6Soviet “Corporate” Processes and Problems

AS WE have pointed out, the appearance of market imperfections in the mature phase of capitalism, that is, “the monopolization of whole branches of industry,” implies for Marxists the cessation within that society of “the absence of a plan.”¹ In this theoretical framework the corporate sectors are viewed as islands of purposefully integrated activities emerging within the “chaos” of the market. The socialist state takes over, so to speak, where the monopolies leave off: it organizes the economy as a whole as a single enterprise directed “according to a plan established in advance.”²

From the beginning of their revolution, the Communists’ approach to the problems of management and allocation of resources was based on the ideas of eliminating competition among enterprises, transforming nationalized “factories, workships, mines and other productive institutions. . . into. . . subdivisions, as it were, of one vast people’s workshop, which will embrace the entire national economy,” and directing this single corporate aggregate by means of a plan.³ The debates of the 1920’s concerned not the principle of merging all industry and banking into a single national corporate aggregate, managed by the Soviet government, which would allocate all resources, but the ways in which this huge aggregate could be run in practice, the goals which could be set for it and which it could attain, and where and how planning without markets could start.

The origins of the Western type of planning were very different. In the early 1950’s Gunnar Myrdal pointed out that the Communists could rightly claim that their planning was not analogous to the “economic planning . . . gradually becoming the recognized frame of economic policies in Western democratic, industrialized countries.”⁴ In the West, remarked Myrdal, the state has come to assume an increasingly directive role in the economy whenever the growth of corporations and unions has prevented the achievement of automatic equilibrium through atomistic adjustment—that is, when the functioning of the price mechanism is imperiled and when negotiations must be carried out and compromises must be achieved between “the nation-wide interest organizations in the corporate sectors of society.”⁵ Myrdal added that Western national planning has been further stimulated by the dangers of stagnation and unemployment, the drive toward greater equality of incomes, the expanding size and scope of public finance, and the ensuing deep disturbance of international economic ties.⁶

Since Myrdal wrote, Western attitudes and public policies have continued to evolve but in new directions. Economists and policy makers now stress that economic growth is a public concern and that the government must take deliberate steps to alter the national rate of growth. A large body of opinion still claims that in a free economy the right rate “is that which conforms to the voluntary choices of the people.” But an increasing number of economists and policy makers point out that the government is actually faced with an inescapable choice among policy instruments—fiscal and monetary—which have a direct bearing on the level of employment and on the rate of growth. Individual choices necessarily blend with deliberate governmental choices.⁷

Whatever the shifts in Western attitudes, and whatever the apparent similarity in the pursuit of high growth rates both in the East and in the West, Soviet planning can be best understood not in relation to Western governmental planning but in relation to Western corporate processes and problems. Having implanted deliberately, within their backward and illiterate surroundings, the hulk of a giant corporate aggregate, the Russians have tried to work out within this specific framework their own solutions for the management, allocation, and use of resources.

Obviously, while the Western corporation is always immersed in a competitive environment, the single, comprehensive Soviet industrial-banking corporate complex faces no comparable competitor. From its inception, the “competition” of the Soviet corporate aggregate consisted only of “bearing down” on marginal private firms and handicrafts, while its “monopolistic prices” were designed to affect primarily the peasantry.⁸ Above all, a competitive environment sets limits beyond which monopolies or oligopolies cannot distort their specific cost-price relationships. No readily apparent standards of orientation are available for a single, allembracing aggregate whose physical output is arbitrarily divided between investment and consumption. The Soviet corporate complex always absorbs the available investment goods; the costs, profits, and investment of each unit are hardly if at all related; for consumers’ goods, what really matters is that their total value be roughly equal to the wages paid out by the whole aggregate. In the Western corporation, objectives of expansion, diversification of products, and profits may present either an accidental and overlapping accumulation of targets formulated at various functional levels or a fully integrated program for the organization as a whole. In the Soviet analogue, economic targets must be fused into a single program built around some key economic targets, and these targets must be formulated after taking into account social, political, and military goals; in such a program profits play only a subordinate role.

Similarities between Soviet and capitalist corporate problems are, on the other hand, striking. From the beginning of its “all-round” planning era in 1929, the Soviet top leadership set “intuitively,” on the basis of a broad strategy emphasizing the preferential development of certain branches, the goals of some leading industries, and decided on the capital expansion needed for fulfilling them. Within this context the head of each unit, department, and division formulated his own plan proposals. The top management made the final decisions and integrations. In fact, even in the largest corporations, the final choice on alternative ways of using corporate resources always rests ultimately with only a few top line managers;⁹ but in the Soviet analogue concentration of power reached an even higher degree, since both economic and political powers were fused.

