In setting production plans for their enterprises “glavki take as their point of departure primarily the level of production already achieved.” (Stroitelnaya gazeta, 27 July 1955, p.2) Here is an example. The Kornevskii Silicate Brick Plant succeeded in 1954 in shortening the autoclave baking cycle to 9.8 hours, while the industry average was 12.4 hours, in 1955 they set its plan at 9.7 hours. Having run into trouble getting enough raw materials, the enterprise failed to fulfil its plan in the first quarter and fell among the lagging enterprises, even though it was producing more per unit of equipment than other silicate plants which had fulfilled their plans.” 
Hence, to protect himself from pressure from above, the factory manager tends to press for smaller annual tasks, and underestimates the productive capacity of the plant. As the bead of the Planning Sector of one firm expressed it: “Why should I go in for charity and advise (the higher bodies) ... of the productive possibilities of the plant?” 
As plan targets are distributed between factories mainly on the basis of results that have already been achieved, factories which are working badly quite often will get low plan targets, while a greater burden will be placed on the more efficient plants. As overfulfilment carries premiums for the manager, it is quite natural for him to conceal the productive capacity of the factory.
This particularly affects technical advance. If a factory proposes technical improvements, the cost reduction anticipated does not go to the factory, but is included henceforth in the target, and the manager is penalised if he does not achieve the target. Hence, “The method of reward for plan fulfilment often turns into a method of rewarding technical stagnation.”  “The facts reveal,” said Kapitonov, Secretary of the Moscow Oblast Party Committee, “that many managers of enterprises, striving at any price to fulfil the plan, are clinging firmly to obsolete equipment.”  The tendency of the manager to economic conservatism makes it even more necessary for tight control over him.
While the central authorities incline to impose as high a target of production as possible on the individual factory manager, they are also predisposed to estimate his requirements for supplies of materials and equipment as low as possible. The manager, however, does not accept the orders from above without a fight, or otherwise without cheating the authorities in order to get a larger amount of supplies out of them than he really needs, and so be on the safe side.
As the materials and other supplies needed by a factory depend on the production planned for it, it seems logical that a factory’s supply plan should follow the drawing up of the production plan. But in actual fact, annual production plans are drawn up as late as November in the previous year, so that time is too short to draw up a supply plan to fit the production plan. In practice, therefore, factories have to send in their supply plans before their production plans are decided. These go in during the preceding July and August for the annual plan and six weeks to three months before the first day of each quarter.  At best the manager has only a draft production figure to go by and quite often he has to rely on simple guesswork. Consequently, “In order to be sure of having sufficient materials, firms have often requested larger supplies than needed and even presented falsely reduced statistical data as to inventory. The procurement organisations usually have had only scanty information on which to base their evaluation of these requests, and thus they have to cut down orders indiscriminately or by a set percentage. Naturally, this formalistic approach has encouraged firms to submit still more exaggerated orders the next time. 
This tendency to inflate supply needs is strengthened by the fact that supply plans are rarely changed,, even when changes are made during the year in the production plans. A few examples of frequent changes in production plans unaccompanied by changes in supply plans were given by Izvestia: “The production plan ... for the Baku Worker Plant of the Azerbaidzhan Ministry of Oil Industry was changed 15 times in 1954. The list of products to be produced by the Grozny Red Hammer Plant of the Oil Machinery glavk was raised 18 times, its monthly and quarterly plans were changed 10 times.” 
Fear of not having the necessary materials and equipment for the fulfilment of the production plan leads the manager to adopt two expedients: one, to inflate the request for supplies and keep inflated reserves: the other, to be more independent of other producers by producing everything down to the bolts and screws. Both these two expedients make the general national scarcity even worse.
The tendency to keep inflated reserves is strengthened by the lack of price criterion for economic success. As J.S. Berliner, a student of Soviet industrial management, said:
There are no strong cost deterrents, such as interest charge. to the holding of idle materials and equipment “Today the only interest of an enterprise in selling unnecessary equipment,” writes the eminent economist A. Arakelian, “consists of the fact that the transfer of unnecessary resources frees a certain amount of floor space!”  Nor is a depreciation charge made on stored or dissembled equipment. 
With the faultiness of the price mechanism, which causes the relative values of such indices as quantity, quality, assortment of goods, costs of production. etc., to be inexpressible in terms of a common denominator, the factory manager would have to operate quite blindly and hope that his judgement was not challenged by his superiors, if it were not for the guidance he gets from “campaigns” and “priorities”, which stress one or more factors that are most important at a particular time.
The need for priority schedules is the result not only of the faulty price mechanism, but largely also of the scarce supplies and high production targets.
However, priority schedules are not a very clear guide for managerial staff to act on. As Granick so well put it: “... relative emphases cannot be expressed quantitatively. The director cannot readily decide if it is worth while to use a little more fuel per product unit than was planned in order to increase production slightly. If a lot more fuel was needed for only a little more production, or a little fuel for a big increase, the decision would be easy. But it is the borderline cases which cannot be decided on ‘rational’ and’ economic’ grounds because there is no common- denominator in terms of which to express both the fuel and the product. It is for this reason that a cornmissariat senior engineer could write in 1939 that his commissariat had no technical-economic criteria for determining whether one technological process for manufacturing a given item was better than some other. If 150 engineers are set to work to develop a manufacturing process, he wrote, 150 different variants will be received, and each will be hotly defended as the best by its originator.” 
