KOSYGIN'S PROPOSALS FOR REORGANIZING SOVIET ECONOMIC MANAGEMENT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A002400070001-7
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• Document Creation Date: December 9, 2016
• Document Release Date: February 26, 2001
• Sequence Number: 1
• Publication Date: October 1, 1965
• Content Type: BRIEF

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CIA/RR CB 65-57
October 1965
KOSYGIN'S PROPOSALS
FOR REORGANIZING SOVIET ECONOMIC MANAGEMENT
DIRECTORATE OF INTELLIGENCE
Office of Research and Reports
I downgrading and
declassification
CONFIDENTIAL
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This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws.
Title 18, USC. Sees. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law
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KOSYGIN'S PROPOSALS
FOR REORGANIZING SOVIET ECONOMIC MANAGEMENT
Premier Kosygin, in a major speech to the Plenum of the Central
Committee on 27 September, proposed a shakeup in industrial adminis-
tration and more autonomy for enterprise managers but offered no
revolutionary plan for modernizing the Soviet economy. His proposals
(1) will abolish Khrushchev's regional economic. councils and restore the
system of industrial ministries first introduced by Stalin in 1932, and
(2) will increase the use in industrial enterprises of the so-called
economic "levers": profit, bonuses, and a new lever -- interest charges
on the invested capital of enterprises. One of the most dramatic changes
proposed for the management of individual enterprises is the substitution
of the volume of sales for the traditional and notorious gross value of pro-
duction as a key indicator of the success of an enterprise.
Kosygin's new program falls far short of proposals made by the
more radical Soviet economists; some want a drastic reform of central.
planning through mathematical methods, whereas others want a decen-
tralization of economic management through the use of market prices
and profits. One of the serious deficiencies in the proposals is the post-
ponement of price reform to 1967-68. The speech was short on the
details and the timing of the changes, and therefore the probable impact
of the new program on Soviet economic performance is difficult to judge,
In particular, establishment of new ministries seems to be much more
immediate than introduction of the new rules for enterprises. Kosygin's
objectives are to spur new technology and to increase the return on in-
vestment while retaining strong central control over industry. The pro-
posals go far enough to cause confusion and a great deal of reshuffling of
personnel, but not far enough to improve economic performance. The
chief consequence may be to increase pressure for further reform or,
conversely, for a return to the old system,
1. Changes in the Administrative Structure*
The principal changes proposed in the administrative structure of
industry are (a) the establishment of 27 industrial ministries with re-
sponsibility for management of enterprises and development of their
respective branches, and (b) the dissolution of the present system of
regional economic councils. The new ministries replace 23 state com-
mittees and will be responsible for the following, planning, plan
* For the new structure of central administration, see the chart.
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implementation, material-technical supply of subordinate enterprises,
financing, determination of technical policy, and management of re-
search and development within their respective branches.
Other changes in economic administration include (a) the dissolution
of the Supreme Council of National Economy and the apparent transfer of
its functions to the USSR Council of Ministers, (b) the dissolution of the
USSR Sovnarkhoz and the transfer of its responsibility for plan implemen-
tation to the industrial ministries, and (c) the establishment of a new
State Committee for Material and Technical Supply to handle the alloca-
tion of producer goods among industrial ministries.
Kosygin also referred briefly to two additional changes that would
be made later. First, the use of direct contracting between individual
enterprises and their customers and suppliers will be increased, and
allocations through the material-technical supply system will be replaced
by freer trading arrangements. Second, many individual enterprises
are to be managed eventually by a network of branch associations or
firms subordinate to the industrial ministries.
2. Changes in the Management of Enterprises
Kosygin's proposals for improving the management of industrial
enterprises draw on the results of recent experiments in light industry,
although how far these reforms will extend throughout industry is not
clear. The proposals call for a sharp reduction in the number of central
assignments and the increased use of "economic levers. "
Under the new system, each enterprise will be given assignments
from the planning authorities concerning (a) the volume of sales,
(b) the main products to be produced, (c) the wage fund, (d) profit,
(e) profitability (profit as a percent of fixed and working capital),
(f) the portion of profit transferred to the state budget, and (g) the
amount of investment funds allocated from the state budget. The first
assignment -- the volume of sales -- is to be substituted for the tra-
ditional and notorious gross value of production index. If this is
carried through for all industry, it will be the first time that the offi-
cial and widely publicized index of industrial growth is not also the
performance target for producing enterprises. In addition, central
controls will be retained over investment in enterprises, the intro-
duction of new technology, prices of products, and wage rates. Enter-
prises will be freed from a large number of other detailed assignments
numbering 30 to 40 in some enterprises -- such as number of workers,
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average wage paid, labor productivity, and production costs. In addi-
tion, enterprises are given greater freedom over the selection of inputs.
