Isaac Deutscher 1957

Khrushchev Charts A New Economic Course

Source: The Reporter, 13 June 1957. Scanned and prepared for the Marxist Internet Archive by Paul Flewers.

The Supreme Soviet’s May decision to adopt, with a few modifications, Khrushchev’s scheme for the overhaul of the entire Soviet industry is likely to have far-reaching consequences for the Soviet Union and therefore in some measure for the world at large. Khrushchev has set in motion a chain of developments no less important, though less spectacular, than the one he started last year with his exposure of Stalin at the Twentieth Congress.

This is indeed another great break with the Stalin era. With one stroke Khrushchev has attempted to sweep away the whole administrative structure of Soviet industry as it has grown up, taken shape and become fixed in the course of nearly thirty years.

Involved in the new reform are no fewer than two hundred thousand functioning industrial concerns and about half that number of establishments still under construction. These concerns employ a good half of the Soviet Union’s adult working population.

Obviously, no government undertakes so vast a reform unless it has weighty and urgent reasons for doing so. Last February Premier Bulganin admitted to the Supreme Soviet that the current Five-Year Plan had not been based on a realistic assessment of resources, that it had led to the waste and freezing of much capital, and that it was in need of a thorough revision. The government has so far not been able to produce the revised plan. Within recent months it has repeatedly reorganised the planning agencies, first splitting them up into two separate bodies, one designed for long-term and the other for short-term planning, and then merging them back into a single Gosplan, or supreme planning authority. The two chief planners have been dismissed or transferred: Maxim Z Saburov in December and Mikhail G Pervukhin in May. They have been replaced by Joseph J Kuzmin, a relatively unknown economist who has been appointed head of the Gosplan and a first deputy vice-premier, even though he was not a member of the Presidium.

But discontent in the Soviet ruling group with the economic-administrative setup inherited from the Stalin era can be traced much further back. When Malenkov took power, on 6 March 1953, he abolished a number of ministries within a few hours of Stalin’s death. By 15 March he had cut their number from forty-five to fourteen. Later, at the time of Malenkov’s eclipse, the ministries re-emerged.

Khrushchev’s scheme is broader than Malenkov’s ever was. Where Malenkov merely tried to simplify the existing economic administration, Khrushchev is setting out to change the whole structure from top to bottom.

Hitherto, Soviet industry has been organised almost exclusively along vertical lines, each industry being controlled by a ministry in Moscow. There were almost no horizontal links between the various industries. A coal producer in the Ukraine, for instance, could not deal directly with a steel producer or a machine-tool producer in the same town or district. He could buy his mining equipment and sell his coal only through his ministry in Moscow, which dealt with the other industrial ministries.

In this way Stalin had reserved for Moscow the power of decision on almost any economic transaction. The resulting over-centralisation had, from Stalin’s viewpoint, great political advantages as well: it did not allow the producers on the spot to come together to express common interests, to formulate joint policies, or to combine in any degree against the centre.

With the advance of industrialisation, however, the system has grown increasingly obsolete. Technological specialisation brought into being ever new branches of industry – and ever new ministries in Moscow. The administrative machinery at the centre grew incredibly cumbersome. Its various parts constantly overlapped. (Khrushchev revealed that no fewer than three ministries managed Moscow’s electrical power plant!) The most inflated staffs could not hope to cope with the mass of important questions that producers were obliged to refer to Moscow. It was only because of its great inherent momentum that the Soviet industrial machine did not grind to a standstill.

A New Federalism: The principle of Khrushchev’s reform is horizontal organisation. The whole of the Soviet Union is now being divided into ninety-two regions, each with an economic council, or Sovnarkhoz, of its own. All state-owned concerns of any given area (with the exception of smaller factories run by the municipalities) come under the management of the regional council. The coal producer, the steelmaker, the engineer and the textile manufacturer on the spot will at last be able to deal directly with each other, or, if need be, through their regional council.

Most of the economic ministries in Moscow have been abolished. Even those that are left – the ministries in charge of defence industry – are divested of the functions of management.

Regional economic councils had existed during the early years of the Soviet regime. Stalin abolished them because he was afraid of them as potential organs of economic autonomy. It is as such that they are now being revived. Economic power is being diffused throughout the country, and a strong element of federalism is brought into the new economic constitution of the Soviet Union. The various republics and autonomous areas are ceasing to be an amorphous and inert mass in Moscow’s hands and are beginning to acquire an economic and social identity of their own.