However defective priority awareness may be as a guide to production, it is obvious that without it, the state capitalist economy of Russia; which suffers from irrational price mechanism and “planning” methods would have faced even greater difficulties, As Berliner put it:
If managers did not discriminate among competing consumers on the basis of priority, it would be a matter of indifference to them whether to produce the products designated for a military consumer or for a civilian consumer first; their own plans require only that both products be fulfilled in the course of the month. The marketing department would be indifferent to the choice of shipping out first the order of a steel mill or of a bakery shop: If it became clear that the total plan could not be fulfilled, management would be indifferent between underfulfilment of the high-priority or the low-priority. If however, managers are aware of relative priority and discriminate among consumers on this basis, then the decisions are made in closer conformity to the desire of the state. Priority awareness thus serves as a sort of rudimentary “rule” according to which managers can decide among competing demands for the resources which they produce. 
Another question is how effectively the central authorities manage to communicate their scale of preferences to the managers.
For a ... guide to priority, management looks for a variety of ... hints. Products listed specifically in the enterprise (or ministry) plan but lumped into the “other output category of the ministry (or national) plan are less important than those listed specifically in both levels of the plan. Larger plants are thought to be more important than smaller plants, and plants in prominent industrial districts carry more prestige than plants in smaller districts
It is extremely important for the manager to scrutinise the press carefully for new “campaigns”, for these are a sure indication of a change in priority ... He must keep his sights steadily focused upon Party and government pronouncements for cues as to what has become more important and what less. This is the meaning of the Party’s insistence that managers be “politically” educated and alert; and for a manager to be accused of a “narrow economic approach” to his job is a serious charge.
But in many cases the determination of relative priority is an art, one for which the successful manager must develop a “feel”. Russians talk much of “reading between the lines”, a vital talent for the manager. 
The lack of objective, quantitatively determined guides in production plans, supply plans, etc., of the individual enterprises, leads to a great amount of arbitrariness in production decisions and concomitantly with it, to the extreme importance of the personal factor in plan determination. As Berliner states, on the basis of discussions with many former Soviet managerial staff now abroad: “... output plan depends in large measure upon what the enterprise has been able to bargain out of ‘Moscow’, the supply of materials hinges upon how much can be haggled out of the functionary in the State Economic Committee, the financial plan is based upon currying the favour of some minor official in the Ministry of Finance, and so forth. The cultivation of good relations is a prime principle of plant management.”  Planning by negotiation however, is irrational and wasteful.
One result of arbitrariness is the short tenure of office of managers in one factory. “Studies in 1934 and 1936 showed that only 3 to 8 per cent of directors had held the same post for over five years, 16 to 20 per cent for three to five years, and another 40 to 55 per cent for one to three years. Twenty-five per cent to 35 per cent had held down their jobs for less than one year.”  As each industrial unit has its own peculiarities which take time for the director to master, this mobility is in itself a major source of inefficiency. (We have already referred to the tendency of the manager to neglect repairs and to “milk§ his factory, caused by this same mobility).
Again, “chief engineers ... had roughly the same distribution of time of service at the same post as had directors. Department superintendents (these latter for 1936 only) also had the same pattern of rates of turnover, and glavki chiefs leaned only slightly toward greater length of service.”  Bulganin remarked: “The executives of many enterprises are changed too often. In the coal industry, for example, about 40 per cent of the heads and chief engineers of mines, and some 50 per cent of the sector managers, change every year.” 
Arbitrariness in the general management of the economy aggravates the lack of rationality in the prices fixed by the Ministries and glavks, and the lack of tie-in between production and supply plans of enterprises.
One by-product of mismanagement, irrationality and arbitrariness is the rise of middlemen who make a living by finding out which plants have surpluses and which deficits, and arranging barter agreements between them, in the process violating the prices fixed by the authorities. Planovoe Khozyatstvo reported a case in which a heavy machinery factory promised a building organisation, in exchange for 2.5 million bricks, not only the official price of the bricks, but also the following extras: 800 tons of coal. 250 tons of timber, 11 tons of kerosene and various amounts of a number of small commodities.  All this is illegal, but nevertheless very widespread: the bureaucratic government that prohibits this, is, after all, the cause of its appearance.
Hence the appearance of the tolkach – the supply expeditor – who, quite illegally, takes an enormous commission for acquiring materials, machines, etc. Hence also the great importance of blat, or personal influence, for acquiring this equipment to which the factory manager is not entitled. Russian publications give ample testimony that it is a major phenomenon there.
Another necessary by-product of irrationality and arbitrariness, which serves to aggravate both, is the multiplication of contradictory control systems to which we referred above.
Under capitalism based upon private ownership of the means of production, the capitalist uses for his financial compass the automatism of the market, with its blind determination of the prices of factors of production as well as of the commodity produced. He must operate an accurate accounting system. His punishment for miscalculation is a financial loss; for a grave mistake, bankruptcy. Under a statified economy, where most of the prices are determined administratively, and where the income of the plant manager has no direct correlation to the real economic situation of his plant, accurate accounting becomes even more vitally necessary, as the manager of a plant can conceal the defects of the enterprise for a long time should it become necessary: he is not subject to the market law alone. Without accurate accountancy any distortion in one enterprise can be assimilated as an element in the calculations of other enterprises, and so on cumulatively. The Kremlin can punish the manager who fails, but the failure comes to light only after the damage is done. Again, the administrative and extremely harsh nature of the impending punishment (demotion, imprisonment, etc.) merely gives an added urgency and encouragement to the dissembling manager, and provides greater incentive for such managers to plot with other officials of the administration. Further, the same ruthless quality of retribution engenders a high degree of circumspection, not to say timidity, in any manager faced with the need to take a risk or to make a decision. Hence a marked tendency throughout the managerial side of Russian industry to “pass the buck” and to increase, ad nauseam, the number of unproductive officials: Yet again, such managers are sharply conscious of the implacably administrative nature of the sanctions hanging over them, and, therefore, of the great extent to which their own fate depends upon arbitrary decisions derived automatically from a current general policy which can be and is frequently superseded overnight by one of an entirely different character.