A striking innovation is the adoption of a form of capital charge.
Enterprises will pay for the investment funds and working capital they
receive from the budget by a charge against their profits, and any waste
of capital will thereby reduce retained profits from which bonuses are
paid. The new method, described as a "long-term, credit system, "
will be applied first in going concerns and apparently will be extended
later to newly constructed plants. In addition to receipt of long-term
credits for investment, each enterprise also will set up an internal
fund for.. investment composed of (a) a proportion of its profits, and
(b) a proportion of its depreciation allowances that in the past have been
turned over in full to the central budget.
Kosygin's recommendation means that direct contracting among
enterprises will be increased, but he proposed no schedule for imple-
mentation. He also called for tighter discipline in inter-firm relations,
such as more timely squaring of accounts and wider penalties. for failure
to fulfill agreements.
To improve the incentives for workers at all levels, Kosygin wants
to replace the practice of paying bonuses from wage funds with payment
of larger and more varied bonuses from enterprise profits. Funds also
will be set up from enterprise profits for social and cultural purposes
and for worker housing.
3. Evaluation
Kosygin's speech does not exude enthusiasm for administrative re-
shuffling -;- perhaps because the successive rounds of reo.rganization.in:
industry and agriculture, through which Khrushchev whirled like a der-
vish, produced no visible improvements in performance. The most
obvious conclusion to be drawn from Khrushchev's many experiments
is that it does not make much difference whether industries are organized
by ministry or by region, whether planning is done at the republic or
national level, or to what degree the Party is instructed to oversee and
second-guess economic managers. The pervasive problems of coordina-
tion persisted through all the reorganizations, and the efficiency of
investment continued to decline. Most Western observers, and a few
Soviet economists, have concluded that the system of central planning
itself is at fault and should, be drastically reformed. But Kosygin has
introduced nothing new. There is little chance that his cautious proposals
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will produce fundamental gains in economic performance. The postpone-
ment of price reforms by at least another year would seem to nullify
much of the benefit to be gained by giving enterprise managers more free-
dom of decision-making. It is difficult to see how rational decisions can
be made with irrational prices.
Kosygin can hope for only a few marginal improvements from his
administrative reorganization. There may be closer coordination of
research and development among industrial enterprises that now will be
subordinate to a functional ministry. Some of the nagging problems of
supplying industrial enterprises under the sovnarkhoz system may now
be reduced. However, some of the old problems that the 1957 reorgani-
zation sought to overcome may now reappear, such as the difficulties of
coordinating different branches of industry in a given region. The speech
was short on the details and timing of the changes, and therefore the
probable impact of the new program on Soviet economic performance is
difficult to judge. Kosygin's objectives are to spur new technology and
to increase the return on investment while retaining strong central con-
trol over industry. The proposals go far enough to cause confusion and a
great deal of reshuffling of personnel, but not far enough to improve
economic performance. The chief consequence may be to increase
pressure for further reform or, conversely, for a return to the old
system.
The proposals for industrial enterprises appear to be an extension
of the experiments now being conducted among some 400 enterprises in
the USSR, but they lag behind the proposals that have recently been
introduced in the Eastern European Communist countries. Not enough
details of the proposed changes have been given to permit a full assess-
ment of their impact on enterprise efficiency. It seems clear, how-
ever, that the Soviet manager still has relatively little freedom of
choice. Furthermore, the changes in enterprise rules apparently are
not to be introduced as rapidly as the new ministries.
