Cassius Clay
25th July 2003, 16:13
Written by Bill Bland in 1980 this clearly explains how the USSR was Capitalist well before it spilt up in 1991 and 'officially' became a Free-market society.
CHAPTER 1: The Abolition of Centralised Economic Planning
Under the socialist system of society which formerly existed in the Soviet Union, production was regulated in a planned way through detailed directives transmitted to enterprises by the central state apparatus in accordance with the current economic plan:
"In the case of socialised production....society distributes labour-power and means of production in the different branches of production".
(K. Marx: "Capital", Volume 2; London; 1974; p.362).
"Our plans are not forecast plans, not guess-work plans, but directive plans, which are binding upon the leading bodies and which determine the trend of our future economic development on a country-wide scale".
(J.V. Stalin: Political Report of the Central Committee to the 15th. Congress of the CPSU (B), in: "Works", Volume 10; Moscow; 1954; p.335).
According to contemporary Soviet propagandists, the aim of the "economic reform" instituted from 1965 on was to "improve" and "consolidate" -- even "perfect" -- centralised economic planning:
"A number of measures are envisaged to raise the scientific standards of state planning of the economy".
(A.N. Kosygin: "On Improving Industrial Management, Perfecting Planning and Enhancing Economic Incentives in Industrial Production", in: "Izvestia" (News), September 28th., 1965, in M.E. Sharpe (Ed.): "Planning, Profit and Incentive in the USSR", Volume 2; New York; 1966; p.15).
"The economic changes signify improvement of national economic planning... The reform consolidates centralised planning". (Editorial: "Economic Policy and Work for Communism", in: "Pravda" (Truth), January 14th., 1966, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p.9).
In fact, as will be shown, centralised economic planning, as it had existed under socialism, has been eliminated from the Soviet economy since the "economic reform".
The first stage in the process leading to its elimination was an intensive propaganda campaign directed at centralised economic planning, which was denounced as "obsolete", "restrictive", "bureaucratic", and, of course, "due to Stalin's distortion of socialism":
"These shortcomings in economic management should be eliminated not by making planning more complicated, more detailed and more centralised, but by developing the economic initiative and independence of enterprises ---Enterprises must be given broader initiative; they must not be bound by petty tutelage and bureaucratic methods of planning from the centre".
(E.G. Liberman: "Cost Accounting and Material Encouragement of Industrial Personnel", in: "Voprosy Ekonomiki" (Problems of Economics), No 6, 1955, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.7).
"Stalin...substituted naked administration by fiat for economic instruments of directing the economy....
Regulation of the use of financial resources by enterprises, where it is excessive and too detailed, should be eliminated, and enterprises should be given greater opportunity to maneuver with these resources".
(L. Gatovsky: "The Role of Profit in the Socialist Economy", in: "Kommunist" (Communist), No. 18, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.95, 104).
"The practice of petty tutelage should be eliminated".
(V.S. Nemchinov: "Making Enterprises Interested in More Intensive Plans", in: "Voprosy ekonomiki" (Problems of Economics), No. 11, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.152).
"These norms (fixed by the central state planning authority -- WBB) have largely become obsolete; they have turned into petty tutelage, binding the manager's activities......The time has come to discard the obsolete forms of economic management based on directive norms".
(V. Trapeznikov: "For Flexible Economic Management of Enterprises", in: "Pravda" (Truth), August 17th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 193-4).
"It will be necessary, above all, to...curb significantly the employment by higher bodies of purely administrative methods of managing enterprises and grant adequate independence to the enterprises".
(R. Belousov: "The Chief Thing is Economic Effectiveness", in: "Pravda" (Truth), November 13th., 1964, in M.E. Sharpe (Ed.): op. cit., Volume 1; p.221).
"Guidance of the enterprises by means of administrative intervention in all the details is a very poor method that cannot yield good results".
(V. Belkin and I. Berman: "The Independence of the Enterprise and Economic Stimuli", in: "Izvestia" (News), December 4th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.225).
"Directors have at their disposal certain material and monetary resources, but the right to use them, to manoeuvre with them, has been quite limited. Excessive tutelage on the part of superior organisations has fettered the initiative of the personnel."
(V. Garbuzov: "Finance and Economic Stimuli", in: "Ekonomicheskaya gazeta" (Economic Gazette), No 41, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p.48).
"Purely administrative methods of economic guidance .... have become widespread. The same is true of detailed regimentation of the work of the enterprise and of petty tutelage over it".
(L. Gatovsky: "Unity of Plan and Cost Acccounting", in: "Kommnist" (Communist), No. 15, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p.80).
"Centralised planning cannot be identified with instructions on the quantity and assortment of produce to be manufactured by each enterprise... Attempts of this kind only clog the planning channels".
(E.G. Liberman: "The Plan, Direct Ties and Profitability", in: "Pravda" (Truth), November 21st., 1965, in: M.E. Sharpe (Ed.) op. cit., Volume 2; p.172).
"The centralised plan ..must not be turned into a fetish, into an absolute, and regarded as a plan that must be carried out in every detail".
(A.M. Rumyantsev: "Management of the Soviet Economy Today: Basic Principles", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p.20).
In line with the theme that the propaganda campaign was aimed, not at the abolition of centralised planning but at its "improvement", the demands put forward in the campaign were that the number of central economic directives to enterprises should be "reduced" to a few "key indices":
"Only the key indices, the decisive indices, should be handed down to enterprises, whose directors should be given greater rights and opportunities for economic manoevring within their scope".
(E.G. Liberman: "Planning Production and Standards of Long-term Operation", in: "Voprosy ekonomiki" (Problems of Economics), No. 8, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.65-6).
"The state plan should be freed of unnecessary indices"
Zverev: "Against Over-simplification in Solving Complex Problems", in: "Voprosy ekonomiki" (Problems of Economics), No. 11, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.142).
"We must free the enterprises from the excessive number of obligatory indicators".
(E.G. Liberman: "Are We Flirting with Capitalism? Profits and 'Profits' ", in: "Soviet Life", July 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.309).
It was in this form that the "economic reform" was officially adopted by the Central Committee of the Communist Party of the Soviet Union in September 1965:
"A serious shortcoming of industrial management is that administrative methods have superseded economic necessity... The powers of enterprises with regard to their economic activity are restricted.
The work of enterprises is regulated by numerous indices which restrict the independence and initiative of the personnel of enterprises, diminish their sense of responsibility for improving the organisation of production...
It has been found expedient to put a stop to excessive regulation of the activity of enterprises, to reduce the number of plan indices required of enterprises from above."
(CC, CPSU: Decision "On Improving Management of Industry, Perfecting Planning and Enhancing Economic Incentives in Industrial Production", in: "The Soviet Economic Reform: Main Features and Aims", Moscow; 1967; p.147).
The "key indices" which, it was proposed, should alone be handed down to enterprises were outlined by Prime Minister Aleksei Kosygin:
"In the future.. an enterprise will have the following indices established from above: the volume of goods to be sold; the main assortment of goods; the wage fund; the sum of profits and the profitability payments into the budget and allocations from the budget;.. the volume of centralised capital investments and commissioning of production capacities and fixed assets; the main targets for introducing new technology; the indices for supplying materials and equipment.
All other indices of economic activity will be planned by the enterprise independently, without endorsement from a higher organisation".
(A.N. Kosygin: "On Improving Industrial Management, Perfecting Planning and Enhancing Economic Incentives in Industrial Production", in: "Izvestia" (News), September 28th., 1965, in: M.E. Sharpe (Ed.): op. cit., Voume 2; p. 18-19).
Soviet propagandists endorsed the impression given in the Central Committee and by Kosygin:
"The state plan merely endorses the most essential indicators, ensuring balanced economic development, on the basis of which the enterprises independently organise economic activity".
(S. Khavina: "In the Crooked Mirror of Bourgeois Theories", in: "Ekonomicheskaya gazeta" (Economic Gazette), No 44, 1965, in: "The Soviet Economic Reform: Main Features and Aims"; Moscowl 1967; p.141).
"The essence of the reform consists in concentrating centralised planning on formulating the most general indicators of national economic development, extending the independence of enterprises".
(A.M. Rumyantsev: "Management of the Soviet Economy Today: Basic Principles", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p.16).
"To extend the economic independence and initiative of enterprises the number of plan assignments set to enterprises by ministries and departments has been reduced to a minimum".
(A.N. Yefimov: "Long-term Plans and Scientific Forecasts", in: ibid.; p.72).
What was not made clear in these statements was that the "economic reform" did not merely reduce the number of "indices" handed down to enterprises by the state "planning authority": it transformed the remaining "indices" from directives, binding on the enterprises, to "guidelines" which the enterprises could follow or not, as they chose.
Evsei Liberman, Professor of Engineering Economics at the University of Kharkov and the principal architect of the "economic reform" expressed the true position with characteristic blunteness:
"From the centre each enterprise should be given an aim"
(E.G. Liberman: "Planning Industrial Management and Material Stimuli for its Development", in: "Kommunist" (Communist), No. 10, 1956, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.32).
"Control figures will be drawn up.... in a generalised, value form, to be given to sectors of the economy. In the same form these control figures will be handed down to the enterprises, not as precise directives, but rather as guidelines for drawing up their plans".
(E.G. Liberman: "Plan, Direct Ties and Profitability", in: "Pravda" (Truth), November 21st., 1965, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p.51).
Thus, as enterprises were transferred to the "reformed" system of operation, they proceeded in practice to plan their own production -- even as to the types and qualities of commodities they they would produce:
"These enterprises (i.e., those working under the "reformed" system -- WBB) now draw up their production plans themselves"
(V. Sokolov, M. Nazarov and N. Kozlov: "The Firm and the Customer", in: "Ekonomicheskaya gazeta" (Economic Gazette), January 6th., 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p251).
"The result society needs is achieved by expanding the rights of enterprises in specifying the assortment,...and so on... The new management system... extends the rights of enterprises in... studying the demand and changing assortment".
(A.M. Rumyantsev: "Management of the Soviet Economy Today: Basic Principles", in: "Soviet Economic Reform: Progress and Problems" Moscow; 1972; p. 21, 24).
"The single approach to managing the economy is displayed.. in granting enterprises equal rights to concretise the assortment of goods they produce...
It is the enterprises themselves that can and must draw (i.e., economic plans -- WBB) up originally. Moreover these must be high and well-substantiated plans".
(P.B. Bunich: "Methods of Planning and Stimulation", in: ibid.; p.36,49).
"Five-year plans of enterprises and associations have become the basis for planning their activity"
(L.M. Gatovsky: "The Economic Reforms and the Stimulation of Technological Progress", in: ibid.; p.171).
"Enterprises decide what range of goods to produce in terms of physical quantities and total value of sales.. and other economic indicators"
(B.I. Braginsky: "Planning and Managment in the Soviet Economy", in: "The Soviet Planned Economy"; Moscow; 1974; p. 125-6).
Soviet economists refer to this "reformed" system of "economic planning" as "planning from below":
"The enterprise should actually become the basic organ for planning from below".
(E.G. Liberman: "Economic Levers for Fulfilling the Plan for Soviet Industry", in: "Kommunist" (Communist), No. 1, 1959, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 48).
"The other way (of "economic planning" -- WBB) is to encourage the initiative of the production collectives (i.e., the personnel of productive enterprises -- WBB) in every possible way, to execute in deed and not in words planning from below' "
(R. Belousov: "The Chief Thing is Economic Effectiveness", in: "Pravda" (Truth), November 13th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.220).
Since the "economic reform", therefore, the detailed central "economic plan" can only take the form of totalisation of the individual economic plans of all the enterprises.
But since the enterprises frequently change their economic plans during the course of a "planning period", prices fluctuate, and so on, the central "economic plan" produced at the beginning of this period bears little relation to the final economic result:
"The work of drawing up five-year plans from the enterprises up to the USSR Gosplan (State Planning Committee -- WBB) was not completed in the past five years". (N. Y. Grogichinsky: "The Economic Reform in Action", in: "Soviet Economic Reform: Progress and Problems", Moscow; 1072; p.211).