A clear link can be detected here between irrationality and the role of terror and “purges”. One of the paradoxes of the Stalinist regime has been that even the socially privileged bureaucrats were not at one with it. Of course they were glad to know that the Kremlin protects them. But alas, too often the MVD, besides arresting workers and peasants, also laid its hand on the exalted bureaucrat himself! Thus it was estimated that in 1938-40 some 24 per cent of the technical specialists were imprisoned or physically eliminated. 
While we have seen what the forces in the economic system are that lead to a multiplication of control systems, it has not yet been shown what factors make it possible for managers to engage in hoarding materials, hiding the productive capacity of the enterprise, and generally evading many of the regulations. Besides the purely technical factor that where regulations are contradictory or without clear tie-in, it is impossible for the manager to keep all regulations, there are other forces which induce control officials to refrain from carrying out fully the control functions with which they arc charged.
Thus, for instance, the chief accountant is gradually drawn into complicity with the factory manager, whose activities he is supposed to control.
What draws him gradually into collusion with production management is a combination of his personal dependence upon plan fulfilment for his income and his career, and the need to live in some sort of harmony with the people with whom he has daily work and social contact.
The chief accountant knows that the director takes as many or more chances than he, and that he will make every effort to cover up for both of them. The chief of the quality-control department knows that the director is experienced, and perhaps important in Party circles, and none of the customers are likely to risk an engagement with him over quality for fear of losing their source of supply. The mechanical engineer may rumble a bit about overworking the machines, but the director is highly valued in Moscow and a word from him will silence the grumbles. As far as legal prosecution goes, all are aware that in order to get anywhere one must take chances and nothing succeeds like success. Regular plan fulfilment closes many an investigating eye. 
The Party Secretary is also induced to enter the “family circle”, as his power and prestige are dependent on the success of the factory. If this is facilitated by the evasion of regulations, he turns a blind eye. However, his very dependence on the performance of the enterprise makes him a source of pressure on the management. As one informant told Berliner: “Before the plan is confirmed, the Party Secretary aids the director in trying to get as low a plan as possible. Once the plan is decided upon, the Party Secretary now brings pressure to bear on the director in order to get the plan fulfilled.” 
The Ministry of State Control is not part of the web of mutual involvement. Its agents do not have a motive for covering up any misdeeds in the enterprises, but on the contrary their own performance is judged by their superiors according to their success in exposing law evasions. However, this Ministry is unable to keep a constant check on all the particulars of a firm’s operations. It seems it also lacks trained and experienced technical specialists. The Ministry of State Control of the Karelo-Finnish Republic, for instance, did not employ one timber expert, even though timber is the main industry of the Republic. An agent of the Ministry, describing his impotence during an investigation of a dairy enterprise, an industry of which he knew nothing, said: “They twisted me around their fingers.” 
The multiplicity and different degrees of efficiency of the control systems lead in themselves to increasing arbitrariness and wastage and thus lead to those same conditions that make strict and multitudinous controls necessary.
Unable to rely on the self-activity of the people, denying all working class democracy, the Kremlin has to rely on bureaucrats to control other bureaucrats. The hydra of bureaucratic anarchy and its concomitant, bureaucratic control, grows on the soil of workers’ alienation from the means of production and exploitation of the labourer.
The usual picture of Russian industry is that of a well-organised, streamlined and harmoniously working system. The above description of the working of this system tears this idyllic picture to pieces. What are the basic causes for anarchy and wastage in Russian industry?
We have seen that high targets of output together with low supplies – like the two arms of a nutcracker – press upon the mangers to cheat, cover up production potentialities, inflate equipment and supply needs, play safe, and in general act conservatively. This leads to wastage, and hence lack of supplies and increasing pressures from above on the manager, who once more has to cheat, and so on in a vicious circle.
High targets and low supplies lead to increasing departmentalism. Again a vicious circle.
High targets and low supplies make necessary priority awareness on the part of the managers. But this priority system and “campaign” methods, lacking a clear quantitative gauge, lead to wastage and hence to an increasing need to refer to priority schedules. Again a vicious circle.
All these requirements necessitate a multiplicity of control systems, which are in themselves wasteful and in their lack of systematisation and harmony make for even further wastage. Hence the need for more control, for paper pyramids and a plethora of bureaucrats. Again a vicious circle.
What has been said about the vicious circle resulting from the conflict between over-ambitious planned targets and low supply basis, applies, mutatis mutandis, to the effect of the poor price-mechanism. Thus, for instance, the poor price-mechanism leads to departmentalism, priority campaigns and a plethora of controls. And these lead to increasing faultiness of the price mechanism. Again a vicious circle.
To break these vicious circles, there are three main Gordian knots to be cut: (1) lower output targets, (2) improved supplies, and (3) establishment of a rational price mechanism.
The great impediments on the path of lowering output targets are the world competition for power and the tremendous military expenditure.
The great impediments on the path of establishing a rational price mechanism are, as we have seen, first of all the need of the rulers to cover up exploitation with the help of a distorting mirror; the need to exaggerate economic achievements; the vested interests of different sections of the bureaucracy and their relative weight in the economy and in politics; the stability and arbitrariness of the top man expressed in a sea of instability, changing groupings, personal pressures, in which the rest of the bureaucrats flounder, with the concomitant criss-cross of control chains and economic disharmonies.
In July 1957 Khrushchev introduced a radical reorganisation in the management of industry. But of all the deficiencies, disharmonies and bottlenecks, the reforms tried to face up to one, and one only: the increasing departmentalism, with its nefarious outgrowths.