Any corporate plan can be both an audacious instrument of technological change and a shield for conservatism. The planners can in effect schedule the development of whole new industrial branches which perhaps might not have developed under normal (market) conditions. On the other hand, any plan can easily become a haven for inefficiency. Since plans are expressions of intent as well as measures of performance, the operational manager who realizes that he is judged on whether he does or does not attain the objective set in his plan “may set the lowest goals acceptable to his superior.” In the Soviet analogue, as in any corporation, “the divisional manager cannot embrace the corporate view, nor can the corporation fully appreciate the pressing problems of operating units.”¹⁰ The drive for progress and change from the top is often met by resistance to change at the bottom of the production pyramid.

Corporate planning is necessarily flexible in terms of both tasks and time. Incomplete information, the impossibility of correlating data at all points in time as the plan unfolds, the mixture of managerial intentions, value judgments, intuitions, and objective data, still make planning a managerial process rather than a “system-engineering” or a science.¹¹ In this, again, Soviet planning can hardly be distinguished from what takes place in most Western corporate aggregates. Flexibility in respect to tasks and time have become characteristic of the Soviet plan; as in any corporate plan, top priorities have always had to be fulfilled no matter what the consequences for other priorities down the line. On the other hand, in any plan, if the present labors necessarily under the shadow of past commitments,¹² the future always seems open to the wildest dreams.

The debates of the 1920’s have underlined that in a backward and isolated country the relations between industry and agriculture—in terms of saving, investment, employment, output, etc.—are the crucial ones in the formulation of any over-all economic strategy or of any development plan. The less developed an economy, the more important its agricultural sector, and the more evidently a centralized decision on pattern, pace, and technological options in industrialization —and its attendant decision on the level of investment—becomes essentially a decision on consumption levels and on growth in agriculture itself. The more developed an economy, the less significant usually is agriculture’s share in its economic activity as a whole, and the more significant interindustry relationships become. This may in part explain why detailed input-output tabulations à la Popov, Litoshenko, and Barengol’ts failed to arouse the interest of the Soviet policy makers, for whom the center of the stage was occupied in the initial phase by the relationships between industry and peasant agriculture.

The debates of the 1920’s, and the actions which followed them, have shown that patterns of industrialization and development may be set and implemented either as a function of some specific problems typical of a given underdeveloped country, or as a function of the evolving changes in the more developed countries. Investment requirements will vary according to the choice of a specific, individualized solution or of a “competitive” solution keyed to the levels reached in other countries. In order to move on autarkic lines at a rapid pace, the Russians have invested systematically, year in and year out, as much as a quarter of their national income (at current prices),¹³ the larger share of which has been channeled toward certain branches of heavy industry. Can such an investment policy be considered economically rational?

To answer this question one must first determine what rate of investment is the economically “rational” rate. In a centrally planned economy, the primary decision on the economic structure desired by the policy maker governs numerous other decisions, including those on the size of investment and on the composition and magnitude of foreign trade. In a country with a large agricultural population, a decision in favor of the priority development of peasant agriculture will probably result in a relatively low ratio of investment to consumption (since consumption on the farm can hardly be reduced below a certain level), large participation in foreign trade, and reliance on comparative advantage. Conversely, emphasis on a fully integrated heavy industry program will lead to high investment requirements, and will perhaps tend over time to make for a lower volume of trade than would be the case with a strategy oriented to comparative advantage (if we can assume that either policy would achieve the same amount of growth in real economic activity). Finally, choices of the pace of development, and of technology—or the intensity of industrialization—will further condition the size of investment needs.

The case for massive investments in the initial phases of industrialization and for the adoption of advanced technology is now well known: only through a major investment effort can one benefit from large-scale techniques and increasing returns; costly though certain modem techniques may appear for countries with redundant labor, they may, in certain branches, make for faster production, tie up less material, and prove cheaper than more primitive techniques. But as Soviet industrialization has shown, the stronger the emphasis on the rapid and intensive development of certain branches with the highest available technology, the sharper will be the ensuing differences between their rate of growth and that of all other branches, and the longer will the most backward methods be retained in the low priority sectors. Thus the triple decision on pattern, pace, and technology determines the over-all target for capital accumulation as well as the more rapid development of industry than of agriculture, the differential growth rates of industrial branches, and the mixture, in various strengths, of capital-intensive and labor-intensive processes throughout the economy as a whole.

