950-1955, the wholesale prices of capital goods were changed five times. There is no logical reason at all for this change to have taken place. By the end of 1955 the wholesale price index of capital goods was 39.6 per. cent below the 1949 level. Compared with the 1948 level 1955 prices for heavy industry products in general were 8-10 per cent lower, for the machine-building industry – 40 per cent lower, but for raw materials and fuels – 20-24 per cent higher. 
The price mechanism works so ineffectively that the following astonishing discrepancy could appear: while according to official prices, wages made up 10.9 per cent of total cost in heavy engineering according to the calculations made by a Soviet economist, Kronrod, of the real costs, the percentage was 39.2. . 10.9 or 39.2!
Kronrod argues that no consistent principle is applied in price-fixing. Sometimes “average-progressive cost” – i.e., the average costs at the more efficient factories – is taken as a basis, and a standard rate of profit of 3-5 per cent is added. In other cases, the price is fixed simply by adding a standard rate of profit to planned costs. As a result, of course, the prices paid for similar goods often differ considerably and there is no coherence and harmony between prices of different goods. 
Without a rational price system, no real economic rationality is possible. The bureaucratic fiat is therefore a necessity and this is one of the main causes for the multiplication of controls.
While it is quite obvious that the faultiness of the price mechanism is an impediment to the rational running of the economy, there are strong, conservative vested interests on the part, of the ruling class of state capitalism which seek to preserve it.
First of all, it is possible to gain great propaganda advantage from the inflation of prices: in the distorted prices-mirror, actual economic achievements, which are very considerable, look many times more inspiring.
Secondly, the real distribution of the social product between consumption on the one hand, and capital accumulation and armaments on the other, is shown to the advantage of the former and the disadvantage of the latter. Thus, “in 1949, for example, the prices of consumers’ goods were more than 25-fold those of 1926-27. Prices of producers’ goods, however, were little more than 3-fold this level, and even after a big boost in 1949 were still only 6.0-6.5 times as high as in 1926-27. Armaments, which belong among producers’ goods iii Soviet terminology, were in 1948 relatively cheaper even than civilian producers’ goods.”  The military budget, in consequences appears small. Thus, for instance, in 1940, on the eve of the Nazi invasion, the defence budget was only very slightly more than that devoted to social and cultural welfare (56.1 and 40.9 milliard roubles respectively), and in 1949, when the “cold war” was already raging fiercely, it was less; 79.2 as against 116.0 milliard. This is indeed bewildering.
The main explanation of this strange phenomenon lies in the extreme cheapness – artificially induced – of armaments. As a result of heavy turnover taxes on means of consumption and huge subsidies to heavy industries, especially armaments, the price relationships between the products of heavy industry and those of the rest of the economy is drastically distorted. The coal and steel-that go into the production of the machine tools which produce the armaments, the coal and steel that go directly into the production of armaments themselves, the transport of all these elements, etc., are heavily subsidised; Thus the prices of armaments are cumulatively reduced by the subsidy system. Insofar as turnover taxes make up about two-thirds of the prices of consumer goods. and as subsidies, directly and indirectly probably reduce the price of armaments to about one-third of the actual cost of their production. one should, to obtain a true picture, multiply their price by nine, and compare this figure with that of the total price of consumer goods (including social and cultural services.) Unless this is done, the picture remains quite out of touch with reality. For instance, the Plan for 1941 stipulated that the total price of the products of all defence industries would be 40,300 million roubles, while that of the textile industry, at 46,000 million roubles, would be higher.  Thirdly, the distorted price pattern covers up some of the privileges of the ruling class, by making the luxuries of the rich relatively much cheaper than the necessities of the poor. [A]
The distortion in the price mechanism is an expression of the tensions existing and the struggles going on between different sections of the bureaucracy, where every shift in the relation of forces leads to shifts in the relative prices of the goods which the different sections command. (Similarly under monopoly capitalism, prices are diverted from the costs of production under the pressure of monopolistic agglomerations of capital).
Lastly. where the state owns industry and where this is under one-man management, the whole state has to be headed by an omnipotent leader, whose fiat must lead to arbitrariness, including inter alia, arbitrariness in price fixing.