Let us first describe the changes brought about in the organisation of industry on July 1, 1957. They consist of the following measures: The bulk of industrial and construction enterprises have been transferred from the control of various central ministries to newly-created Regional Economic Councils or Sovnarkhozy, each controlling a separate economic region. The USSR was divided into 105 such regions, of which 70 were in the Russian republic (RSFSR) and 11 in the Ukraine. The sovnarkhoz is to act as the planning and operational boss for the bulk of industrial and construction enterprises situated in the economic region. 25 industrial Ministries have been abolished (10 All-Union and 15 Union-Republic), thus eliminating the majority of industrial Ministries both in Moscow and in the Republic capitals. The exceptions involve mainly the control of defence industries: aviation, defence. radio, medium machine building [B], shipbuilding, electric power stations. However, the industrial and construction enterprises of the retained Ministries, just as those of the abolished Ministries, are to be transferred to the management of the Economic Councils, which will directly administer these enterprises. Thus the place of the industrial Ministry – which is functional – will be taken over by the Economic Councils which are territorial. Instead of 40 All-Union Ministries, there will be 105 territorial industrial units.. As some of the former Ministries were quite small and a number of the territorial industrial units will be quite big, the economic- administrative units created will often be larger than the former Ministries. Khrushchev stated on this subject:
Let us for instance take the Moscow City Economic Area. The machine-building and metallurgical enterprises. situated in Moscow alone produce more than the enterprises controlled by four machine-building Ministries-the Ministry of the Machine tools and Instruments Industry, the Ministry of General Machine-building, the Ministry of Apparatus-building and -Means of Automation and the Ministry of Heavy Machine- building. It is proposed to place under the management of Moscow City National Economic Council 600 of the largest industrial enterprises of various branches which in 1956 produced goods to the value of over R55,000,000,000. It is proposed to place under the management of the National Economic Council of Moscow oblast 593 industrial enterprises which produce R43,000,000,000 worth of goods. This, too is equal to the output of several Ministries. 
The size of the new economic regions, cornpared with the former Ministries, disposes of the suggestion that Khrushchev’s reform is directed at consistent decentralising the management of industry. Pravda made this quite clear:
The new forms of administration will enable centralised state control of the economy to be strengthened even more ... Gosplan of the USSR is to follow a single, centralised policy in the development of the most important branches of the economy ... The new forms of industrial administration, with a considerable increase in the role of the Gosplan of the USSR, a centralised system of accounting, statistics, finance, and technological leadership, will have a beneficial influence on the further growth of socialist industry. 
Again, Khrushchev, in his speech to the Supreme Soviet introducing the reform, quoted approvingly the following statement made over an American radio:
A superficial observer will probably say – Look, this is decentralisation. But if one is to study this question more closely one can arrive only at one conclusion. The whole thing is nothing else than bringing centralism closer to the spot-this is not a lesser but a greater degree of centralisation.
He remarked: “One cannot but give its due to the shrewdness of the author of this statement. 
Of course the mere reorganisation of industry on territorial lines will eliminate or mitigate some of the deficiencies met with in the past. It will be easier to ensure the cooperation of enterprises in the same locality, with a consequent saving of transport costs. Local resources will be utilised better.
It is possible, however, that the advantages will be counter. balanced, perhaps outweighed, by newly arising disadvantages.
The first grave danger that the reorganised management may well face is that of trends towards territorial autarchy-to replace former departmentalism.
Already in his introduction to the plan, Khrushchev pointed to this danger, saying:
During the discussion of the Theses it was noted that in the new structure of management, if local organs were granted extensive powers, tendencies toward autarchy might arise with a desire to build a closed economy inside an area or a Republic. Such fears are not baseless, and they should not be forgotten. Local tendencies may show themselves in attempts to develop their own raw material bases, derived from local natural deposits, the exploitation of which might be of less advantage than the exploitation of these in other regions: in a desire to organise within the region the production of various types Of equipment and auxiliary materials, which it would be more profitable to produce in specialised plants in another region, and in other deviations from economically expedient methods of the management of the economy. Some local workers may try, contrary to the interests of industrial development on a national scale, to use for the satisfaction of the local requirements of an oblast, krai or Republic more resources than the State can allocate for these purposes.
To meet this threat, Khrushchev proposed the following:
The unmasking of such harmful local tendencies which move contrary to national interests and the struggle against them must always remain before the eyes of Party, Soviet, economic and trade union organs. In the struggle against these and similar manifestations it will be necessary, in addition to methods of political leadership, to make full use Of such powerful levers in the hands of the State as unified national economic planning, centralised finances and all-national statistics. The Gosplan will have to make a careful study of the economic expediency of the capital investment programmes planned by Areas and to stop any attempts to use State resources contrary to State interests in order to create a closed economy in individual Areas. 
Why such proposed measures should be more effective in overcoming territorial autarchy than the same measures were in overcoming departmental autarchy. Khrushchev did not tell us.
To support Khrushchev’s exhortations the Presidium of the Supreme Soviet decreed on April 24th, 1958, that repeated failure to deliver goods to other economic regions, to other republics, or to the Union government is a criminal offence. 
If Moscow’s intervention is necessary to overcome autarchy and conflicts between economic regions, the difficulties met with will be harder to counter than the former inter-departmental conflicts. Whereas previously a journey from one Moscow Ministry to another might resolve a conflict, now distance will hamper and slow up arbitration by Moscow.
Most factories of any size require the delivery of raw materials and equipment from many parts of the USSR, and if each sovnarkhoz inclines to autarchy, the mismanagement resulting can be quite serious. The new set-up, by giving some measure of autonomy to the different sovnarkhozy in carrying out their own plans will inevitably incline them to give priority to their own regions. Autarchy thus becomes inherent in the system, for, as deliveries to other regions become uncertain, each sovnarkhoz will t to produce as much as possible of the products it needs.