"It is practically impossible to compile a Five-Year Plan".
Komin: "Problems in the Methodology and Practice of Planned Price Formation", in:
"Planovoe khoziaistvo" (Planned Economy). No. 9, 1972, in: "Problems of Economics", Volume 16, No. 1; May 1973; p.48).
"An objective assessment of the fulfilment of the plan is impossible... In fact, the planning of distribution never attains completed form.. It is completed only with the end of the planning period... It is impossible to compile a national economic plan that is substantiated and balanced for all value indices.. on the baisis of physical indices and prices... The five-year plan in terms of value indices essentially loses its meaning".
(V. Kotov: "Prices: The Instrument of National Economic Planning and the Basis of the Value Indices of the Plan". in: "Planovoe khoziaistvo" (Planned Economy), No. 9, 1972, in: "Problems of Economics", Volume 16, No. 1; May 1973; p. 61, 62, 69).
Contemporary Soviet economists thus admit that the Soviet economy since the "economic reform" is characterised by "indeterminacy", i.e., anarchy:
"The indeterminacy that is manifested in the probabilistic nature of the anticipated economic result does exist and is objectively inherent even in socialist society".
(L. Veger: "Calculating Economic Effectiveness under Conditions of Indeterminacy", in: "Voprosy ekonomiki" (Prolems of Economics), No. 2, 1972, in: "Problems of Economics", Volume 15, No. 4; August 1972; p. 41)
"Centralised planning in conditions of broad independence of enterprise is also faced with the need of elaborating methods of managing the economy marked by growing indeterminacy, probability (stochastics) of its processes".
(A.M. Rumyantsev: "Management of the Soviet Economy Today: Basic Principles", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p.23).
All this is not meant to suggest that the contemporary Soviet state has no "economic plans", or that it no longer influences the direction of development of the Soviet economy. Like most orthodox capitalist states today, it draws up, from time to time, broad "economic plans". These are, however, not imposed upon enterprises by means of directives. The Soviet state endeavours to influence enterprises to follow, broadly, the lines of its current "economic plan" by the use of the same kind of "economic levers" that are used by the state in orthodox capitalist countries:
"One of these far reaching measures should be the increased use of economic levers in influencing production".
(E.G. Liberman: "Economic Levers for Fulfilling the Plan for Soviet Industry", in: "Kommunist" (Communist), No. 1, 1959, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.55).
"The attempt to make broader use of economic levers and economic stimuli in planning is a healthy reaction against the administrative conception of a plan"
(L. Alter: "Incentives Must be Linked with the Long-term Planning of an Enterprise", in: "Voprosy eknomiki" (Problems of Economics), No. 11, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.167).
"The time has come to discard the obsolete forms of economic management based on directive norms.....Economic influence is successfully employed even in capitalist countries.....In our conditions, when all the financial and economic levers are in the hands of the state, measures of economic influence will prove still more effective....
The general aim of the above proposals is to substitute a sum of economic influences, which would channel the enterprise's activity, for control of each step of the enterprise executive through directives".
(V. Trapeznikov: "For Flexible Economic Management of Enterprises" in: "Pravda" (Truth), August 17th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.194, 195, 199).
"The putting into operation of flexible economic methods... presupposes that the centre of gravity be shifted from administration by injunction to economic methods of guiding enterprises".
(L. Leontiev: "The Plan and Methods of Economic Management", in: "Pravda" (Truth), September 7th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.208).
"The mastering of commodity-money relations in the planned socialist economy... means the establishment of a basically new mechanism, in which the system of economic levers connected with commodity-money relations functions as a tool of national economic planning...
The socialist state... guides the national economy and every enterprise with the help of a system of economic levers".
(G. Kosiachenko: "The Plan and Cost Accounting", in: "Finansy SSSR" (USSR Finances), No. 12, 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.232, 238).
"The main levers, which determine the development of the country's economy, remain in the hands of the state".
(N.K. Baibakov: "Tasks of Economic Planning in the New Conditions", in: "Pravda" (Truth), October 29th., 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 100).
The precise mechanism of these "economic levers" will be discussed in later sections.
2: Profit as the Regulator of Production
The abolition of centralised economic planning as the regulator of social production in the Soviet economy required its replacement by a different regulator: this could only be profit.
Contemporary Soviet economists define profit in the Soviet economy as an enterprise's surplus of income over expenditure:
"Profit is formed directly from the difference between the price and cost of production".
(L. Gatovsky: "The Role of Profit in a Socialist Economy", in: "Kommunist" (Communist), no. 18, 1962, in: M.E. Sharpe (Ed.): "Planning, Profit and Incentives in the USSR", Volume 1; New York; 1966; p. 98).
Already, at the 22nd. Congress of the CPSU in 1961, First Secretary Nikita Khrushchov declared:
"We must elevate the importance of profit and profitability".
(N.S. Khrushchov: Report on the Programme of the CPSU, 22nd.
Congress CPSU; London; 1961; p.54).
This line was developed under the "economic reform" carried through by Khrushchov's successors. General Secretary Leonid Brezhnev and Prime Minister Aleksei Kosygin:
"Let us consider profit, one of the economic instruments of socialism. A considerable enhancement of its role in socialist economy is an indispensible requisite for cost accounting".
(Editorial: "Economic Policy and the Work of Communism", in: "Pravda" (Truth), January 14th., 1966, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p.11).
In fact, the term used to express the essence of the "economic reform" --"cost accounting" (khozraschot) -- is defined by contemporary Soviet economists as a method of management based on ensuring the profitability of each individual enterprise:
"The essence of cost accounting is that any enterprise should cover its expenditures with its own income and should have a profit over and above this. The system of cost accounting makes every enterprise interested in obtaining a bigger profit".
(L. Gatovsky: p. cit.; p.90).
"Cost accounting (khozraschot) is a method of management applied at socialist enterprises which is based on measuring in money terms their inputs and results of their operation , on enterprises covering their expenditure with their own income, ensuring profitability".
(A.M. Rumyantsev: "Management of the Soviet Economy Today: Basic Principles", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p.12).
"Cost accounting is a key method for managing the economy which... is based on measuring costs in monetary terms against the results of production activity from income and ensuring profitability of production".
(S. Kamenitser: "The Experience of Industrial Management in the Soviet Union"; Moscow 1975; p.130-1).
Under cost accounting, profit has been elevated to the role of "the supreme criterion of the efficiency of an enterprise":
"A criterion that characterises to the greatest degree the operation of the enterprise....is profit".
(V. Trapeznikov: "For Flexible Economic Management of Enterprises", in: "Pravda" (Truth), August 17th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 196).
"Profit serves as the most generalising criterion of the enterprise's entire activity".
(L. Leontiev: "The Plan and Methods of Economic Management", in: "Pravda" (Truth), September 7th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 209).
"Profit generalises all aspects of operation".
(E.G. Liberman: "Are We Flirting with Capitalism? Profits and 'Profits' ", in: "Soviet Life", July 1965, in: M.E. Sharpe (Ed.) op. cit., Volume 1: p. 309).
"Profit reflects more fully and deeply important aspects in the operation of the socialist enterprises on a khozraschot basis....Profit serves as an indicator of production efficiency at a given enterprise".
(B. Sukharevsky: "New Elements in Economic Incentives", in: "Voprosy ekonomiki" (Problems of economics), No. 10, 1965, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p. 76).
"Under socialism profit... expresses.. the efficiency of the economic activity of each socialist enterprise"
(Editorial: "Economic Policy and Work for Communism", in: "Pravda" (Truth), January 14th., 1966, in: ibid.; p.11).
Nevertheless, contemporary Soviet sociologists, when writing of orthodox capitalist countries, continue to pour scorn on
"...attempts by experts in both the theory and practice of 'human relations' to conceal the fact that profit is the main goal and motive force of capitalist production. In their writings the concept of 'profit' is either not mentioned at all or approached as 'the social test of the utility of the enterprise and of effective organisation".
(N. Bogomolova: "Human Relations' Doctrine: Ideological Weapon of the Monopolies"; Moscow; 1973; p.63).
In fact, the particular aspect of profit which is taken by contemporary Soviet economists to express "the supreme criterion of the efficiency of an enterprise" is the "index of profitability" -- the profit made by an enterprise in a year as a percentage of the value of its total) fixed and circulating) assets:
"If it is the profitableness of an enterprise as a whole that is assessed, it is advisable to relate profit to the value of the social productive assets the state placed at the disposal of the given enterprise.
By commensurating profit with the productive assets it is, in fact, the relative productivity of labour that is determined... It is quite natural that this accretion should be commensurated with the entire value of the fixed assets and circulating funds, inasmuch as they express all the resources applied in production".
(E.G. Liberman: "Plan, Direct Ties and Profitability", in: "Pravda" (Truth), November 21st., 1965, in: "The Soviet Economic Reform: Main Features and Aims", Moscow; 1967; p.55).
"The most generalised index of an enterprise's activity is the index of profitability, computed as a ratio of profits to production assets".
(P. Bunich: "Economic Stimuli to Increase the Effectiveness of Capital Investments and the Output-to-Capital Ratio", in: "Voprosy ekonomiki" (Problems of Economics), No. 12, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 189).
As some Soviet economists have pointed out, the index of profitability is merely a euphemism for what is called, in orthodox capitalist countries, the "rate of profit":
"The rate of surplus value measured against the total capital is called the rate of profit....Surplus value and profit are actually the same thing and numerically equal".
(K. Marx: "Capital", Volume 3; London; 1974; p.43, 48).
"This index (i.e., the index of profitability - WBB) .. is widely used in capitalist countries (for this is neither more nor less than the rate of profit on invested capital)"
(I. Kasitsky: "The Main Question: Criteria for Premiums and Indices Planned for Enterprises", in: "Voprosy ekonomiki" (Problems of Economics), No. 11, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 139).
Contemporary Soviet economists assert that, under the socialist system which formerly existed in the Soviet Union, profit was regarded as only of minor importance:
"An obvious belittling and, at times, outright ignoring of the importance of profit... were characteristic of the period of the cult of Stalin's personality... Profit .. was regarded as a purely formal category".
(L. Gatovsky: op. cit., p. 95).
And they attribute this to "lack of regard" for "immutable" economic laws during the period when Stalin was General Secretary of the CPSU:
"The problem which we now face in determining if profit should be the basic index in judging the work of an enterprise can be attributed in no small way to the lack of regard for the immutable law of economic construction during the Stalin era. This immutable law, regardless of the system under which it operates, is universal; an economy must produce more than is expended on production; and it is this principle, however unheeded it has been in the past, that theoretically provides the foundation for the acceptance of profits today in the Soviet Union".
(L. Leontiev: "Pravda" (Truth), July 10th., 1964, in: J.L. Felker: "Soviet Economic Controversies". Cambridge (USA); 1966; p. 77-8).
The implication that Stalin had a "lack of regard" for objective economic laws is certainly untrue, although he did not regard most of them as "immutable", but as relative to a definite historical period:
"Marxism regards laws of science -- whether they be laws of natural science or laws of political economy -- as the reflection of objective processes which take place independently of the will of man. Man may discover these laws, get to know them, study them, reckon with them in his activities and utilise them in the interests of society, but he cannot change or abolish them....The laws of economic development.. are objective laws...One of the distinguishing features of political economy is that its laws, unlike those of natural science, are impermanent, that they, or at least the majority of them, operate for a definite historical period, after which they give place to new laws".
(J.V. Stalin: "Economic Problems of Socialism in the USSR"; Moscow; 1952; p. 6. 7. 8).
In fact, what was regarded as "of minor importance" under the socialist system which formerly existed in Soviet Union was not the profit made in Soviet society as a whole, but that made by individual enterprises or even individual sectors of industry.
The "economic law" which Stalin is charged with disregarding is one invented by the new breed of Soviet economists: that in a socialist society production should be regulated by the law of value, manifested in the profitability of individual enterprises.