State ownership with workers’ power would demand for its rational operation an honest calculation of the social costs of production. State capitalism is torn by inherent irrationalities.
Lacking a price-criterion for the success of a factory, the higher authorities place all their emphasis on the physical volume of output. D. Granick, a student of industrial management in USSR wrote: “As early as 1936, the Government tried to reduce somewhat this stress on quantity. The Council of Commissars and the Central Executive Committee of the USSR issued a joint proclamation establishing a new criterion as the main one to be used for evaluating the success of each industrial firm. This new criterion was the output of those finished and marketable products which properly met the plan’s quality and assortment requirements. It was intended to take priority over the former criterion of ‘value of product’ – which included unfinished goods and entirely ignored assortment and quality. The shift in criteria was ordered as of October 1, 1936, for all industrial firms. But the new index never caught on ... As late as 1944, premiums given to engineering and managerial personnel were based solely upon the index of production-quantity, and not at all on quality, cost, or assortment standards.”  The situation has not changed since then. If the manager of a large mine doubles his salary by fulfilling his production plan, and earns an additional 10 per cent for each 1 per cent overfulfilment  (corresponding figures for a chemical plant are 175 and 8 per cent) he will undoubtedly emphasise quantity output regardless of the great wastage this might cause.
Bulganin. explaining why Russian agricultural machinery weighs more than similar machinery produced elsewhere (for instance, the diesel tractor Belarus weighs three tons, whereas the similar British Fordson-Major 1951 model weighs only two tons) said:
The present method of planning and assessing output solely by weight does not stimulate metallurgical workers to produce new, economical rolled sections. The consumer-ministries, and the building ministries in particular, likewise display no interest in getting rational rolled sections, because the manufacture and assembly of steel structures are planned and paid for also by the ton, that is, the greater the weight of the metal the heavier the structure, and therefore the mere “profitable” for them. 
For the same reason, it is not in the interests of factory managers to produce small items needed by other factories, which is a factor compelling the latter, willy nilly, to become more and more self-sufficient: this is one of the secrets of departmentalism. so bitterly complained of by Khrushchev.
The emphasis on volume of output also encourages the manager to give priority to quantity to the neglect of quality. As a result shoddy goods are common. Thus, of the output of the Stalingrad Tractor Plant of DT-54 tractors in the first nine months of 1956, 28 per cent were rejected by the buying organisations as defective. “Losses from faulty output in the plants of Gorky in the first nine months of 1956 amounted to 44.000.000 roubles, which a is twice as much as the city’s enterprises saved in the same period by lowering costs of production.” 
For the same reason maintenance is neglected. As delay in maintenance does not necessarily affect production considerably or immediately, any factory manager finding himself in a tight spot will postpone such work. It is true that one of the consequences of delay in repairs is that equipment is worn out more quickly and in the end more maintenance work is required than would otherwise have been the case, a state of affairs suggested by a report that around 1950 over 12 per cent of all industrial equipment under- went capital overhaul annually, about 12 per cent underwent medium-scale repairs, and 100 per cent minor repairs. But as all major equipment is replaced by Ministry of State budget grants, the manager does not consider this a cost to his firm. (By the way, the fact that the turnover of managers in one and the same job is quite frequent – see below – means that there is a tendency to neglect repairs even more. Why should a manager be worried about the wear and tear of equipment the consequences of which not he, but his heirs, will have to face?)
A. See above.
1. The National Economy of USSR. Statistical Collection, Russian, Moscow 1956, p.17.
3. ibid., p.234.
4. ibid., p.191.
5. M.N. Kaplan, Capital Formation and Allocation, in A. Bergson, editor, Soviet Economic Growth, Evanston 1953, pp.52-4.
6. ibid., pp.43, 45.
7. E.Y. Loksbin, An Outline of the History of the industry of USSR, Russian, Moscow 1956, p.276.
8. Ia. Ioffe, USSR and the Capitalist Countries Russian, Moscow 1939, pp.75-80.
9. W. Galenson, Labour Productivity in Soviet and American Industry, New York, pp.244-5.
9a. A. Kats, A comparison of the USSR Industrial Labour Productivity Levels with those of the Principal Capitalist Countries, Sotsialisticheskii Trud, January 1958, pp.42-55.