Reports in the Soviet press bear this out. Thus, for instance, the chairman of the Belorussian sovnarkhoz complained in an article in Pravda: “There are instances when officials bother only about enterprises subordinate to them, and do not think of the difficulties which their irregularities cause for enterprises in other regions. It is necessary to speak about this frankly, so that these defects do not grow worse ... We have met clear instances of tendencies towards autarchy. The Dzerzhinski factory of the Dnepropetrovsk region supplies rolled wire to the Rezhitsa nail- making works. In July the Dzerzhinski factory underfulfilled its plan by 15 per cent but sent to Rezhitsa only 300 tons of rolled wire instead of 1,020 tons. When this outrageous fact was investigated, the managers of the Dzerzhinski factory declared that they had orders from the Dnepropetrovsk sovnarkhoz to give priority to enterprises in their own region and to supply them in full.  In a similar case cited by the chairman, suppliers from Nikopol arbitrarily cut deliveries of pipes to Minsk by 41 per cent, while only a 7 per cent cut was made in similar deliveries to Kharkov (which is in the same republic as the supplying factory).  On July 25 1957, Pravda devoted its editorial to the subject of such defaults in deliveries from one region to another.
A few months later it was reported that as many as 46 sovnarkhozy failed to fulfil their delivery schedules to the sovnarkhozy of Eastern Siberia ; the Leningrad sovnarkhoz could not obtain many spare parts which it could not manufacture itself; the Kharkov sovnarkhoz refused to maintain production ties with other soynarkhozy in 1958; the Moscow city sovnarkhoz did not fulfil its plan for deliveries to the Gorky sovnarkhoz; the Dnepropetrovsk and Stalino sovnarkhozes refused to supply other sovnarkhozy; and the Armenian sovnarkhoz received an insufficient quantity of rolled metal from other sovnarkhozy, but in turn did not fulfil its obligations towards other economic regions. 
This reluctance to assist other regions has sometimes reached ridiculous extremes A Pravda article entitled Altercation on the Banks of the Ik stated that after the creation of the Bashkir and Tatar sovnarkhozy a new building materials combine situated on their common boundary began to experience serious operational difficulties. The Bashkir sovnarkhoz, which had the raw materials required by the combine, categorically refused to supply the factory because it came under the jurisdiction of the Tatar sovnarkhoz. Eventually, the dispute was referred to Gosplan, but in the meantime the combine ceased operating. 
Kamalov, First Secretary of the Uzbek Party Central Committee said: “The most complicated question in the new conditions is ... supply. Let us say straight out: the search for new organisational forms of ... supply has dragged. Furthermore, obviously unhealthy phenomena can be observed in this sphere.” 
The new set-up may cut across specialisation and thus hamper scientific and technical advance. In fact diverse groups of Soviet scientists and technicians have openly expressed their doubts about Khrushchev’s plans. I.P. Bardin, a major Soviet metallurgist and vice-president of the Academy of Sciences of the USSR sharply criticised the new measures in a speech at the session of the Supreme Soviet of the USSR that adopted Khrushchev’s proposals: “It must be borne in mind that this branch of industry (metallurgy) is being consolidated everywhere, not dismembered on a regional principle. In the USA the various metallurgical corporations or companies are not set up on the regional principle. United States Steel has plants in the East, South and West of the country, as has Bethlehem Steel. This is proof that things can be done properly with such a branch arrangement.”  Bardin stated emphatically that in his view the Ministries should be preserved. Kapitsa, the famous atom energy specialist, argued in similar vein. “In the USA, England and other capitalist countries industries grew to such an extent that large firms and combines were able to solve scientific and technological problems by the organisation of their laboratories and institutes. Our Ministries are in essence even larger industrial combines, hence, they are also able to create their research institutes (and) designing bureaus. Clearly, the bigger the Ministry, the bigger the technical problems being worked out ... by it may be. We must not close our eyes to the fact that this advantage will be lost to a great degree with regionalised industry.” 
The structures of the different sovnarkhozy themselves are uncoordinated, and related enterprises producing the same type of goods may be under different branch administrations in the various sovnarkhozy, or even in one and the same sovnarkhoz. Thus, according to the former Minister of the Food-processing Industry of the USSR, V.P. Zotov, two Leningrad vitamin-producing factories arc included in the administration of the food industry, while another factory of the same kind is in the administration of the chemical and pharmaceutical industry. A similar factory in Moscow oblast is to be included in the administration for local industry. A number of other Moscow vitamin-producing works are included in the administration of the oil and fats industry, and in Mari ASSR in the administration of local industry.  Thus any possibility of specialisation is lost, and specialised enterprises in the sovnarkhozy will often be controlled by people who know nothing about that particular branch.
The new structure will possibly not even cut the size of the bureaucracy. Each of the 105 sovnarkhozy will comprise from six to twenty glavki, not counting operational sections, trusts and combines. All told, the 105 sovnarkhozy will comprise approximately a thousand glavki.
Besides these administrative centres of industry, there will be some others, namely, 8 All-Union industrial Ministries (mainly of military significance) and a number of Republican Ministries. Thus instead of 150 Ministries (All-Union, Union-Republic and Republican) which were of the same type, there are 105 sovnarkhozy with a thousand branch administrations, which will probably carry as big a bureaucracy with as heavy a weight of red tape. 
To add to the complexity, the administrative rungs above the different plants is not the same in every case. Thus some sovnarkhozy have the following system: sovnarkhoz, glavk, combine, trust, plant; others have only trusts administering a number of plants. 
The new system has not eliminated the plethora of paper work. Previously the annual production plan of the Ministry of Coal Industry covered 5 pages; now it takes up a whole volume. One of this Ministry’s output plans previously consisted of 20 production indices; now there are 240. 