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UNCLASSIFIED
NEW CENTRAL ADMINISTRATIVE STRUCTURE OF THE USSR AS OF 27 SEPTEMBER 1965 Al
DEFENSE
FOREIGN AFFAIRS
HEALTH
HIGHER AND SECONDARY SPECIALIZED
EDUCATION
CULTURE
COMMUNICATIONS
FINANCE
RAILROADS
MARITIME FLEET
AGRICULTURE
FOREIGN TRADE
CIVIL AVIATION
GENERAL MACHINE BUILDING J
AVIATION INDUSTRY B/
DEFENSE INDUSTRY /
RADIO INDUSTRY /
ELECTRONICS INDUSTRY
SHIPBUILDING B/
MEDIUM MACHINE BUILDING
HEAVY, ENERGY, AND TRANSPORT
MACHINE BUILDING
CONSTRUCTION, ROADBUILDING, AND
COMMUNAL MACHINE BUILDING
TRACTORS AND AGRICULTURAL MACHINE
BUILDING
MOTOR VEHICLE INDUSTRY
ELECTROTECHNICAL INDUSTRY
INSTRUMENT MAKING, MEANS OF
AUTOMATION, AND CONTROL SYSTEMS
CHEMICAL AND PETROLEUM MACHINE
BUILDING
MACHINE TOOL AND TOOLS INDUSTRY
MACHINE BUILDING FOR LIGHT AND
FOOD INDUSTRY AND HOUSEHOLD
APPLIANCES
FERROUS METALLURGY
NONFERROUS METALLURGY
COAL
CHEMICALS
PETROLEUM EXTRACTION
PETROLEUM REFINING AND PETRO-
CHEMICALS
TIMBER, PAPER, AND WOODWORKING
CONSTRUCTION MATERIALS
LIGHT INDUSTRY
FOOD INDUSTRY
MEAT AND DAIRY INDUSTRY
FISH INDUSTRY
ELECTRIC POWER
GEOLOGY
DOMESTIC TRADE
GAS INDUSTRY
TRANSPORT CONSTRUCTION
ONE UNIDENTIFIED
PRESS
RADIOBROADCASTING AND TELEVISION
CINEMATOGRAPHY
CULTURAL RELATIONS WITH FOREIGN COUNTRIES
FOREIGN ECONOMIC RELATIONS
PROCUREMENT
LABOR AND WAGES
IRRIGATION AND WATER ECONOMY
USE OF ATOMIC ENERGY
INVENTIONS AND DISCOVERIES
STANDARDS, MEASURES, AND MEASURING
INSTRUMENTS
SCIENCE AND TECHNOLOGY
MATERIAL AND TECHNICAL SUPPLY
CENTRAL STATISTICAL ADMINISTRATION
CONSTRUCTION BANK
STATE COMMISSION ON RESERVES
FOR USEFUL MINERALS
STATE BANK
COMMISSION ON FOREIGN ECONOMIC
AFFAIRS
COMMITTEE FOR PARTY-STATE CONTROL
COMMITTEE FOR STATE SECURITY
ALL-UNION AGRICULTURAL EQUIPMENT
SUPPLY ASSOCIATION
STATE PLANNING
COMMITTEE
PRICES J
VOCATIONAL AND TECHNICAL
EDUCATION
A. THE CHANGES SHOWN IN THE CHART ARE
THOSE EXPLICITLY STATED AS OF 1 OCTOBER.
ADDITIONAL MINOR CHANGES MAY HAVE BEEN
MADE AT THE SESSION OF THE SUPREME SOVIET
THAT BEGAN ON I OCTOBER.
B. ESTABLISHED IN MARCH.
C. NEW NAME OF THE STATE COMMITTEE FC-
COORDINATION OF SCIENTIFIC RESEARCH WORK,
D. NEW.
E. ESTABLISHMENT WAS FIRST ANNOUNCED ON
28 AUGUST.
STATE COMMITTEE FOR
CONSTRUCTION AFFAIRS
INSTALLATION AND SPECIAL
CONSTRUCTION (PRODUCTION)
CIVIL CONSTRUCTION AND
ARCHITECTURE
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CONTROL RECORD FOR SUPPLEMENTAL DISTRIBUTION
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SERIES NUMBER
CIA/RR CB 65-57
CLASSIFICATION OF REPORT
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DISTRIBUTION TO RC
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DATE OF DOCUMENT
October 1965
NUMBER OF COPIES
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RECIPIENT
DATE
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RETURNED
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See attached memo
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4 October 1965
MEMORANDUM FOR: Chief, Dissemination Control Branch, nO/CR
FROM : Acting Chief, Publications Staff, ORR
SUBJECT : Transmittal of CLL./Rid. C13 65.57,
Koeygin's Proposals for Reorganizing
M 11 rnr~~ .rf.i .IM II.
Soviet Economic Mana emeent, October
065, Confidential
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Popoaajs for Reorganizing Soviet Economic Management --- October
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SUBJECT Transmittal of Material
It is requested that the attached copies of CIA/RR CB 65-57, R2Mjaj
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Kosygin's Proposals for Reorganizing Soviet Economic Management
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