The debates of the 1920’s drew attention to the need of exploring, for the sake of optimality and efficiency, the connections between the growth rates of industry and agriculture, or as Fel’dman put it, of producers’ goods and consumers’ goods. But the suggestions of Fel’dman, Kondrat’ev, and Bazarov were set aside. Planning was conducted essentially as an administrative-engineering operation, or as a sum of orders and engineering constructs. Such methods make it possible to focus on a limited number of key projects and goals which are considered as crucial by the policy makers, and to view development as a whole as a function of these key branches only. A poorly responsive price mechanism— and this is the usual case in backward economies—may make physical-engineering planning a necessity if not a virtue, while on the other hand lack of proper information may render optimality and efficiency highly elusive goals. The Soviet bureaucracy was very complacent about this type of “shortcut” to achieve its immediate aims; but the result was that any real progress in planning methods has been achieved not in the country of all-round planning but in the West.

Progress in planning has been further hampered by a number of disparate and debatable solutions sanctioned in Soviet planning theory and practice since the 1920’s. The search for consistency and efficiency was discouraged, if not precluded, by emphasis on a so-called “planning principle” supposed to be the “regulator” of a planned economy. This principle simply sanctioned the freedom of the planner to ignore the “law of value” (cost plus price considerations) and led him to distort for either serious or trivial causes both producers’ and consumers’ prices, and to disregard any market signal. The planners’ relative freedom of choice in respect to long-run matters of structure, target setting, and investment priorities (as emphasized by the so-called “teleological” principle) was presumed to hold equally for price setting (as expressed by the so-called “planning” principle). This in turn confused planning with the day-to-day aspects of its implementation, and erased the dividing line between the executive task of the policy maker and planner and the operative functions of the plant manager. Confusion in prices was aggravated rather than corrected when the economy started to move under Stalin along the path of rapid growth: the attachment of the Soviet planners to an organically defective tool for price setting—the labor theory of value—rendered the confusion intolerable when the Soviet Union finally reached a high level of industrialization.

The Soviet model of industrialization—that is, both Soviet strategy and planning procedure—exercises today a deep influence on the underdeveloped areas. The crucial importance within these countries of the relationship between a small industrial and an overwhelming agricultural sector; the decisive importance of massive investments for developing certain new domestic industries, and the possible advantages accruing from the adoption of the advanced technology in at least some key branches and processes; the possibility of automatically fulfilling “realistic” capital formation targets by planning in physical terms, in countries with defective statistical information and unresponsive price mechanisms —all these render the Soviet planning model as it emerged in the 1920’s extremely adaptable to backward countries. The antipathy to private enterprise, often identified with colonialism; the currently wide acceptance of the idea that the government necessarily assumes an important role in the consumption, allocation, and management of the country’s resources; and finally, the almost charismatic character of the newly independent states¹⁴ render the early Soviet-type planning theory and methods attractive for even non-Communist underdeveloped countries.

If the goal of “reaching and surpassing the highest indices of capitalism” and the strategy of industrialization as formulated in the 1920’s remain the unchanged guidelines of Soviet economic policy, still the Soviet policy makers have become aware of the new and more complex organizational and planning problems arising with the increased industrialization of their country. While maintaining the strategy, they have been forced to revise their earlier ideas concerning the operation of the Soviet economy, the role of economic “laws,” the alleged antithesis between planning and market relations, and the significance of the price mechanism, to mention but a few things. Increasing awareness of the significance of accurate pricing for complex economic calculation, improvement of the flow of information (mostly in industry), wider use of incentives and of market mechanisms among the “subdivisions” of the Soviet corporate aggregate, reliance on various types of decentralization in respect to some operating managerial tasks, interest in and availability of new programming tools—input-output, linear programming, operations research—render changes in Soviet planning theory and practice both feasible and probable.¹⁵ The Russians stress that theirs is a “commodity-monetary” economy just like that of the capitalist system; that the “law of value” necessarily plays a crucial role; that physical planning must be seriously checked against a variety of value indices. Optimality and economic efficiency are clearly called into play. Obviously, the same strategy can be combined with a number of planning procedures. But although Soviet policy makers have become conscious of this fact and are departing from some of the planning theories and methods of the 1920’s —in some respects timorously, in other respects audaciously —other Communist leaders, those of backward China for instance, continue to stick to the old methods of planning, apparently both by conviction and for convenience. Perhaps the crude methods of the 1920’s are after all better suited to a lower level of development.