As forecast by the scientists and technicians quoted above, the new set-up already shows signs of proving detrimental to the research and designing organisations. Whereas previously a research or designing institute served a whole branch of industry, now it will serve in the main only the industry in the region administered by the sovnarkhoz. Thus we are informed that when Remmashtrest, a trust engaged in the modernisation of machine tools, was transferred from the Ministry of Machine-Tool Building and Tool-Making Industry to the Moscow city sovnarkhoz, hardly any function was left it.  A worse fate befell the Tsentroenergotsvetmet designing organisation which served the non-ferrous metal industry, but now, on transference to the Moscow city sovnarkhoz found itself without sufficient employment and was abolished.  The Simferopol Specialist Designing Office, which previously served all the factories engaged in the production of canning machinery, has been working at 15 per cent of capacity since it was transferred to the jurisdiction of the Kherson sovnarkhoz. 
The Kremlin has made repeated efforts to patch up the weaknesses resulting from the sovnarkhoz reform of 1957. However the net result has been renewed centralisation and the multiplication of the defects of old “decentralised management plus those specific to over centralised management. 
In June 1960, operational control over the sovnarkhoz activities in the larger republics with many sovnarkhozi (RSFSR, Ukraine, Kazakhstan) was vested in Republican Economic Councils (VSNKh). The new VSNKh are subordinated to the Council of Ministers of the appropriate Republic. Their function is operational control, coordination, and material supply arrangements.
Another step in the direction of further limiting the autonomous power of the sovnarkhoz was taken in 1961. when it was decided to divide the USSR into 17 big Regions: 10 in RSFSR, 3 in Ukraine; Kazakhstan constituted one Big Region, the 3 Baltic Union Republics together another, the 4 Central Asian Union Republics a further one, and the 3 Trans-Caucasian Union Republics yet another. (Oddly, two Republics. Belorussia and Moldavia, joined no Big Region.) 
Thirdly, the power of the sovnarkhoz to take allocation and investment decisions has been curtailed very radically. Before 1957 almost all major materials and equipment were subject to central allocation and were divided into two categories: “funded” and “planned”. “Funded” were the responsibility of the supply department of Gosplan (which allocated to user ministries who in turn allocated to enterprises via the appropriate glavk of the Ministry.) “Planned” materials were of less importance and were allocated by the producing ministries. In addition there was a range of materials which were not centrally planned, but were either allocated by central authorities, or distributed through contracts between individual plants. The 1957 reform, by abolishing all ministries, also made obsolete the difference between “funded” and “planned” materials. In 1959, sovnarkhozy were forbidden to distribute “funded” materials and equipment without an allocation certificate obtained from higher authorities. 
Fourthly, the centralised (unplanned) investments were severely cut in 1961.  A new and more highly centralised procedure for reviewing and approving all investment plans was established. Thus no investment of over 2.5 million roubles can be included in the plan without the approval of Gosplan of USSR.
Fifthly. local small industries that the 1957 reform left to be administered by oblast soviets were in 1960 transferred to higher centralised administration – that of the sovnarkhoz. Thus all producer cooperative members became in 1960, state employees. 
Sixthly, in the centre of the economic administration of USSR, parallel to the Planning Commission (Gosplan) a new body was established in April 1960 called Economic-Scientific Council (Gosekonomsovet). Gosplan is responsible for current operational planning. Gosekonomsovet for perspective planning and for considering problems of planning methodology. 
Seventhly, a large number of central industrial state committees were established: aviation technique, defence technique, radio-electronics, ship-building, chemical industry, automation and machine building, electronic technique, metallurgy, fuel industry, atomic energy, timber and paper. 
The result is bedlam, even worse than that preceding the 1957 reform. Look at the supply system.
Up to 1957 enterprises were administered and supplied by their Ministry, whose supply department was responsible for the supply of all major materials and equipment to its enterprises; where these had to be bought from other Ministries, it fought the necessary battles at the Central Planning level. So the boss of the plant was also responsible for getting the necessary supplies. Now the supply arrangements are very much more complicated. The individual plant gets some materials through the allocation of different supply departments of Gosplan of USSR, others from supply departments of Republican Gosplans, yet others from the sovnarkhoz itself. To give an idea of the complexity of the supply arrangements, “in the Rostov sovnarkhoz alone apart from 27 snabsbyt (supply and disposal) offices organised under various departments of the sovnarkhoz itself, there are 13 supply offices subordinated to the snabsbyty of the VSNKh RSFSR (i.e., to the republican-level supply and disposals organs) and 32 supply-and-disposals offices and centres of various ministries and organisations of the USSR and RSFSR. Altogether there are in this region 72 snabsbyt offices and centres with an establishment of over 7,000 persons. Many of these organisations duplicate each other.” 
The complicated supply arrangements look even more fantastic when it is considered that they have to tie in with production arrangements.
At present the production boss of a single plant is no more one body as it was up to 1957 when it was the Ministry. There are instead a number of bosses. First the sovnarkhoz has a hand in the production plan of the plant. But the production itself is often supervised by the All-Union Republican Gosplan, particularly in the case of important products at important factories. Where more than one commodity is produced in a plant – a common phenomena – there are several bosses none of whom is responsible for the production programme of the entire enterprise. One example of this can be cited. The Director of the Tula farm machinery works complained: “The multiplicity of planning organs, the absence of agreement among them, has become a brake upon the initiative of the director. The basic plan for farm machinery for the Tula combine factory (tow harvesters) is decided by the USSR Gosplan; to this Gosplan RSFSR adds hemp and reed cutters; Russian VSNKh (Republican Economic Council). Rosselkhoztekhnika (the Russian Republican Agrcultural Machinery Department set up in 1960 as intermediary between farms and industry) and Soyuzavotoselmash (All-Union body in charge of farm machinery and rural lorries, presumably within Gosplan) send us plans for motor vehicle spare parts and farm machinery components: and on top of this the sovnarkhoz gives us a variety of tasks for the manufacture of metal parts, units, sections; and machines for the chemical, electrical, metallurgical and other industries of its economic region. The Party obkom in its turn compels us to prepare, for the needs of the oblast, battery holders, manure spreaders, silage combine harvesters spare parts for farm machinery and tractors. As a result the factory is overburdened. But for some reason everyone considers that it is working at half pressure, and throughout the year give us additional tasks.” 