10. D.R. Hodgman, Soviet Industrial Production, Cambridge (Mass.) 1954, pp.116-7.
11. I. Kuzminov, The Stakhanov Movement, the Highest Stage of Socialist Competition, Russian, Moscow 1940, pp.184-8.
12. The National Economy of USSR, op cit., p.190.
13. Calculated from Problems of Socialist Economy, Russian, Moscow 1956, pp.5-6 and W.S. and E.S. Woytinsky, World Population and Production, New York 1953, pp.870, 996, 1117, 1127.
15. I.I. Evtikhiev and V.A. Vlasov, The Administrative Law of USSR, Russian, Moscow, 1956, pp.298-300.
16. Decision of the Council of People’s Commissars and the CC of the Party of May 27, 1940; Directives of the Communist Party of the Soviet Union and the Soviet Government on Economic Problems, Russian, Vol.II, Moscow 1957, p.634.
17. A. Liapin, On Bolshevik Principles of Economic Work, Bolshevik, No.15-16, 1940, p.84.
18. D. Granick, Management of the Industrial Firm in the USSR, New York 1954, p.33.
19. S.S. Studenikin, Soviet Administrative Law, Russian, Moscow 1950, p.84.
20. State Control, The Great Soviet Encyclopaedia, Vol.XII, Moscow 1952. pp.321-2.
21. Resolutions of the 18th Congress of the CPSU(B), Russian, Moscow 1939, pp.55-6.
22. Pravda, 26 September 1940.
23. V.P. Diachenko et al., editors, Problems of Raising Labour Productivity in the Industry of USSR, Russian, Moscow 1955, p.19.
24. Pravda, 8 May 1957.
25. Novy Mir, No.7, 1955, p.9.
26. N. Bulganin, Tasks of Further Development of Industry, Technical Progress and Better Organisation of Production, Moscow 1955, p.35.
27. Pravda, 27 October 1940.
28. B. Sukharevski, Problems of the Reproduction of Fixed Capital in Industry, Problemy Ekonomiki, 1940, No.11-12, p.167.
29. S. Kheinman, On Surplus Labour Power and the Productivity of Labour, Problemy Ekonomiki, 1940, No.11-12, pp.103-18.
30. Pravda, 8 May 1957.
31. Pravda, 2 November 1955.
32. Pravda, 8 May 1957.
33. N.S. Khrushchev, Reorganisation of Management of Industry and Construction in the USSR, Pravda, 30 March 1957.
37. Pravda, 15 September 1953.
38. Bukhgalterskii Uchet, 1954, No, 6. pp.6-13.
39. Pravda, 1 January 1955.
40. Pravda, 18 August 1955.
41. Pravda, 13 August 1954.
42. Pravda, 6 December 1954.
43. Pravda, 13 August 1954.
44. Industria, 18 July 1940.
45. Voprosy Ekonomiki, 1936, No.11-12. p.109.
46. Pravda, 13 August 1954.
47. Pravda, 5 July 1956.
48. Pravda, 5 October 1954.
49. N. Jasny, Soviet Prices of Producers’ Goods, Stanford 1952, pp.83-4.
50. N. Jasny, The Soviet Price System, Stanford 1951, pp.9-10.
51. ibid., p.10.
52. A. Zverev, The Budget of the USSR for 1956, Planovoe Khoziaistvo, 1956, No.1.
53. Ia. Kronrod, Foundations of Economic Accounting, Russian, Moscow 1956, p.186.
54. ibid., pp.161-4.
55. N. Jasny, The Soviet Economy during the Plan Era, Stanford 1951, p.9.
56. These figures are taken from State Plan of Development of the National Economy of USSR for 1941, 17 January 1941, Russian, no date or place of publication given, photographic copy by the Universal Press for the American Council of Learned Societies, New York 1950, p.11.
57. Granick, op. cit., pp.153-4.
58. A. Vikanteev, Essays on Soviet Economic Development in the Fourth Five-Year Plan, Russian, Moscow 1952, p.175.
59. Bulganin, op. cit., p.21.
60. Pravda, 7 December 1956.
61. A. Arakelian, Utilisation of Fixed Industrial Capital in USSR, Russian, Moscow 1950, p.81.
Last updated on 3.9.2002