That Stalin rejected this concept is very true.
"Totally incorrect.. is the asertion that under our present economic system.. the law of value regulates the 'proportions' of labour distributed among the various branches of production. If this were true, it would be incomprehensible why our light industries, which are most profitable, are not being develped to their utmost, and why preference is given to our heavy industries, which are often less profitable, and sometimes altogether unprofitable.
If this were true, it would be incomprehensible why a number of our heavy industry plants which are still unprofitable.. are not closed down, and why new light industry plants, which would certainly be profitable..., are not opened.
If this were true, it would be incomprehensible why workers are not transferred from plants that are less profitable, but very necessary to our national economy, to plants which are more profitable -- in accordance with the law of value, which supposedly regulates the 'proportions' of labour distributed among the branches of production".
(J.V. Stalin: ibid.; p. 27-8).
Since, under the socialist system, profits in general, both high and low, accrued to the state, what was of major significance was not the profitability of individual enterprises or of individual sectors of industry over a short term but the profitability of the economy as a whole over a relatively long period:
"If profitableness is considered not from the standpoint of individual plants or industries, and not over a period of one year, but from the standpoint of the entire national economy and over a period of, say, ten or fifteen years, which is the only correct approach to the question, then the temporary and unstable profitableness of some plants or industries is beneath all comparison with that higher form of stable and permanent profitableness which we get from the operation of the law of balanced development of the national economy and from economic planning....
In brief, there can be no doubt that under our present socialist conditions of production, the law of value cannot be a 'regulator of proportions' of labour distributed among the various branches of production....
The aim of socialist production is not profit, but man and his needs".
(J.V. Stalin: ibid.; p. 28-9, 86)
Contemporary Soviet propagandists claim that, in rejecting the "distortions of economic theory associated with Stalin", and in emphasizing the importance of the profit of individual enterprises, they are "returning to the concepts of Lenin":
"V.I. Lenin pointed out that each enterprise must function on a profitable basis, i.e., it should completely cover its expenditures from its income and should make a profit".
(A.N. Kosygin: "On Improving Industrial Management, Perfecting Planning and Enhancing Economic Incentives in Industrial Production", in: "Izvestia" (News), September 28th., 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2, p. 21).
And since it was undoubtedly Lenin's aim that Soviet society should advance to communism, these propagandists claim that, by "returning to Lenin's concept that every enterprise should function profitably", Soviet society is "taking the Leninist road to communism".
It is, indeed, true that in January 1922 Lenin referred to
"...the urgent need to... make every state enterprise pay its way and show a profit".
(V.I. Lenin: "The Role and Functions of the Trade Unions under the New Economic Policy", in: "Colected Works", Volume 33; Moscow; 1973; p. 185-6).
If, however, a few more words are quoted from this passage, the outright distortion of contemporary Soviet propagandists in presenting the enhancement of the role of profit under the New Economic Policy as a "measure for the development of socialism", even of the "advance to communism", becomes patently obvious:
"A free market and capitalism, both subject to state control (by a state representing the interests of the working class -- WBB) are now being permitted and are developing; on the other hand, the socialist state enterprises are being put on what is called a profit basis...
In view of the urgent need to ... make every state enterprise pay its way and show a profit, and in view of the inevitable rise in narrow departmental interests and excessive departmental zeal, this circumstance is bound to create a certain conflict of interests in matters concerning labour conditions between the masses of the workers and directors and managers of the state enterprises, or the government departments in charge of them. Therefore, as regards the socialised enterprises, it is undoubtedly the duty of the trade unions to protect the interests of the working people".
(V.I. Lenin: ibid.; p. 184, 185-6).
Thus, in contrast to the contemporary Soviet propagandists -- who present the enhancement of the role of profit of individual enterprises as "a measure for the development of socialism", even of "the advance to communism", Lenin presented the similar temporary measure adopted as part of the New Economic Policy bluntly as an enforced, temporary retreat to capitalist economic principles which would inevitably create an antagonism of class interest between the masses of workers on the one hand and the enterprise directors and state departments on the other.
Under the new system of cost accounting, however, profit -- now presented as "the supreme criterion of the efficiency of an enterprise" -- has replaced centralised economic planning as the regulator of social production:
"A way out of the apparent contradictions has been suggested in our press in the form of a kind of automatic 'self-regulator'... The role of such an automatic self-regulator, it is claimed, can be performed by profitability... In the profitability controversy some economists have based their objections to making it a regulator of social production on the contention that profit is a capitalist category. Such objections, of course, are untenable".
(B. Sukharevsky: "On Improving the Forms and Methods of Material Incentives", in: "Voprosy ekonomiki" (Problems of economics), No. 11, 1962, in: M.E. Sharpe (Ed.) op. cit., Volume 1; p. 116-7, 118).
"Production will be subordinated to changes in profits".
(G. Kosiachenko: "Important Conditions for Improvement of Planning", in: "Voprosy ekonomiki" (Problems of Economics), No. 11, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 158).
"The utilisation of profit to achieve the aims of socialist production, its adaption to the planned guidance of the economy and to serving socialist distribution according to work, inevitably presupposes the elaboration of a special mechanism"
(B. Sukharevsky: "New Elements in Economic Incentives", in: "Voprosy ekonomiki" (Problems of Economics), No. 10, 1965, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p. 78).
The "economic levers" mentioned in the last section, by which the Soviet state attempts to influence the economic activity of enterprises in the direction it desires, operate through their effect on the proftis of the enterprises:
"The entire system of economic levers must be regulated... in such a way as to make it advantageous for enterprises to fulfil.. the national economic plan".
(V.S. Nemchinov: "Socialist Economic Management and Production Planning", in: "Kommunist" (Communist), No. 5, 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 188-9).
"To exert effective economic influence on economic activity, it is essential to choose a criterion that characterises to the greatest degree the operation of the enterprise and meets the interests of both the national economy and the personnel of the enterprise... It is profit that constitutes such a criterion".
(V. Trapeznikov: op. cit.; p. 196).
"It is possible... to set up the enterprise in such economic conditions whereby the enterprise, guided by its own interests, would.... choose the optimal course of fulfilling the economic plan....
Under conditions of cost accountability, the sum total of economic levers in the long run influences the enterprise through.... profit".
(B. Sukharevsky: "The Enterprise and Material Stimulation", in: "Ekonomicheskaya gazeta" (Economic gazette), No. 49, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 205, 206).
3: The "Socialist Market"
Profit is realised, of course, not in the production of commodities, but in their sale:
"Profit is determined on the basis of the goods marketed, and not on the basis of those produced".
(G. Kosiachenko: "The Plan and Cost Accounting", in: "Finansy SSSR" (USSR Finances), No. 12, 1964, in: M.E. Sharpe (Ed.): "Planning, ProfIt and Incentives in the USSR", Volume 1; New York; 1966; p. 245).
Thus, in order to realise their aimed-for profit, enterprises must gear their production of commodities to their assessment of the market for these commodities:
"Under socialism the market is... a sphere for the marketing of products -- means of production and consumer goods manufactured by state and cooperative enterprises".
(L. Gatovsky: "Unity of Plan and Cost Accounting", in "Kommunist" (Communist), No. 15, 1965, in M.E. Sharpe (Ed.): op. cit., Volume 2; p. 88).
Regulation of social production by the profit motive means, in fact, regulation by the market:
"The market mechanism should be resorted to on a larger scale".
(G. Kosiachenko: ibid.; p. 243).
"Without utilising the mechanisms of the socialist market..., it is impossible to ensure the operation of enterprises on the basis of complete khozraschot".
(R. Rakitsky: "Bourgeois Interpretation of the Soviet Economic Reform", in: "Voprosy ekonomiki" (Problems of Economics), No. 10. 1965, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p. 129).
"We must acknowledge that.. the market mechanism.. plays a regulating role in socialist production".
(L. Konnik: "Planning and the Market", in: "Voprosy ekonomiki" (Problems of Economics), No. 5, 1966, in: "Problems Of Economics", Volume 9, No. 8; December 1966; p. 31).
The Soviet market is one where not only prospective buyers of a commodity but also prospective sellers -- the enterprises which produce it -- are in competition with one another -- although most contemporary Soviet economists prefer to speak of "emulation" rather than competition in the case of the "socialist market":
"The enterprise will compete for orders; the competition will be based on comparisons of guarantees of quality, delivery dates and prices".
(E.G. Liberman: "The Plan, Direct Ties and Profitability", in: "Pravda" (Truth), November 21st., 1965, in: M.E. Sharpe (Ed.) op. cit., Volume 2; p. 176).
"An individual or a collective engages in emulation with other individuals or collectives...
The economic reform and the introduction of the sectorial principle of managing industry have created favourable conditions for concrete emulation between enterprises in the same sector".
(V.K. Fedinin: "The Economic Reform and the Development of Socialist Emulation", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p. 241, 244).
Thus, the forces of the "socialist market" are the economic forces of supply and "demand" which operate in an orthodox capitalist country:
"Market demands... are a major factor in determining proportions in the national economy....
Ruble control by the customer... is an effective economic lever in the struggle for better consumption properties and efficient inexpensive output....
The market is characterised at each given point in time by a definite correlation between demand and supply....
Under socialism, since commodity production exists, the objective economic law of demand and supply (of their mutual conformity) operates....Disregard for the law of demand and supply exerts a negative effect on the economy".
(L. Gatovsky: ibid.; p. 85, 88, 89;
"Without utilising the mechanism of the socialist market and such of its categories as the current business situation,... supply and demand, it is impossible to ensure the operation of enterprises on the basis of complete khozraschot"
(B. Rakitsky; ibid.; p. 129).
"Today it is generally acknowledged that the problem of marketing and of market fluctuations continues even in the planned socialist economy".
(L. Konnik: ibid.; p. 25).
Contemporary Soviet economists claim, like their counterparts in orthodox capitalist countries, that these market forces, operating through the profit motive, regulate social production in such a way as to satisfy -- as far as existing productive resources at a particular time will permit -- the requirements of the people:
"Increase of profit under socialism is one of the means for the achievement of the aim of socialist production -- to satisfy most fully the requirements of the people".
(L. Gatovsky: "The Role of Profit in a Socialist Economy", in: "Kommunist" (Communist), No. 18, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 92).
"Under socialism, profit.. is an economic instrument for developing socialist enterprises and materially stimulating their activity..
The main object of socialist production is to satisfy the people's requirements....
Measures reinforcing the role of profit...are socialist measures aimed at developing the economy and building communism".
(Editorial: "Economic Policy and Work for Communism", in: "Pravda" (Truth), January 14th., 1966, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p.11).
Echoing Charles Wilson's famous dictum: "What's good for General Motors is good for the United States", contemporary Soviet propagandists claim that "what is profitable for each enterprise must be good for society":
"What is profitable to society as a whole will also be profitable to each production collective".
(E.G. Liberman: "Planning Production and Standards of Long-term Operation", in: "Voprosy ekonomiki" (Problems of Economics),No. 8, 1962, in: M.E. Sharpe (Ed.) op. cit., Volume 1; p. 66-7).
"The 1965 economic reform embodies one of the primary principles of the socialist economy: what is of benefit to society must be of benefit to each enterprise".
(E.G. Liberman: "Plan, Direct Ties and Profitability", in "Pravda" (Truth), November 21st., 1965, in: "The Soviet Economic Reform: Main Features and Aims", Moscow; 1967; p. 50).
"That which is good for society should be economically profitable for the enterprise and offer material incentives for its personnel.. This formula expresses the essence of the economic mechanism of the socialist system".
(L. Gatovsky: "Unity of Plan and Cost Accounting", in: "Kommunist" (Communist), No. 15, 1965, in: M.E. Sharpe (Ed.) op. cit., Volume 2; p. 72)
It is, of course, true that the gearing of production to the market through the profit motive ensures, within the limits of productive resources at a particular time, the gearing of production to the demand" of the consuming public. But the "demand" to which it is geared is "effective demand", that is, demand expressed in terms of the money which potential consumers are able and willing to expend in the market on commodities.