Under such conditions, with numerous bosses planning production, and a number of others responsible for the allocation of supplies – different bodies at different hierarchical levels – lack of tie-in is absolutely inevitable.
And so we find the Director of a heavy machine works in Irkutsk complaining: “The tasks of planning and supply were badly carried out in the former ministries, although within the same organ. Now, however, the productive activities of the enterprise are supposed to be controlled by the sovnarkhoz while planning and supplies come under Gosplan RSFSR. In these conditions the Director usually gets left out of the process of decision making, while the planning organs often fail to take into account the condition and requirements of production ... In practice the country’s heavy machinery factories, including our own, receive plans only for the following year, and that only in October-November. Their applications for materials finally collated by the sovnarkhoz, are submitted in the middle of the year, i.e., long before the production plan is received. Hence flow the thousands of misfortunes and directorial worries. The finally confirmed output plan for 1961 was received by our factory in March of the same year. When we set about fulfilling it, we discovered a mass of unforeseen miscalculations. For example, we were to receive sheet steel from Chelyabinsk, but the production unit whence the metal was to come had not been completed. Nor were the Magnitogorsk and Tagil works able to send us metal: they received allocation orders for much more metal than was to be produced under their output plans. But this is not all. During the course of the year Gosplan RSFSR, VSNKh and on occasion also the sovnarkhoz utilising their rights, told the factory to produce items not provided for in the plan and often unsuitable for it ...” 
Another example. of the effect of the multiplication of bosses dictating production plans for the individual plant was given by the chairman of the Tambo sovnarkhoz. One Tambo factory received from the sovnarkhoz, in agreement with the “functional department of Gosplan, an output programme for washing machines: 30,000 units. But the department of electrical industry and equipment of Gosplan”, which determines the washing machine production plan, decided on 46,000. This figure was rubber stamped by the collection department. However the material balances department allocated enough stainless steel for only 25,000 units, explaining this by the fact that the department of ferrous metal industry planned insufficient stainless steel.  Another example: “The organs of the Kazakh republican Gosplan were compelled to change their allocations of rolled steel 538 times, during the year 1959, because of various supply difficulties.” 
A big factor in the chaos is the overlapping of functions of Gosplan and VSNKh, whose “structure resembles Gosplan like two drops of water ... VSNKh, as well as exercising control over sovnarkhoz, has taken over planning functions. Now plans are drafted in parallel in Gosplan and in VSNKh. In real life the result is this: before, the sovnarkhoz got one document from the RSFSR Council of Ministers. Now it gets another one from the VSNKh. Before, officials of the sovnarkhoz had to visit sector and collation departments of Gosplan and its materials disposal divisions, to agree to the plan. Now the process begins with the sector departments of VSNKh. Then come its collation departments and territorial departments, which, as a rule, cannot decide all the questions arising. And then the official of the sovnarkhoz, together with the appropriate officials of VSNKh. repeat all the ‘technological operations’ in Gosplan and in the disposals divisions. This doubles the number of stases to go through.” 
Uncertainties in supply cause tolkachi (“pushers”) to flourish. The Dnepropetrovsk sovnarkhoz calculated that their metals and chemical factories were visited by 4,000 tolkachi in 1959, while 3,000 more descended on machinery factories and 1,000 besieged the snab and sbyt departments of the sovnarkhoz itself. Total: 8,000. 
The number of such pushers is great. Member of the Soviet Control Committee M. Afonin stated that hitherto the sending of “pushers” to factories and mills and to supply, marketing, and other agencies, in order to obtain ... raw materials and finished goods, has not ceased. “During the eight months of last year (1958) more than 4,800 persons, not counting drivers, visited the Gorky Automobile Plant in order to obtain cars and parts. The plant itself sent in turn more than 3,900 persons to other, enterprises and agencies in order to obtain raw materials and equipment.” 
The wave of complaints about maladministration and mismanagement over the past few years has been worse than ever before. One way of overcoming one of the bottlenecks is the creation of ad hoc bodies charged with coordinating plans to find necessary materials and equipment for the construction of important factories (glavkomplekty). In 1962, 476 projects were treated as especially important. However the effect of a list of key construction projects is sometimes to denude others and to introduce into investment planning acute forms of wasteful “storming” methods. Take the case of the Lipetsk metallurgical plant. The work progressed in discontinuous rushes with repeated delays due to the absence of the necessary blueprints and the failure to place orders to receive supplies in time. In an effort to achieve success, “regardless of cost, towards the end of the year a large part of the necessary equipment was taken away from the other construction sites to deliver to Lipetsk by redistributing other already allocated materials at the expense of the reserves of the Council of Ministers of RSFSR. This equipment came from 32 economic regions in express trains, by air, it was brought in motor vehicles from Kharkov, Leningrad, Cheboksary ... The number of building workers rose to double the planned amount. They were transferred from other construction sites including those which were due to be completed although there too things were not too goad. As a result costs of construction rose higher and higher.” 