Horizontal organisation does not exclude a measure of vertical control and direction from above. Indeed, without these an economy planned on the national scale would be inconceivable. The ninety-two economic councils are, of course, to be integrated with the general administrative machinery of the Soviet Union. But in the process of this integration Moscow is losing its preponderance. The sixteen republican governments of the Union, and not the All-Union government in Moscow, are to appoint the regional councils. Moscow reserves the right to veto the appointments and also to veto decisions of national importance that may be taken by the regional councils. But by abdicating the right to manage and command and substituting for it the power of veto only, Moscow places itself in a much weaker position vis--vis the provincial centres. The premiers of the republican governments will be members of the central (the All-Union) government in Moscow. In this way the republican or provincial governments are to participate much more closely than hitherto in shaping Moscow’s policy, while Moscow hopes through the provincial premiers to exercise influence and control over the regional economic administration. But influence and control acquire a new meaning. The central government may guide, exercise pressure, and in extreme cases use the veto, but it loses the right to manage, to hire and fire, to promote and demote, and to take practical decisions concerning the work of industry.

Thus in the economic sphere Moscow ceases to be master of life and death over millions of state employees. The political significance of this reform – if it is carried out according to its letter and spirit – is clear.

Planning From Below: Under the new dispensation the role of Gosplan assumes new weight. The function of Gosplan is to coordinate the work of the ninety-two economic councils and to ensure that the right proportions are maintained in the production of the various regions and branches of industry. Since Gosplan must continue to plan vertically for entire national industries, it will absorb some of the personnel and the functions of the disbanded ministries. In addition, Gosplan is to plan, not administer; to guide, not enforce.

The method of planning is also to be radically reformed. Until now – this practice too has been in force for nearly thirty years – Gosplan has fixed the overall five-year and annual targets for every industry. These were broken down into smaller targets for the various sections of the industry, down to the basic productive unit. Gosplan’s target was law. The manager of a factory or mine could not declare any target unattainable, even if it was.

This practice is to be abandoned. Planning from below is to take its place. The basic units of production are first to declare how much they expect to be able to produce within a year or a five-year period. Next the regional councils are to fix their targets, and only then is Gosplan to integrate the ninety-two regional plans into a single national plan.

Gosplan retains an important instrument of economic pressure: credit policy. Through the State Bank it should channel the central financial resources throughout the ninety-two regions in such a way as to ensure balance of production and investment. But the bulk of industrial profits will no longer have to be transferred to Moscow as before. It will, as a rule, be distributed and invested by the regional economic councils. Moscow is to channel directly only surplus resources from regions with an excess of investment capital to regions with deficit; in effect, from the highly industrialised to the still underdeveloped areas.

Finally, the central government gives up direct control over industrial manpower. This, too, comes under the regional councils. Moscow will thus no longer be able to shift masses of, say, Ukrainian workers to industrial centres in Soviet Asia.

In launching his reform Khrushchev has banked on the bureaucracy’s inability to obstruct and sabotage it and on the people’s ‘mature outlook’ on economic affairs.

At first sight the whole reform looks like a fantastic duel between the party’s General Secretary and the entire body of a powerful bureaucracy. None of Khrushchev’s colleagues in the Presidium has uttered a single word publicly to support him on this occasion. By its silence the Presidium demonstrates its own reserve and indicates that Khrushchev ‘goes it alone’, although he must, in fact, have obtained for his move the approval of at least a small majority in the Central Committee. (This is at least the second time he finds himself in such a situation, for he had behind him only a slight majority of the Central Committee when he came out with his ‘secret speech’ about Stalin at the Twentieth Congress.)

It seems even more puzzling that the leaders of the Soviet managerial groups should allow themselves to be so ruthlessly shorn of power, prerogatives and privileges. Whence their meekness?

It would be incorrect to suggest that Moscow’s bureaucracy has put up no resistance at all. Nearly six weeks elapsed between 30 March, when Khrushchev first announced his scheme, and 7 May, when he presented it to the Supreme Soviet. During these weeks the leaders of the industrial trusts directed a heavy fire against the scheme, and echoes of the barrage reverberated even in the Soviet press.

As a result, Khrushchev has been compelled to retreat on one sector, the one comprising ministries in charge of defence industries. In March he held his axe over those ministries, but in May he came to the Supreme Soviet to plead in a somewhat chastened mood that the ministries be allowed to survive. The incident threw a significant light on the alignment within the ruling group: it showed that only the military were strong enough to stand up immediately to Khrushchev. But even his retreat on this sector underlines the strength of his position, for he has not gone back all the way – he has merely struck a compromise. The ministries in question are not to be disbanded, but neither are they to remain in operational command of their industries. The armament plants, too, are to pass under the effective management of the regional councils, and the ministries are to act only as planning and coordinating authorities.

Khrushchev has foreshadowed a continuation of the attack on the bureaucracy. He revealed that since Stalin’s death no fewer than nine hundred thousand ‘bureaucrats’ had lost their jobs, and he gave advance notice of further reductions. He ridiculed the vast staffs of ‘industrial controllers’ spawning on the productive labour of Soviet workers. There were, he said, at least four hundred thousand such useless creatures on industrial payrolls, and he promised that most of them would be fired. As to the managerial groups entrenched in Moscow and the other capital cities, they would have to scatter to all corners of the Soviet Union, which indeed seems necessary if the scheme is not to remain on paper. If Khrushchev succeeds in all this, he will have carried out a trust-busting operation the like of which the world has never seen. But can he succeed?