This is admitted by contemporary Soviet propagandists:
"Within the bounds of commodity-money relations, the concept of preference for goods... is changed into the relatively independent form of money demand. The magnitude of any need, expressed on the basis of demand, depends on factors like population income".
(A.M. Rumyantsev: "Management of the Soviet Economy Today: Basic Principles", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p. 28).
Marxism-Leninism holds that unequal distribution of income is inherent in capitalist society, so that this causes "effective demand" to bear little resemblance to real social demand, to the real requirements of the consuming public -- leading, for example, to the building of superfluous office blocks while working people experience a fundamental housing shortage, since the social demand for houses is overridden by the effective demand for office blocks.
That this anomaly exists in the Soviet Union since the "economic reform" is admitted by some contemporary Soviet economists:
"Uneven distribution of incomes between different sections of the population results in that the groups in the lower brackets do not fully satisfy their prime needs, while groups in the higher brackets are able to satisfy less essential needs".
(A.M. Rumyantsev: ibid,; p. 28).
"Up until recently, the living standard was planned for two basic groups: for workers, employees and collective farmers. Today it is also necessary to calculate the rise in the standard of living for population groups with different income levels".
(P. Krylov & M. Chistiakov: "Problems in Improving the Methods of National Economic Planning", in: "Planovoe khoziaistvo" (Planned Economy), No 1, 1972, in: "Problems of Economics", Volume 15, No. 4; August 1972; p. 33).
"Industrial enterprises try to curtail the production of relatively unprofitable and especially totally unprofitable items despite the fact that they enjoy high consumer demand".
Levin: "Economic Incentives for Meeting Consumer Demands", in: "Voprosy ekonomiki" (Problems of Economics), No. 4, 1972; in: "Problems of Economics", Volume 15, No. 6; October 1972; p. 5).
"The Ministry of the Meat and Dairy Industry of the Tadjik SSR, in the quest for high profits for its enterprises in 1970 and 1971, reduced the production of inexpensive products that were in stable demand among the population and unjustifiably increased the production of more expensive products. As a result, the enterprises of this Ministry obtained millions of rubles of profit in excess of the plan".
(S. Starostin & G. Emdin: "The Five Year Plan and the Soviet Way of Life", in: "Planovoe khoziaistvo" (Planned Economy), No. 6, 1972, in: "Problems of Economics", Volume 15, No. 10; February 1973; p. 95-6).
"Analysis of trends in the development of the Soviet economy indicates a gradual change in the character of the differential of the population with respect to income level. Inevitably there is a rise in the share of those groups that have relatively high incomes. At the same time, there is a reduction in the share of families for which a comparatively low savings norm is characteristic".
(T. Ivensen: "Problems in Forecasting the Monetary Savingsof the Population", in: "Nauchnye doklady vysshei shkoly: Ekonomicheskie nauki" (Scientific Reports of Higher Schools: Economic Science), No. 11, 1973, in: "Problems of Economics", Volume 17, No. 2; June 1974; p. 66-7).
This question will be discussed in more detail in later sections.
The basing by enterprises of their production plans on their assessment of the market has necessitated the development of such features of orthodox capitalist countries as market research:
"To ensure success in the management of the national economy, it is essential to conduct market research for practical purposes",
(L. Gatovsky: ibid.; p. 88).
salesmanship:
"Business is much better at the stores which have the best trained staffs of sales assistants... The motto there is: 'Not a single customer must leave without a good purchase' ".
(V. Sokolov, M. Nazarov & N. Kozlov: "The Firm and the Customer", in: "Ekonomicheskaya gazeta" (Economic Gazette), No. 1, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 255, 256). and advertising:
"Business is much better at the stores which... advertise best".
(V. Sokolov, M. Nazarov & N. Kozlov: ibid.; p. 255).
"Advertising, by influencing the taste of purchasers, is capable of easing the planning of production and the study of consumer demand... Proper advertising accelerates commodity turnover...
We all have an interest in good advertising. But improvement of its artistic and technical level will require an increase in the money spent on it... Such expenditure will pay for themselves with interest".
(L. Pekarsky & S. Anufrienko: "The Wings of an Experiment", in: "Komsomolskaya pravda" (Young Communist League Truth), June 3rd., 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 299).
"We cannot ignore the enormous technical and organisational experience underlying the advertising business in the USA. We must without hesitation take advantage of the best".
(V. Terestchenko: "Psychology and Advertising", in: "Literaturnaya gazeta" (Literary Gazette), February 8th., 1967, in: T.V. Greer: "Marketing in the Soviet Union"; New York; 1973; p. 98).
"Who does not know how felicitous advertising enlivens a city's exterior. And, indeed, it may be the 'zest' of an architectural ensemble".
Vyatkin: "Discussing Problems of Urban Development: Beauty and the Cost Estimate", in: "Izvestia" (News). January 19th., 1968; in: T.V. Greer: ibid.; p. 105).
"Under the new system of planning and economic incentive, ... well-placed advertising also promotes the success of the enterprise... Posters, signs and showcases, as we know, make a city and its streets attractive".
(V. Rusakova & G. Sudets: "Problems and Judgements: Let's Remember Advertising", in: "Pravda" (Truth), February 19th., in: T.W. Greer: ibid,; p. 99, 105).
"Good advertising not only creates favourable conditions for a product or service, but also moulds rational needs on the part of the consumer".
(Y. Kanevsky: "The Effect of Advertising", in: "Pravda" (Truth), April 1st., 1972, in: T.V. Greer: ibid,; p. 100).
"As on television, advertising on Soviet radio is presented only in 'prime time'...An average station includes 15 to 30 minutes of advertising, presented in a few blocks at the convenience of the station but always during the prime time, between 6 and 11 in the evening. A block of commercials varies from 5 to 15 minutes in length".
(T.V. Greer: ibid.; p. 110, 113).
Under the "economic reform", production enterprises are encouraged to pass on the speculative risks of the market to trading enterprises, by concluding direct contracts with the latter:
"These enterprises (i.e., production enterprises -- WBB) now draw up their production plans themselves on the basis of orders for goods placed by trading establishments and direct contracts concluded with them".
(V. Sokolov. M. Nazarov & N. Kozlov: ibid.; p. 251).
"Direct contracts between manufacturing enterprises and consuming enterprises should be developed more broadly".
(A.N. Kosygin: "On Improving Industrial Management, Perfecting Planning and Enhancing Economic incentives in Industrial Production", in: "Izvestia" (News). September 28th., 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 37).
"The role played by economic contracts will be raised. Permanent direct ties between enterprises, i.e., between the manufacturer and the consumer, will be ever more broadly developed".
(L. Gatovsky: ibid.; p. 77).
"Contractual relations.. should encompass 100% of the enterprises and 100% of the output....
Long-term and stable relations between supplier enterprises and consumers.. are a primary condition for the planned distribution of means of production through wholesale trade".
(N.Y. Drogichinsky: "The Economic Reform in Action", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p. 215, 216).
"We plan to complete the switch of associations and enterprises engaged in mass and large-volume production to direct and long-term ties, basing their relations on long-term economic contracts".
(A.N. Kosygin: "Guidelines for the Development of the National Economy of the USSR for 1976-1980", 25th. Congress CPSU, Moscow; 1976; p. 40-1).
The Soviet law on contract is now basically similar to that in orthodox capitalist countries in that an enterprise which commits a breach of such a contract (e.g., by failure to deliver commodities of the agreed quality, or by the agreed date) is liable to pay damages for breach of contract to the enterprise aggrieved by the breach:
"Economic sanctions should be applied in cases of bad work, such as fines for delivery delays".
(V. Trapeznikov: "For Flexible Economic Management of Enterprises", in: "Pravda" (Truth), August 17th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 197).
"The failure to meet delivery terms should involve substantial fines".
(E.G. Liberman: "Once Again on the Plan, Profits and Bonuses", in: "Pravda" (Truth), September 20th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 215).
"It is proposed to increase the material responsibility of the enterprise or organisation in cases of non-fulfillment of contract obligations for deliveries of goods so that, as a rule, the guilty party will make good any losses incurred".
(A.N. Kosygin: "On Improving Industrial Management, Perfecting Planning and Enhancing Economic Incentives in Industrial Production", in: "Izvestia" (News), September 28th., 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 25).
"The development of self-sufficiency in industry has also been expressed in increasing the size of fines and in obligating the guilty enterprises to fully compensate for the caused damage with their own cost-accounting resources. The same procedure has been introduced for losses which arise owing to the fault of the transport organisations".
(P.G. Bunich: "Methods of Planning and Stimulation", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p. 53).
One method by which the state can influence the direction of development of the economy through "economic levers" is, of course, by participation in the market. Such participation is, however, limited:
"A majority of the industrial enterprises do not sell their goods to the state, but to other industrial enterprises or trading organisations. This represents the major part of the internal market".
(B. Sukharevsky: "The Enterprise and Material Stimulation", in: "Ekonomicheskaya gazeta" (Economic Gazette), No. 49, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 212).
Nevertheless, the state has a monopoly in the market for armaments, and participates on a considerable scale in the market for the construction industry (the commissioning of public buildings, schools, hospitals, theatres, etc.).
4: Payment for Production Assets
As has been shown, under the system of cost accountability the rate of profit is presented as "the supreme criterion of the efficiency of an enterprise", and functions in practice as the regulator of social production.
But the rate of profit is the amount of profit made by an enterprise as a percentage of the total cost of production assets (land, buildings, machinery, labour power etc.) used by the enterprise in the creation of that profit. Land, buildings and machinery (less depreciation) constitute fixed production assets, while materials, labour power and depreciation constitute circulating production assets and are "used up" in each cycle of production.
In orthodox capitalist society, production assets (or the money used to obtain them) constitute capital -- fixed and circulating respectively. In Marxist-Leninist terminology, production assets are termed capital only when they are utilised in association with the exploitation of the working class:
"Means of production... become capital only under circumstances in which they serve at the same time as means of exploitation and subjection of the labourer"
(K. Marx: "Capital", Volume 1; London; 1974; p. 717-8).
And since contemporary Soviet propagandists maintain that workers in the Soviet Union are not exploited, most prefer to use the term "production assets" in preference to the term "capital" and to deny that production assets in the Soviet Union constitute capital:
"Payment for assets... radically differs from interest on capital".
(B. Rakitsky: "Bourgeois Interpretation of the Soviet Economic Reform", in: "Voprosy ekonomiki" (Problems of Economics), No. 10, 1965, in: "The Soviet Economic Reform; Main Featurs and Aims"; Moscow; 1967; p. 134).
However, the more candid contemporary Soviet economists, especially when writing in journals with a specialised readership, make no bones about referring to production assets in the Soviet Union as capital:
"The objective in profitability is defined in the form of the relationship of profits to the annual average planned value of productive fixed capital and normative circulating capital....
One of the important elements of the new system.. is the introduction of payment for capital".
(R. Krylov, L. Rotshtein & D. Tsarev: "On the Procedure and Conditions for Changing to the New System", in: "Planovoe khoziaistvo" (Planned Economy), No. 4, 1966, in: M.E. Sharpe (Ed.): "Planning, Profit and Incentives in the USSR", Volume 2; New York; 1966; p. 259, 272).
Clearly, the rate of profit made by an enterprise could have no reality if production assets of varying amounts continued to be allocated to enterprises by the state without cost, as had been the practice under the socialist system which formerly existed in the Soviet Union. In order that the rate of profit might be made a reality, therefore, the demand was put forward in the propaganda campaign which preceded the "economic reform" that production assets (including natural resources such as land, minerals and water) should be paid for in full by the enterprise makin g use of them:
"The time has come to eliminate the situation in which fixed assets allocated by society to any given production entity are given without charge".
(V.S. Nemchinov: "The Plan Target and Material Incentive", in: "Pravda" (Truth), September 21st., 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 110).