Without a rational price-mechanism, without increasing supplies and cutting production targets, without putting an end to the arbitrary intervention of the Kremlin, and Without chopping the hydra of control systems. there can be no rational management of regional economy. As Gatovski, the editor of Voprosy Ekonomiki, wrote: “It is necessary to find objective criteria for regional specialisation ... so as to avoid the danger of substituting territorial for departmental barriers (to efficiency).”
Khrushchev’s 1957 reform of the management of industry was only a palliative. It did not reach to the roots of bureaucratic mismanagement inherent in state capitalism. However, even these belated and half-hearted reforms bear witness to the fact that state capitalism is becoming an increasing impediment to the productive forces of society.
The enormous and growing complexity of the Soviet economy can no longer be effectively handled by the old Stalinist methods. But Khrushchev’s piecemeal reforms of these methods have been contradictory and self-defeating, leading to complete impasse. The new recentralisation adds to the administrative chaos and economic inefficiency.
If by the term “planned economy” we understand an economy in which all component elements are adjusted and regulated into a single rhythm, in which frictions are at a minimum, and, above all, in which foresight prevails in the making of economic decisions – then the Russian economy is anything but planned. Instead of a real plan, strict methods of government dictation are evolved for filling the gaps made in the economy by the decisions and activities of this very government. Therefore, instead of speaking about a Soviet planned economy, it would be much more exact to speak of a bureaucratically directed economy. Actually the totalitarian, bureaucratic political dictatorship helps to overcome the results of bad planning, which at the same time has its origin in this self-same bureaucratic set-up.
One should, however, avoid the mistake of assuming that the mismanagement corroding Russia’s national economy precludes very substantial, nay, stupendous, achievements. Actually, between the bureaucratic mismanagement and the great upward sweep of Russia’s industry, there is a tight, dialectical unity. Only the backwardness of the productive forces of the country, the great drive towards their rapid expansion (together with a whole series of factors connected with this) and, above all, the subordination of consumption to capital accumulation, can explain the rise of bureaucratic state capitalism.
The efforts and sacrifices of the people have raised Russia. despite bureaucratic mismanagement and waste, to the position of a great industrial power.
However, state capitalism is becoming an impediment to the development of the most important productive force-the workers themselves-which only a harmonious socialist society can liberate. [C]
B. In an interview granted to the managing editor of the New York Times, Khrushchev confirmed, after a fashion, that this Ministry is also in charge of atomic energy development.
C. This fundamental cause of conflict in Russian state capitalism will he the theme of Chapter XIV.
62. J.S. Berliner, Factory and Manager in the USSR, Cambridge (Mass.), p.78.
63. Za Industrializatsiu, 8 May 1934. Quoted in Granik. op. cit.
64. B. Liebertnan, in Voprosy Ekonomiki, 1955. No.6.
65. Pravda, 2 August 1955.
66. R.W. Davies, The Reappraisal of Industry, Soviet Studies, Vol.VII, No.3.
67. Oranick, op. cit., pp.144-5.
68. Izvestia, 23 August 1955.
69. A. Arakelian, Business Accounting and the Struggle for Improved Utilization of Fixed Capital, Voprosy Ekonomiki, 1951. No.5, p.30.
70. Berliner, op. cit., pp.105-6.
71. Granick, op. cit., pp.156-7.
72. Berliner, op. cit., p.201.
73. ibid., pp.201-2.
74. ibid., pp.224-5.
75. Granick, op. cit., p.47.
76. ibid., p.48.
77. Bulganin, op. cit.
78. Planovoe Khozyaistvo, 1946, No.3, pp.38-9.
79. N. De Witt, Soviet Professional Manpower, Washington 1955, p.231.
80. Berliner, op. cit., pp.242-4,
81. ibid., p.267.
82. Izvestia, 18 March 1956.
83. Pravda, 8 May 1957.
84. Pravda, 17 May 1957.
85. Pravda, 8 May 1957.
87. Vedomosti Verkhovnogo Soveta SSSR, No.9, 1958, item 202.
88. Pravda, 2 September 1957.
89. Pravda, 25 July 1957.
90. Pravda, 25 January 1958.
91. Promyshlenno-Ekonomicheskava Gazeta, 5 February, 1958. Quoted by A. Fedorov, The Sovnarkhozes. A Preliminary Survey, Bulletin, Institute for the Study of the USSR, March, 1958.
93. Pravda, 18 January 1958.
94. Izvestia, 11 May 1957.
95. Pravda, 4 May 1957.
96. Pravda, 10 May 1957.
97. J. Kholonogorov, The Dilemma of Economic Planning, Bulletin, July 1957.
98. Promyshlenno-Ekonomicheskaya Gazeta, 5 January 1958.
99. Pravda, 6 February 1958.
100. Prornyshenno-Ekonomicheskava Gazeta, 22 December 1957.
101. ibid., 2 February 1958.
102. ibid., 26 February 1958.
103. For a very lucid description and analysis of the managerial changes in the years 1957-1962 see A. Nove, The Industrial Planning System: Reforms in Prospect, Soviet Studies, July 1962.
104. Ekonomicheskaya Gazeta, 28 May 1961.
105. Planovoe Khozyaistvo, 1959, No.9, pp.39-40.
106. Pravda, 7 December 1961.
107. Pravda, 26 January 1961.
108. Pravda, 8 April 1960.
1O9. Pravda, 26 April 1963.
110. A. Nove, The Soviet Economy, London 1961, p.199.
111. V. Pushkarev in Ekonomicheskaya Gazeta, 15 January 1962, quoted in Nove, Soviet Studies, op. cit.
112. ibid., p.11.
113. Ekonomicheskaya Gazeta, 19 February 1962, ibid.
114. Nove, The Soviet Economy, op. cit., p.203.
116. ibid., p.202.
117. Izvestia, 10 January 1959.
118. Pravda, 20 January 1962, ibid.
Last updated on 3.9.2002