So far Moscow’s bureaucracy has displayed confusion and disarray, while Khrushchev has shown himself determined not to give it time to recover. He is waging his blitzkrieg against it. He will not, he says, allow the reform to be killed by procrastination; the whole work connected with the overhaul should be completed by the end of June.

Dividing the Bureaucracy: Where does Khrushchev draw the strength for his drive? It is tempting to suggest, as some commentators have done, that he is backed by the party machine, which hopes to gain at the expense of the industrial bureaucracy. But it is difficult to see what benefit the party machine can derive from Khrushchev’s operation. If anything, it too stands to lose, because as long as Moscow exercised control over all industry, the party machine there exercised, to a large extent, that control or participated in its exercise.

Khrushchev has, in fact, succeeded in dividing the bureaucracy itself. He has set the provincial managers against the bigwigs in Moscow. The provincial managers are not a negligible force. As industrialisation has spread from the centre outwards, their numbers, achievements and aspirations have grown. But, bullied and downtrodden by Moscow, they have long nursed their grievances in silence. Khrushchev, who probably experienced similar frustrations himself during his years in the Ukraine, has set himself up as their defender.

Yet the legion of provincial managers provides him with only part of his backing. He appeals to the mass of the workers and most specifically to the foreman against the managerial oligarchies. He made no bones about this when he addressed the Supreme Soviet. He referred to the demands for wider prerogatives that factory managers had raised and cold-shouldered such demands. He went on to say: ‘... we ought rather to raise the status of those who should in the first instance be responsible for the quality of production, the status of the foreman and of the shop manager. The worker, the foreman and the shop manager are our best controllers.’

His initiative reflects a nationwide revulsion against bureaucracy. This tide of popular hostility has half-paralysed the leaders of the managerial groups and made it difficult if not impossible for them to rally to the defence of their positions. The overgrown bureaucracy, jealous of its power and greedy for privilege, is now a costly and useless anachronism. The nation sees it as an impediment to further progress, and the bureaucracy’s own realisation of its usefulness and absurdity has shaken its self-confidence and militancy.

Some Power to the Soviets? Forty years after the October Revolution, questions concerning the meaning of social control over the economy have come once again to dominate Russian minds. The slogan about ‘the worker’s control over the factory’ (a Leninist slogan that had since been forgotten in Russia) has penetrated into the Soviet Union from Yugoslavia and Poland, where that control is supposed to be exercised by workers’ councils.

The workers’ councils and their ‘direct control over production’ have found no favour with Khrushchev or his colleagues. When he last visited Yugoslavia and the Titoists showed him with pride their workers’ councils, Khrushchev replied: ‘If we were to introduce such councils in our factories, our whole industry would collapse overnight.’

But if the idea of the workers’ ‘direct control over production’ remains taboo in public debate, another idea, partly akin to it, has cropped up. In his address to the Supreme Soviet, Khrushchev dealt with demands ‘raised by some comrades’ that the elective soviets, not the provincial governments, should appoint the regional economic councils and control them. The vesting of economic powers in the soviets – this, too, was originally a Leninist idea – might give back to the soviets part of the political prominence they once enjoyed.

Khrushchev has rejected this demand, also, but he did so in a rather gingerly manner. ‘This’, he said, ‘would not be expedient for the time being.’ He was aware that he was on uncertain ground and that the demand that elective soviets should assume control over industry might in due time become a battle cry of ‘Soviet democracy’.

Khrushchev has thus to fight on two fronts: against those who claim for the mass of the people a far higher degree of control over the state and the economy than he is prepared to concede and against the bureaucracy which may still seek to obstruct his reform. At the present time, the ‘front against the bureaucracy’ is for him the more important and the more dangerous. He himself has warned that ‘this reform will not by itself kill bureaucracy’, and he has called for continued vigilance and a continuous crusade. He has amended the constitution and written the abolition of the ministries into it. It remains to be seen if these ministries will vanish. If they do, a great reshuffle of the government will probably be announced.

The main difficulty, however, awaits Khrushchev’s reform only after he has succeeded in dispersing Moscow’s managerial groups. Will the regional councils form themselves into just as many ‘autarchic’ satrapies, refusing to coordinate their activities and refusing to manage their industries in the national interest? And prior to that, will not the administrative upheaval slow down the wheels of industry and bring some of them to a halt?

The first answers will hardly be available before the end of the year, when the annual results of work in industry are usually announced, and they may not be available even then. Khrushchev evidently hopes that the climate of Soviet opinion will continue to favour his experiment, and that the pressure of opinion will tell on the one hand against the holdovers of the Stalin era who may try to maintain control in Moscow, and on the other against the new bureaucracies that may form in the provinces. He relies heavily on the nation’s economic maturity to permit neither over-centralised control nor the fragmentation of the national economy. At the root of his reform is his strikingly optimistic view of the state of Soviet society, a view which events will no doubt subject to an impartial test.