"Normative charges on fixed and circulating
CHAPTER 1: The Abolition of Centralised Economic Planning
Under the socialist system of society which formerly existed in the Soviet Union, production was regulated in a planned way through detailed directives transmitted to enterprises by the central state apparatus in accordance with the current economic plan:
"In the case of socialised production....society distributes labour-power and means of production in the different branches of production".
(K. Marx: "Capital", Volume 2; London; 1974; p.362).
"Our plans are not forecast plans, not guess-work plans, but directive plans, which are binding upon the leading bodies and which determine the trend of our future economic development on a country-wide scale".
(J.V. Stalin: Political Report of the Central Committee to the 15th. Congress of the CPSU (B), in: "Works", Volume 10; Moscow; 1954; p.335).
According to contemporary Soviet propagandists, the aim of the "economic reform" instituted from 1965 on was to "improve" and "consolidate" -- even "perfect" -- centralised economic planning:
"A number of measures are envisaged to raise the scientific standards of state planning of the economy".
(A.N. Kosygin: "On Improving Industrial Management, Perfecting Planning and Enhancing Economic Incentives in Industrial Production", in: "Izvestia" (News), September 28th., 1965, in M.E. Sharpe (Ed.): "Planning, Profit and Incentive in the USSR", Volume 2; New York; 1966; p.15).
"The economic changes signify improvement of national economic planning... The reform consolidates centralised planning". (Editorial: "Economic Policy and Work for Communism", in: "Pravda" (Truth), January 14th., 1966, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p.9).
In fact, as will be shown, centralised economic planning, as it had existed under socialism, has been eliminated from the Soviet economy since the "economic reform".
The first stage in the process leading to its elimination was an intensive propaganda campaign directed at centralised economic planning, which was denounced as "obsolete", "restrictive", "bureaucratic", and, of course, "due to Stalin's distortion of socialism":
"These shortcomings in economic management should be eliminated not by making planning more complicated, more detailed and more centralised, but by developing the economic initiative and independence of enterprises ---Enterprises must be given broader initiative; they must not be bound by petty tutelage and bureaucratic methods of planning from the centre".
(E.G. Liberman: "Cost Accounting and Material Encouragement of Industrial Personnel", in: "Voprosy Ekonomiki" (Problems of Economics), No 6, 1955, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.7).
"Stalin...substituted naked administration by fiat for economic instruments of directing the economy....
Regulation of the use of financial resources by enterprises, where it is excessive and too detailed, should be eliminated, and enterprises should be given greater opportunity to maneuver with these resources".
(L. Gatovsky: "The Role of Profit in the Socialist Economy", in: "Kommunist" (Communist), No. 18, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.95, 104).
"The practice of petty tutelage should be eliminated".
(V.S. Nemchinov: "Making Enterprises Interested in More Intensive Plans", in: "Voprosy ekonomiki" (Problems of Economics), No. 11, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.152).
"These norms (fixed by the central state planning authority -- WBB) have largely become obsolete; they have turned into petty tutelage, binding the manager's activities......The time has come to discard the obsolete forms of economic management based on directive norms".
(V. Trapeznikov: "For Flexible Economic Management of Enterprises", in: "Pravda" (Truth), August 17th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 193-4).
"It will be necessary, above all, to...curb significantly the employment by higher bodies of purely administrative methods of managing enterprises and grant adequate independence to the enterprises".
(R. Belousov: "The Chief Thing is Economic Effectiveness", in: "Pravda" (Truth), November 13th., 1964, in M.E. Sharpe (Ed.): op. cit., Volume 1; p.221).
"Guidance of the enterprises by means of administrative intervention in all the details is a very poor method that cannot yield good results".
(V. Belkin and I. Berman: "The Independence of the Enterprise and Economic Stimuli", in: "Izvestia" (News), December 4th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.225).
"Directors have at their disposal certain material and monetary resources, but the right to use them, to manoeuvre with them, has been quite limited. Excessive tutelage on the part of superior organisations has fettered the initiative of the personnel."
(V. Garbuzov: "Finance and Economic Stimuli", in: "Ekonomicheskaya gazeta" (Economic Gazette), No 41, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p.48).
"Purely administrative methods of economic guidance .... have become widespread. The same is true of detailed regimentation of the work of the enterprise and of petty tutelage over it".
(L. Gatovsky: "Unity of Plan and Cost Acccounting", in: "Kommnist" (Communist), No. 15, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p.80).
"Centralised planning cannot be identified with instructions on the quantity and assortment of produce to be manufactured by each enterprise... Attempts of this kind only clog the planning channels".
(E.G. Liberman: "The Plan, Direct Ties and Profitability", in: "Pravda" (Truth), November 21st., 1965, in: M.E. Sharpe (Ed.) op. cit., Volume 2; p.172).
"The centralised plan ..must not be turned into a fetish, into an absolute, and regarded as a plan that must be carried out in every detail".
(A.M. Rumyantsev: "Management of the Soviet Economy Today: Basic Principles", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p.20).
In line with the theme that the propaganda campaign was aimed, not at the abolition of centralised planning but at its "improvement", the demands put forward in the campaign were that the number of central economic directives to enterprises should be "reduced" to a few "key indices":
"Only the key indices, the decisive indices, should be handed down to enterprises, whose directors should be given greater rights and opportunities for economic manoevring within their scope".
(E.G. Liberman: "Planning Production and Standards of Long-term Operation", in: "Voprosy ekonomiki" (Problems of Economics), No. 8, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.65-6).
"The state plan should be freed of unnecessary indices"
Zverev: "Against Over-simplification in Solving Complex Problems", in: "Voprosy ekonomiki" (Problems of Economics), No. 11, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.142).
"We must free the enterprises from the excessive number of obligatory indicators".
(E.G. Liberman: "Are We Flirting with Capitalism? Profits and 'Profits' ", in: "Soviet Life", July 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.309).
It was in this form that the "economic reform" was officially adopted by the Central Committee of the Communist Party of the Soviet Union in September 1965:
"A serious shortcoming of industrial management is that administrative methods have superseded economic necessity... The powers of enterprises with regard to their economic activity are restricted.
The work of enterprises is regulated by numerous indices which restrict the independence and initiative of the personnel of enterprises, diminish their sense of responsibility for improving the organisation of production...
It has been found expedient to put a stop to excessive regulation of the activity of enterprises, to reduce the number of plan indices required of enterprises from above."
(CC, CPSU: Decision "On Improving Management of Industry, Perfecting Planning and Enhancing Economic Incentives in Industrial Production", in: "The Soviet Economic Reform: Main Features and Aims", Moscow; 1967; p.147).
The "key indices" which, it was proposed, should alone be handed down to enterprises were outlined by Prime Minister Aleksei Kosygin:
"In the future.. an enterprise will have the following indices established from above: the volume of goods to be sold; the main assortment of goods; the wage fund; the sum of profits and the profitability payments into the budget and allocations from the budget;.. the volume of centralised capital investments and commissioning of production capacities and fixed assets; the main targets for introducing new technology; the indices for supplying materials and equipment.
All other indices of economic activity will be planned by the enterprise independently, without endorsement from a higher organisation".
(A.N. Kosygin: "On Improving Industrial Management, Perfecting Planning and Enhancing Economic Incentives in Industrial Production", in: "Izvestia" (News), September 28th., 1965, in: M.E. Sharpe (Ed.): op. cit., Voume 2; p. 18-19).
Soviet propagandists endorsed the impression given in the Central Committee and by Kosygin:
"The state plan merely endorses the most essential indicators, ensuring balanced economic development, on the basis of which the enterprises independently organise economic activity".
(S. Khavina: "In the Crooked Mirror of Bourgeois Theories", in: "Ekonomicheskaya gazeta" (Economic Gazette), No 44, 1965, in: "The Soviet Economic Reform: Main Features and Aims"; Moscowl 1967; p.141).
"The essence of the reform consists in concentrating centralised planning on formulating the most general indicators of national economic development, extending the independence of enterprises".
(A.M. Rumyantsev: "Management of the Soviet Economy Today: Basic Principles", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p.16).
"To extend the economic independence and initiative of enterprises the number of plan assignments set to enterprises by ministries and departments has been reduced to a minimum".
(A.N. Yefimov: "Long-term Plans and Scientific Forecasts", in: ibid.; p.72).
What was not made clear in these statements was that the "economic reform" did not merely reduce the number of "indices" handed down to enterprises by the state "planning authority": it transformed the remaining "indices" from directives, binding on the enterprises, to "guidelines" which the enterprises could follow or not, as they chose.
Evsei Liberman, Professor of Engineering Economics at the University of Kharkov and the principal architect of the "economic reform" expressed the true position with characteristic blunteness:
"From the centre each enterprise should be given an aim"
(E.G. Liberman: "Planning Industrial Management and Material Stimuli for its Development", in: "Kommunist" (Communist), No. 10, 1956, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.32).
"Control figures will be drawn up.... in a generalised, value form, to be given to sectors of the economy. In the same form these control figures will be handed down to the enterprises, not as precise directives, but rather as guidelines for drawing up their plans".
(E.G. Liberman: "Plan, Direct Ties and Profitability", in: "Pravda" (Truth), November 21st., 1965, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p.51).
Thus, as enterprises were transferred to the "reformed" system of operation, they proceeded in practice to plan their own production -- even as to the types and qualities of commodities they they would produce:
"These enterprises (i.e., those working under the "reformed" system -- WBB) now draw up their production plans themselves"
(V. Sokolov, M. Nazarov and N. Kozlov: "The Firm and the Customer", in: "Ekonomicheskaya gazeta" (Economic Gazette), January 6th., 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p251).
"The result society needs is achieved by expanding the rights of enterprises in specifying the assortment,...and so on... The new management system... extends the rights of enterprises in... studying the demand and changing assortment".
(A.M. Rumyantsev: "Management of the Soviet Economy Today: Basic Principles", in: "Soviet Economic Reform: Progress and Problems" Moscow; 1972; p. 21, 24).
"The single approach to managing the economy is displayed.. in granting enterprises equal rights to concretise the assortment of goods they produce...
It is the enterprises themselves that can and must draw (i.e., economic plans -- WBB) up originally. Moreover these must be high and well-substantiated plans".
(P.B. Bunich: "Methods of Planning and Stimulation", in: ibid.; p.36,49).
"Five-year plans of enterprises and associations have become the basis for planning their activity"
(L.M. Gatovsky: "The Economic Reforms and the Stimulation of Technological Progress", in: ibid.; p.171).
"Enterprises decide what range of goods to produce in terms of physical quantities and total value of sales.. and other economic indicators"
(B.I. Braginsky: "Planning and Managment in the Soviet Economy", in: "The Soviet Planned Economy"; Moscow; 1974; p. 125-6).
Soviet economists refer to this "reformed" system of "economic planning" as "planning from below":
"The enterprise should actually become the basic organ for planning from below".
(E.G. Liberman: "Economic Levers for Fulfilling the Plan for Soviet Industry", in: "Kommunist" (Communist), No. 1, 1959, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 48).
"The other way (of "economic planning" -- WBB) is to encourage the initiative of the production collectives (i.e., the personnel of productive enterprises -- WBB) in every possible way, to execute in deed and not in words planning from below' "
(R. Belousov: "The Chief Thing is Economic Effectiveness", in: "Pravda" (Truth), November 13th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.220).
Since the "economic reform", therefore, the detailed central "economic plan" can only take the form of totalisation of the individual economic plans of all the enterprises.
But since the enterprises frequently change their economic plans during the course of a "planning period", prices fluctuate, and so on, the central "economic plan" produced at the beginning of this period bears little relation to the final economic result:
"The work of drawing up five-year plans from the enterprises up to the USSR Gosplan (State Planning Committee -- WBB) was not completed in the past five years". (N. Y. Grogichinsky: "The Economic Reform in Action", in: "Soviet Economic Reform: Progress and Problems", Moscow; 1072; p.211).
"It is practically impossible to compile a Five-Year Plan".
Komin: "Problems in the Methodology and Practice of Planned Price Formation", in:
"Planovoe khoziaistvo" (Planned Economy). No. 9, 1972, in: "Problems of Economics", Volume 16, No. 1; May 1973; p.48).
"An objective assessment of the fulfilment of the plan is impossible... In fact, the planning of distribution never attains completed form.. It is completed only with the end of the planning period... It is impossible to compile a national economic plan that is substantiated and balanced for all value indices.. on the baisis of physical indices and prices... The five-year plan in terms of value indices essentially loses its meaning".
(V. Kotov: "Prices: The Instrument of National Economic Planning and the Basis of the Value Indices of the Plan". in: "Planovoe khoziaistvo" (Planned Economy), No. 9, 1972, in: "Problems of Economics", Volume 16, No. 1; May 1973; p. 61, 62, 69).
Contemporary Soviet economists thus admit that the Soviet economy since the "economic reform" is characterised by "indeterminacy", i.e., anarchy:
"The indeterminacy that is manifested in the probabilistic nature of the anticipated economic result does exist and is objectively inherent even in socialist society".
(L. Veger: "Calculating Economic Effectiveness under Conditions of Indeterminacy", in: "Voprosy ekonomiki" (Prolems of Economics), No. 2, 1972, in: "Problems of Economics", Volume 15, No. 4; August 1972; p. 41)
"Centralised planning in conditions of broad independence of enterprise is also faced with the need of elaborating methods of managing the economy marked by growing indeterminacy, probability (stochastics) of its processes".
(A.M. Rumyantsev: "Management of the Soviet Economy Today: Basic Principles", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p.23).
All this is not meant to suggest that the contemporary Soviet state has no "economic plans", or that it no longer influences the direction of development of the Soviet economy. Like most orthodox capitalist states today, it draws up, from time to time, broad "economic plans". These are, however, not imposed upon enterprises by means of directives. The Soviet state endeavours to influence enterprises to follow, broadly, the lines of its current "economic plan" by the use of the same kind of "economic levers" that are used by the state in orthodox capitalist countries:
"One of these far reaching measures should be the increased use of economic levers in influencing production".
(E.G. Liberman: "Economic Levers for Fulfilling the Plan for Soviet Industry", in: "Kommunist" (Communist), No. 1, 1959, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.55).
"The attempt to make broader use of economic levers and economic stimuli in planning is a healthy reaction against the administrative conception of a plan"
(L. Alter: "Incentives Must be Linked with the Long-term Planning of an Enterprise", in: "Voprosy eknomiki" (Problems of Economics), No. 11, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.167).
"The time has come to discard the obsolete forms of economic management based on directive norms.....Economic influence is successfully employed even in capitalist countries.....In our conditions, when all the financial and economic levers are in the hands of the state, measures of economic influence will prove still more effective....
The general aim of the above proposals is to substitute a sum of economic influences, which would channel the enterprise's activity, for control of each step of the enterprise executive through directives".
(V. Trapeznikov: "For Flexible Economic Management of Enterprises" in: "Pravda" (Truth), August 17th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.194, 195, 199).
"The putting into operation of flexible economic methods... presupposes that the centre of gravity be shifted from administration by injunction to economic methods of guiding enterprises".
(L. Leontiev: "The Plan and Methods of Economic Management", in: "Pravda" (Truth), September 7th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.208).
"The mastering of commodity-money relations in the planned socialist economy... means the establishment of a basically new mechanism, in which the system of economic levers connected with commodity-money relations functions as a tool of national economic planning...
The socialist state... guides the national economy and every enterprise with the help of a system of economic levers".
(G. Kosiachenko: "The Plan and Cost Accounting", in: "Finansy SSSR" (USSR Finances), No. 12, 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p.232, 238).
"The main levers, which determine the development of the country's economy, remain in the hands of the state".
(N.K. Baibakov: "Tasks of Economic Planning in the New Conditions", in: "Pravda" (Truth), October 29th., 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 100).
The precise mechanism of these "economic levers" will be discussed in later sections.
2: Profit as the Regulator of Production
The abolition of centralised economic planning as the regulator of social production in the Soviet economy required its replacement by a different regulator: this could only be profit.
Contemporary Soviet economists define profit in the Soviet economy as an enterprise's surplus of income over expenditure:
"Profit is formed directly from the difference between the price and cost of production".
(L. Gatovsky: "The Role of Profit in a Socialist Economy", in: "Kommunist" (Communist), no. 18, 1962, in: M.E. Sharpe (Ed.): "Planning, Profit and Incentives in the USSR", Volume 1; New York; 1966; p. 98).
Already, at the 22nd. Congress of the CPSU in 1961, First Secretary Nikita Khrushchov declared:
"We must elevate the importance of profit and profitability".
(N.S. Khrushchov: Report on the Programme of the CPSU, 22nd.
Congress CPSU; London; 1961; p.54).
This line was developed under the "economic reform" carried through by Khrushchov's successors. General Secretary Leonid Brezhnev and Prime Minister Aleksei Kosygin:
"Let us consider profit, one of the economic instruments of socialism. A considerable enhancement of its role in socialist economy is an indispensible requisite for cost accounting".
(Editorial: "Economic Policy and the Work of Communism", in: "Pravda" (Truth), January 14th., 1966, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p.11).
In fact, the term used to express the essence of the "economic reform" --"cost accounting" (khozraschot) -- is defined by contemporary Soviet economists as a method of management based on ensuring the profitability of each individual enterprise:
"The essence of cost accounting is that any enterprise should cover its expenditures with its own income and should have a profit over and above this. The system of cost accounting makes every enterprise interested in obtaining a bigger profit".
(L. Gatovsky: p. cit.; p.90).
"Cost accounting (khozraschot) is a method of management applied at socialist enterprises which is based on measuring in money terms their inputs and results of their operation , on enterprises covering their expenditure with their own income, ensuring profitability".
(A.M. Rumyantsev: "Management of the Soviet Economy Today: Basic Principles", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p.12).
"Cost accounting is a key method for managing the economy which... is based on measuring costs in monetary terms against the results of production activity from income and ensuring profitability of production".
(S. Kamenitser: "The Experience of Industrial Management in the Soviet Union"; Moscow 1975; p.130-1).
Under cost accounting, profit has been elevated to the role of "the supreme criterion of the efficiency of an enterprise":
"A criterion that characterises to the greatest degree the operation of the enterprise....is profit".
(V. Trapeznikov: "For Flexible Economic Management of Enterprises", in: "Pravda" (Truth), August 17th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 196).
"Profit serves as the most generalising criterion of the enterprise's entire activity".
(L. Leontiev: "The Plan and Methods of Economic Management", in: "Pravda" (Truth), September 7th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 209).
"Profit generalises all aspects of operation".
(E.G. Liberman: "Are We Flirting with Capitalism? Profits and 'Profits' ", in: "Soviet Life", July 1965, in: M.E. Sharpe (Ed.) op. cit., Volume 1: p. 309).
"Profit reflects more fully and deeply important aspects in the operation of the socialist enterprises on a khozraschot basis....Profit serves as an indicator of production efficiency at a given enterprise".
(B. Sukharevsky: "New Elements in Economic Incentives", in: "Voprosy ekonomiki" (Problems of economics), No. 10, 1965, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p. 76).
"Under socialism profit... expresses.. the efficiency of the economic activity of each socialist enterprise"
(Editorial: "Economic Policy and Work for Communism", in: "Pravda" (Truth), January 14th., 1966, in: ibid.; p.11).
Nevertheless, contemporary Soviet sociologists, when writing of orthodox capitalist countries, continue to pour scorn on
"...attempts by experts in both the theory and practice of 'human relations' to conceal the fact that profit is the main goal and motive force of capitalist production. In their writings the concept of 'profit' is either not mentioned at all or approached as 'the social test of the utility of the enterprise and of effective organisation".
(N. Bogomolova: "Human Relations' Doctrine: Ideological Weapon of the Monopolies"; Moscow; 1973; p.63).
In fact, the particular aspect of profit which is taken by contemporary Soviet economists to express "the supreme criterion of the efficiency of an enterprise" is the "index of profitability" -- the profit made by an enterprise in a year as a percentage of the value of its total) fixed and circulating) assets:
"If it is the profitableness of an enterprise as a whole that is assessed, it is advisable to relate profit to the value of the social productive assets the state placed at the disposal of the given enterprise.
By commensurating profit with the productive assets it is, in fact, the relative productivity of labour that is determined... It is quite natural that this accretion should be commensurated with the entire value of the fixed assets and circulating funds, inasmuch as they express all the resources applied in production".
(E.G. Liberman: "Plan, Direct Ties and Profitability", in: "Pravda" (Truth), November 21st., 1965, in: "The Soviet Economic Reform: Main Features and Aims", Moscow; 1967; p.55).
"The most generalised index of an enterprise's activity is the index of profitability, computed as a ratio of profits to production assets".
(P. Bunich: "Economic Stimuli to Increase the Effectiveness of Capital Investments and the Output-to-Capital Ratio", in: "Voprosy ekonomiki" (Problems of Economics), No. 12, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 189).
As some Soviet economists have pointed out, the index of profitability is merely a euphemism for what is called, in orthodox capitalist countries, the "rate of profit":
"The rate of surplus value measured against the total capital is called the rate of profit....Surplus value and profit are actually the same thing and numerically equal".
(K. Marx: "Capital", Volume 3; London; 1974; p.43, 48).
"This index (i.e., the index of profitability - WBB) .. is widely used in capitalist countries (for this is neither more nor less than the rate of profit on invested capital)"
(I. Kasitsky: "The Main Question: Criteria for Premiums and Indices Planned for Enterprises", in: "Voprosy ekonomiki" (Problems of Economics), No. 11, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 139).
Contemporary Soviet economists assert that, under the socialist system which formerly existed in the Soviet Union, profit was regarded as only of minor importance:
"An obvious belittling and, at times, outright ignoring of the importance of profit... were characteristic of the period of the cult of Stalin's personality... Profit .. was regarded as a purely formal category".
(L. Gatovsky: op. cit., p. 95).
And they attribute this to "lack of regard" for "immutable" economic laws during the period when Stalin was General Secretary of the CPSU:
"The problem which we now face in determining if profit should be the basic index in judging the work of an enterprise can be attributed in no small way to the lack of regard for the immutable law of economic construction during the Stalin era. This immutable law, regardless of the system under which it operates, is universal; an economy must produce more than is expended on production; and it is this principle, however unheeded it has been in the past, that theoretically provides the foundation for the acceptance of profits today in the Soviet Union".
(L. Leontiev: "Pravda" (Truth), July 10th., 1964, in: J.L. Felker: "Soviet Economic Controversies". Cambridge (USA); 1966; p. 77-8).
The implication that Stalin had a "lack of regard" for objective economic laws is certainly untrue, although he did not regard most of them as "immutable", but as relative to a definite historical period:
"Marxism regards laws of science -- whether they be laws of natural science or laws of political economy -- as the reflection of objective processes which take place independently of the will of man. Man may discover these laws, get to know them, study them, reckon with them in his activities and utilise them in the interests of society, but he cannot change or abolish them....The laws of economic development.. are objective laws...One of the distinguishing features of political economy is that its laws, unlike those of natural science, are impermanent, that they, or at least the majority of them, operate for a definite historical period, after which they give place to new laws".
(J.V. Stalin: "Economic Problems of Socialism in the USSR"; Moscow; 1952; p. 6. 7. 8).
In fact, what was regarded as "of minor importance" under the socialist system which formerly existed in Soviet Union was not the profit made in Soviet society as a whole, but that made by individual enterprises or even individual sectors of industry.
The "economic law" which Stalin is charged with disregarding is one invented by the new breed of Soviet economists: that in a socialist society production should be regulated by the law of value, manifested in the profitability of individual enterprises.
That Stalin rejected this concept is very true.
"Totally incorrect.. is the asertion that under our present economic system.. the law of value regulates the 'proportions' of labour distributed among the various branches of production. If this were true, it would be incomprehensible why our light industries, which are most profitable, are not being develped to their utmost, and why preference is given to our heavy industries, which are often less profitable, and sometimes altogether unprofitable.
If this were true, it would be incomprehensible why a number of our heavy industry plants which are still unprofitable.. are not closed down, and why new light industry plants, which would certainly be profitable..., are not opened.
If this were true, it would be incomprehensible why workers are not transferred from plants that are less profitable, but very necessary to our national economy, to plants which are more profitable -- in accordance with the law of value, which supposedly regulates the 'proportions' of labour distributed among the branches of production".
(J.V. Stalin: ibid.; p. 27-8).
Since, under the socialist system, profits in general, both high and low, accrued to the state, what was of major significance was not the profitability of individual enterprises or of individual sectors of industry over a short term but the profitability of the economy as a whole over a relatively long period:
"If profitableness is considered not from the standpoint of individual plants or industries, and not over a period of one year, but from the standpoint of the entire national economy and over a period of, say, ten or fifteen years, which is the only correct approach to the question, then the temporary and unstable profitableness of some plants or industries is beneath all comparison with that higher form of stable and permanent profitableness which we get from the operation of the law of balanced development of the national economy and from economic planning....
In brief, there can be no doubt that under our present socialist conditions of production, the law of value cannot be a 'regulator of proportions' of labour distributed among the various branches of production....
The aim of socialist production is not profit, but man and his needs".
(J.V. Stalin: ibid.; p. 28-9, 86)
Contemporary Soviet propagandists claim that, in rejecting the "distortions of economic theory associated with Stalin", and in emphasizing the importance of the profit of individual enterprises, they are "returning to the concepts of Lenin":
"V.I. Lenin pointed out that each enterprise must function on a profitable basis, i.e., it should completely cover its expenditures from its income and should make a profit".
(A.N. Kosygin: "On Improving Industrial Management, Perfecting Planning and Enhancing Economic Incentives in Industrial Production", in: "Izvestia" (News), September 28th., 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2, p. 21).
And since it was undoubtedly Lenin's aim that Soviet society should advance to communism, these propagandists claim that, by "returning to Lenin's concept that every enterprise should function profitably", Soviet society is "taking the Leninist road to communism".
It is, indeed, true that in January 1922 Lenin referred to
"...the urgent need to... make every state enterprise pay its way and show a profit".
(V.I. Lenin: "The Role and Functions of the Trade Unions under the New Economic Policy", in: "Colected Works", Volume 33; Moscow; 1973; p. 185-6).
If, however, a few more words are quoted from this passage, the outright distortion of contemporary Soviet propagandists in presenting the enhancement of the role of profit under the New Economic Policy as a "measure for the development of socialism", even of the "advance to communism", becomes patently obvious:
"A free market and capitalism, both subject to state control (by a state representing the interests of the working class -- WBB) are now being permitted and are developing; on the other hand, the socialist state enterprises are being put on what is called a profit basis...
In view of the urgent need to ... make every state enterprise pay its way and show a profit, and in view of the inevitable rise in narrow departmental interests and excessive departmental zeal, this circumstance is bound to create a certain conflict of interests in matters concerning labour conditions between the masses of the workers and directors and managers of the state enterprises, or the government departments in charge of them. Therefore, as regards the socialised enterprises, it is undoubtedly the duty of the trade unions to protect the interests of the working people".
(V.I. Lenin: ibid.; p. 184, 185-6).
Thus, in contrast to the contemporary Soviet propagandists -- who present the enhancement of the role of profit of individual enterprises as "a measure for the development of socialism", even of "the advance to communism", Lenin presented the similar temporary measure adopted as part of the New Economic Policy bluntly as an enforced, temporary retreat to capitalist economic principles which would inevitably create an antagonism of class interest between the masses of workers on the one hand and the enterprise directors and state departments on the other.
Under the new system of cost accounting, however, profit -- now presented as "the supreme criterion of the efficiency of an enterprise" -- has replaced centralised economic planning as the regulator of social production:
"A way out of the apparent contradictions has been suggested in our press in the form of a kind of automatic 'self-regulator'... The role of such an automatic self-regulator, it is claimed, can be performed by profitability... In the profitability controversy some economists have based their objections to making it a regulator of social production on the contention that profit is a capitalist category. Such objections, of course, are untenable".
(B. Sukharevsky: "On Improving the Forms and Methods of Material Incentives", in: "Voprosy ekonomiki" (Problems of economics), No. 11, 1962, in: M.E. Sharpe (Ed.) op. cit., Volume 1; p. 116-7, 118).
"Production will be subordinated to changes in profits".
(G. Kosiachenko: "Important Conditions for Improvement of Planning", in: "Voprosy ekonomiki" (Problems of Economics), No. 11, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 158).
"The utilisation of profit to achieve the aims of socialist production, its adaption to the planned guidance of the economy and to serving socialist distribution according to work, inevitably presupposes the elaboration of a special mechanism"
(B. Sukharevsky: "New Elements in Economic Incentives", in: "Voprosy ekonomiki" (Problems of Economics), No. 10, 1965, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p. 78).
The "economic levers" mentioned in the last section, by which the Soviet state attempts to influence the economic activity of enterprises in the direction it desires, operate through their effect on the proftis of the enterprises:
"The entire system of economic levers must be regulated... in such a way as to make it advantageous for enterprises to fulfil.. the national economic plan".
(V.S. Nemchinov: "Socialist Economic Management and Production Planning", in: "Kommunist" (Communist), No. 5, 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 188-9).
"To exert effective economic influence on economic activity, it is essential to choose a criterion that characterises to the greatest degree the operation of the enterprise and meets the interests of both the national economy and the personnel of the enterprise... It is profit that constitutes such a criterion".
(V. Trapeznikov: op. cit.; p. 196).
"It is possible... to set up the enterprise in such economic conditions whereby the enterprise, guided by its own interests, would.... choose the optimal course of fulfilling the economic plan....
Under conditions of cost accountability, the sum total of economic levers in the long run influences the enterprise through.... profit".
(B. Sukharevsky: "The Enterprise and Material Stimulation", in: "Ekonomicheskaya gazeta" (Economic gazette), No. 49, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 205, 206).
3: The "Socialist Market"
Profit is realised, of course, not in the production of commodities, but in their sale:
"Profit is determined on the basis of the goods marketed, and not on the basis of those produced".
(G. Kosiachenko: "The Plan and Cost Accounting", in: "Finansy SSSR" (USSR Finances), No. 12, 1964, in: M.E. Sharpe (Ed.): "Planning, ProfIt and Incentives in the USSR", Volume 1; New York; 1966; p. 245).
Thus, in order to realise their aimed-for profit, enterprises must gear their production of commodities to their assessment of the market for these commodities:
"Under socialism the market is... a sphere for the marketing of products -- means of production and consumer goods manufactured by state and cooperative enterprises".
(L. Gatovsky: "Unity of Plan and Cost Accounting", in "Kommunist" (Communist), No. 15, 1965, in M.E. Sharpe (Ed.): op. cit., Volume 2; p. 88).
Regulation of social production by the profit motive means, in fact, regulation by the market:
"The market mechanism should be resorted to on a larger scale".
(G. Kosiachenko: ibid.; p. 243).
"Without utilising the mechanisms of the socialist market..., it is impossible to ensure the operation of enterprises on the basis of complete khozraschot".
(R. Rakitsky: "Bourgeois Interpretation of the Soviet Economic Reform", in: "Voprosy ekonomiki" (Problems of Economics), No. 10. 1965, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p. 129).
"We must acknowledge that.. the market mechanism.. plays a regulating role in socialist production".
(L. Konnik: "Planning and the Market", in: "Voprosy ekonomiki" (Problems of Economics), No. 5, 1966, in: "Problems Of Economics", Volume 9, No. 8; December 1966; p. 31).
The Soviet market is one where not only prospective buyers of a commodity but also prospective sellers -- the enterprises which produce it -- are in competition with one another -- although most contemporary Soviet economists prefer to speak of "emulation" rather than competition in the case of the "socialist market":
"The enterprise will compete for orders; the competition will be based on comparisons of guarantees of quality, delivery dates and prices".
(E.G. Liberman: "The Plan, Direct Ties and Profitability", in: "Pravda" (Truth), November 21st., 1965, in: M.E. Sharpe (Ed.) op. cit., Volume 2; p. 176).
"An individual or a collective engages in emulation with other individuals or collectives...
The economic reform and the introduction of the sectorial principle of managing industry have created favourable conditions for concrete emulation between enterprises in the same sector".
(V.K. Fedinin: "The Economic Reform and the Development of Socialist Emulation", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p. 241, 244).
Thus, the forces of the "socialist market" are the economic forces of supply and "demand" which operate in an orthodox capitalist country:
"Market demands... are a major factor in determining proportions in the national economy....
Ruble control by the customer... is an effective economic lever in the struggle for better consumption properties and efficient inexpensive output....
The market is characterised at each given point in time by a definite correlation between demand and supply....
Under socialism, since commodity production exists, the objective economic law of demand and supply (of their mutual conformity) operates....Disregard for the law of demand and supply exerts a negative effect on the economy".
(L. Gatovsky: ibid.; p. 85, 88, 89;
"Without utilising the mechanism of the socialist market and such of its categories as the current business situation,... supply and demand, it is impossible to ensure the operation of enterprises on the basis of complete khozraschot"
(B. Rakitsky; ibid.; p. 129).
"Today it is generally acknowledged that the problem of marketing and of market fluctuations continues even in the planned socialist economy".
(L. Konnik: ibid.; p. 25).
Contemporary Soviet economists claim, like their counterparts in orthodox capitalist countries, that these market forces, operating through the profit motive, regulate social production in such a way as to satisfy -- as far as existing productive resources at a particular time will permit -- the requirements of the people:
"Increase of profit under socialism is one of the means for the achievement of the aim of socialist production -- to satisfy most fully the requirements of the people".
(L. Gatovsky: "The Role of Profit in a Socialist Economy", in: "Kommunist" (Communist), No. 18, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 92).
"Under socialism, profit.. is an economic instrument for developing socialist enterprises and materially stimulating their activity..
The main object of socialist production is to satisfy the people's requirements....
Measures reinforcing the role of profit...are socialist measures aimed at developing the economy and building communism".
(Editorial: "Economic Policy and Work for Communism", in: "Pravda" (Truth), January 14th., 1966, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p.11).
Echoing Charles Wilson's famous dictum: "What's good for General Motors is good for the United States", contemporary Soviet propagandists claim that "what is profitable for each enterprise must be good for society":
"What is profitable to society as a whole will also be profitable to each production collective".
(E.G. Liberman: "Planning Production and Standards of Long-term Operation", in: "Voprosy ekonomiki" (Problems of Economics),No. 8, 1962, in: M.E. Sharpe (Ed.) op. cit., Volume 1; p. 66-7).
"The 1965 economic reform embodies one of the primary principles of the socialist economy: what is of benefit to society must be of benefit to each enterprise".
(E.G. Liberman: "Plan, Direct Ties and Profitability", in "Pravda" (Truth), November 21st., 1965, in: "The Soviet Economic Reform: Main Features and Aims", Moscow; 1967; p. 50).
"That which is good for society should be economically profitable for the enterprise and offer material incentives for its personnel.. This formula expresses the essence of the economic mechanism of the socialist system".
(L. Gatovsky: "Unity of Plan and Cost Accounting", in: "Kommunist" (Communist), No. 15, 1965, in: M.E. Sharpe (Ed.) op. cit., Volume 2; p. 72)
It is, of course, true that the gearing of production to the market through the profit motive ensures, within the limits of productive resources at a particular time, the gearing of production to the demand" of the consuming public. But the "demand" to which it is geared is "effective demand", that is, demand expressed in terms of the money which potential consumers are able and willing to expend in the market on commodities.
This is admitted by contemporary Soviet propagandists:
"Within the bounds of commodity-money relations, the concept of preference for goods... is changed into the relatively independent form of money demand. The magnitude of any need, expressed on the basis of demand, depends on factors like population income".
(A.M. Rumyantsev: "Management of the Soviet Economy Today: Basic Principles", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p. 28).
Marxism-Leninism holds that unequal distribution of income is inherent in capitalist society, so that this causes "effective demand" to bear little resemblance to real social demand, to the real requirements of the consuming public -- leading, for example, to the building of superfluous office blocks while working people experience a fundamental housing shortage, since the social demand for houses is overridden by the effective demand for office blocks.
That this anomaly exists in the Soviet Union since the "economic reform" is admitted by some contemporary Soviet economists:
"Uneven distribution of incomes between different sections of the population results in that the groups in the lower brackets do not fully satisfy their prime needs, while groups in the higher brackets are able to satisfy less essential needs".
(A.M. Rumyantsev: ibid,; p. 28).
"Up until recently, the living standard was planned for two basic groups: for workers, employees and collective farmers. Today it is also necessary to calculate the rise in the standard of living for population groups with different income levels".
(P. Krylov & M. Chistiakov: "Problems in Improving the Methods of National Economic Planning", in: "Planovoe khoziaistvo" (Planned Economy), No 1, 1972, in: "Problems of Economics", Volume 15, No. 4; August 1972; p. 33).
"Industrial enterprises try to curtail the production of relatively unprofitable and especially totally unprofitable items despite the fact that they enjoy high consumer demand".
Levin: "Economic Incentives for Meeting Consumer Demands", in: "Voprosy ekonomiki" (Problems of Economics), No. 4, 1972; in: "Problems of Economics", Volume 15, No. 6; October 1972; p. 5).
"The Ministry of the Meat and Dairy Industry of the Tadjik SSR, in the quest for high profits for its enterprises in 1970 and 1971, reduced the production of inexpensive products that were in stable demand among the population and unjustifiably increased the production of more expensive products. As a result, the enterprises of this Ministry obtained millions of rubles of profit in excess of the plan".
(S. Starostin & G. Emdin: "The Five Year Plan and the Soviet Way of Life", in: "Planovoe khoziaistvo" (Planned Economy), No. 6, 1972, in: "Problems of Economics", Volume 15, No. 10; February 1973; p. 95-6).
"Analysis of trends in the development of the Soviet economy indicates a gradual change in the character of the differential of the population with respect to income level. Inevitably there is a rise in the share of those groups that have relatively high incomes. At the same time, there is a reduction in the share of families for which a comparatively low savings norm is characteristic".
(T. Ivensen: "Problems in Forecasting the Monetary Savingsof the Population", in: "Nauchnye doklady vysshei shkoly: Ekonomicheskie nauki" (Scientific Reports of Higher Schools: Economic Science), No. 11, 1973, in: "Problems of Economics", Volume 17, No. 2; June 1974; p. 66-7).
This question will be discussed in more detail in later sections.
The basing by enterprises of their production plans on their assessment of the market has necessitated the development of such features of orthodox capitalist countries as market research:
"To ensure success in the management of the national economy, it is essential to conduct market research for practical purposes",
(L. Gatovsky: ibid.; p. 88).
salesmanship:
"Business is much better at the stores which have the best trained staffs of sales assistants... The motto there is: 'Not a single customer must leave without a good purchase' ".
(V. Sokolov, M. Nazarov & N. Kozlov: "The Firm and the Customer", in: "Ekonomicheskaya gazeta" (Economic Gazette), No. 1, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 255, 256). and advertising:
"Business is much better at the stores which... advertise best".
(V. Sokolov, M. Nazarov & N. Kozlov: ibid.; p. 255).
"Advertising, by influencing the taste of purchasers, is capable of easing the planning of production and the study of consumer demand... Proper advertising accelerates commodity turnover...
We all have an interest in good advertising. But improvement of its artistic and technical level will require an increase in the money spent on it... Such expenditure will pay for themselves with interest".
(L. Pekarsky & S. Anufrienko: "The Wings of an Experiment", in: "Komsomolskaya pravda" (Young Communist League Truth), June 3rd., 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 299).
"We cannot ignore the enormous technical and organisational experience underlying the advertising business in the USA. We must without hesitation take advantage of the best".
(V. Terestchenko: "Psychology and Advertising", in: "Literaturnaya gazeta" (Literary Gazette), February 8th., 1967, in: T.V. Greer: "Marketing in the Soviet Union"; New York; 1973; p. 98).
"Who does not know how felicitous advertising enlivens a city's exterior. And, indeed, it may be the 'zest' of an architectural ensemble".
Vyatkin: "Discussing Problems of Urban Development: Beauty and the Cost Estimate", in: "Izvestia" (News). January 19th., 1968; in: T.V. Greer: ibid.; p. 105).
"Under the new system of planning and economic incentive, ... well-placed advertising also promotes the success of the enterprise... Posters, signs and showcases, as we know, make a city and its streets attractive".
(V. Rusakova & G. Sudets: "Problems and Judgements: Let's Remember Advertising", in: "Pravda" (Truth), February 19th., in: T.W. Greer: ibid,; p. 99, 105).
"Good advertising not only creates favourable conditions for a product or service, but also moulds rational needs on the part of the consumer".
(Y. Kanevsky: "The Effect of Advertising", in: "Pravda" (Truth), April 1st., 1972, in: T.V. Greer: ibid,; p. 100).
"As on television, advertising on Soviet radio is presented only in 'prime time'...An average station includes 15 to 30 minutes of advertising, presented in a few blocks at the convenience of the station but always during the prime time, between 6 and 11 in the evening. A block of commercials varies from 5 to 15 minutes in length".
(T.V. Greer: ibid.; p. 110, 113).
Under the "economic reform", production enterprises are encouraged to pass on the speculative risks of the market to trading enterprises, by concluding direct contracts with the latter:
"These enterprises (i.e., production enterprises -- WBB) now draw up their production plans themselves on the basis of orders for goods placed by trading establishments and direct contracts concluded with them".
(V. Sokolov. M. Nazarov & N. Kozlov: ibid.; p. 251).
"Direct contracts between manufacturing enterprises and consuming enterprises should be developed more broadly".
(A.N. Kosygin: "On Improving Industrial Management, Perfecting Planning and Enhancing Economic incentives in Industrial Production", in: "Izvestia" (News). September 28th., 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 37).
"The role played by economic contracts will be raised. Permanent direct ties between enterprises, i.e., between the manufacturer and the consumer, will be ever more broadly developed".
(L. Gatovsky: ibid.; p. 77).
"Contractual relations.. should encompass 100% of the enterprises and 100% of the output....
Long-term and stable relations between supplier enterprises and consumers.. are a primary condition for the planned distribution of means of production through wholesale trade".
(N.Y. Drogichinsky: "The Economic Reform in Action", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p. 215, 216).
"We plan to complete the switch of associations and enterprises engaged in mass and large-volume production to direct and long-term ties, basing their relations on long-term economic contracts".
(A.N. Kosygin: "Guidelines for the Development of the National Economy of the USSR for 1976-1980", 25th. Congress CPSU, Moscow; 1976; p. 40-1).
The Soviet law on contract is now basically similar to that in orthodox capitalist countries in that an enterprise which commits a breach of such a contract (e.g., by failure to deliver commodities of the agreed quality, or by the agreed date) is liable to pay damages for breach of contract to the enterprise aggrieved by the breach:
"Economic sanctions should be applied in cases of bad work, such as fines for delivery delays".
(V. Trapeznikov: "For Flexible Economic Management of Enterprises", in: "Pravda" (Truth), August 17th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 197).
"The failure to meet delivery terms should involve substantial fines".
(E.G. Liberman: "Once Again on the Plan, Profits and Bonuses", in: "Pravda" (Truth), September 20th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 215).
"It is proposed to increase the material responsibility of the enterprise or organisation in cases of non-fulfillment of contract obligations for deliveries of goods so that, as a rule, the guilty party will make good any losses incurred".
(A.N. Kosygin: "On Improving Industrial Management, Perfecting Planning and Enhancing Economic Incentives in Industrial Production", in: "Izvestia" (News), September 28th., 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 25).
"The development of self-sufficiency in industry has also been expressed in increasing the size of fines and in obligating the guilty enterprises to fully compensate for the caused damage with their own cost-accounting resources. The same procedure has been introduced for losses which arise owing to the fault of the transport organisations".
(P.G. Bunich: "Methods of Planning and Stimulation", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p. 53).
One method by which the state can influence the direction of development of the economy through "economic levers" is, of course, by participation in the market. Such participation is, however, limited:
"A majority of the industrial enterprises do not sell their goods to the state, but to other industrial enterprises or trading organisations. This represents the major part of the internal market".
(B. Sukharevsky: "The Enterprise and Material Stimulation", in: "Ekonomicheskaya gazeta" (Economic Gazette), No. 49, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 212).
Nevertheless, the state has a monopoly in the market for armaments, and participates on a considerable scale in the market for the construction industry (the commissioning of public buildings, schools, hospitals, theatres, etc.).
4: Payment for Production Assets
As has been shown, under the system of cost accountability the rate of profit is presented as "the supreme criterion of the efficiency of an enterprise", and functions in practice as the regulator of social production.
But the rate of profit is the amount of profit made by an enterprise as a percentage of the total cost of production assets (land, buildings, machinery, labour power etc.) used by the enterprise in the creation of that profit. Land, buildings and machinery (less depreciation) constitute fixed production assets, while materials, labour power and depreciation constitute circulating production assets and are "used up" in each cycle of production.
In orthodox capitalist society, production assets (or the money used to obtain them) constitute capital -- fixed and circulating respectively. In Marxist-Leninist terminology, production assets are termed capital only when they are utilised in association with the exploitation of the working class:
"Means of production... become capital only under circumstances in which they serve at the same time as means of exploitation and subjection of the labourer"
(K. Marx: "Capital", Volume 1; London; 1974; p. 717-8).
And since contemporary Soviet propagandists maintain that workers in the Soviet Union are not exploited, most prefer to use the term "production assets" in preference to the term "capital" and to deny that production assets in the Soviet Union constitute capital:
"Payment for assets... radically differs from interest on capital".
(B. Rakitsky: "Bourgeois Interpretation of the Soviet Economic Reform", in: "Voprosy ekonomiki" (Problems of Economics), No. 10, 1965, in: "The Soviet Economic Reform; Main Featurs and Aims"; Moscow; 1967; p. 134).
However, the more candid contemporary Soviet economists, especially when writing in journals with a specialised readership, make no bones about referring to production assets in the Soviet Union as capital:
"The objective in profitability is defined in the form of the relationship of profits to the annual average planned value of productive fixed capital and normative circulating capital....
One of the important elements of the new system.. is the introduction of payment for capital".
(R. Krylov, L. Rotshtein & D. Tsarev: "On the Procedure and Conditions for Changing to the New System", in: "Planovoe khoziaistvo" (Planned Economy), No. 4, 1966, in: M.E. Sharpe (Ed.): "Planning, Profit and Incentives in the USSR", Volume 2; New York; 1966; p. 259, 272).
Clearly, the rate of profit made by an enterprise could have no reality if production assets of varying amounts continued to be allocated to enterprises by the state without cost, as had been the practice under the socialist system which formerly existed in the Soviet Union. In order that the rate of profit might be made a reality, therefore, the demand was put forward in the propaganda campaign which preceded the "economic reform" that production assets (including natural resources such as land, minerals and water) should be paid for in full by the enterprise makin g use of them:
"The time has come to eliminate the situation in which fixed assets allocated by society to any given production entity are given without charge".
(V.S. Nemchinov: "The Plan Target and Material Incentive", in: "Pravda" (Truth), September 21st., 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 110).
"Normative charges on fixed and circulating