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October 1, 1965
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roved For Release 200' )49'It)t }f6bT01003A002400070001-7 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 Approved For Release 2001/03/16 : CIA-RDP79TO1003AO024 0 0 001-7 Approved For Release 2001/03/16 : CIA-RDP79TO1003AO02400070001-7 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 Approved For Release 2001/03/16 : CIA-RDP79TO1003AO02400070001-7 Approved For Release 2001ICBM FQI - T.1@D3AO02400070001-7 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. Approved For Release 2G01 WMI?FE':-OIA.RDP TMO 3A002400070001-7 Approved For I e~a~e g0(0i/1 :TCI4-R~P79TO1003A002400070001-7 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, Approved For Ee se_2g01/02/' Tc1 ARQP79T01003AO02400070001-7 Approved For Release 200ILQ_;IlApgP,DRI? OILQ93A002400070001-7 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 Approved For Release 20M/031 u'.-(IA-R DR7tT@l.Q0BA002400070001-7 Approved For e~a a AP 0 /' - ,CftRPP79T01003AO02400070001-7 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. Approved For ~e a e-20~0y0LJ'I?_.ICIIA tgP79T01003A002400070001-7 Approved For Release 2001/03/16 : CIA-RDP79TO1003AO02400070001-7 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 Approved For Release 2001/03/16 : CIA-RDP79TO1003AO02400070001-7 Approved For Release 200-110311&41Chk-B) 7t9.TOAO03AO02400070001-7 Analyst: 25X1A Approved For Release 2MAWiS~-QJI4 -aF0.40D3AO02400070001-7 Approved For Release 20Q71./1Q3 1FI:61A-J I?Z9T?1Q03AO02400070001-7 Approved For Release 280A/09/16j qA~RQP17~T1003A002400070001-7 Analyst: A/SI ,, Approved For Release 2001/03/16 : CIA-RDP79T010 A '40 1-7 CONTROL RECORD FOR SUPPLEMENTAL DISTRIBUTION 25X1A SERIES NUMBER CIA/RR CB 65-57 CLASSIFICATION OF REPORT CONFIDENTIAL DISTRIBUTION TO RC 85 DATE OF DOCUMENT October 1965 NUMBER OF COPIES 350 NUMBER IN RC COPY RECIPIENT DATE NO. (S) SENT RETURNED 7 D/ORR 4 Oct 65 8 DD/ORR it 9 SA/RR It 10 WE " 176- 182 See attached memo 'I 183-187 A/SI It 188 CGS/HR/O s 1G81 H q. 5 Oct 65 189 OCR 25X1A fl 190 St/P 191 192-196 ~ 197 /7 198 199-201 202 203 204 205 s/ 206 207 208-210 211-240 Filed in St/P/C 5 Oct 65 326-350 Filed in St/P/C If / sc~.5 25X1 A All (&- ~'- q 25X1A oa ? 25X1 A - 9 - F33 0 ~' - 25X1A JJY - J Zl-- ~ - 25X 1 A r G 21 wil /d'~3 JN -' 0 6 e 2 Q 0W7 X1 A 001-7 COPY A kin I c % proved For ReleaseR gQIVA3/16 : CIA-RDP79T01 003A002400074001 .6 ~h~ 10010 25X1A low' Approved For Release 2001/03/16 : CIA-RDP79T01003A002400070001-7 Approved For Release 2001/03/1 T01003A002400070001-7 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 It is requested that the attached copies of subject report be forwarded as follows: d #176 - #180 Department of State, INR Communications Center, Room 6527, State Dept. Bldg. I - Ambassador Thompson, Room 7250 1 - Mr. M. Toon, Director, Office of Soviet Union Affairs, Room 4211 Boris Klosson, Director, Soviet & EEuropean Exchanges Staff, Room 5222 I Walter Stoessel, Bureau of European Affairs, Room 6228 1 Helmut Sonnenfeldt, Dep. Director, Office of Research and Analysis for the Sino Soviet Bloc, Room 7422 #181 Francis Bator, White House Staff, J#182 ACTION The dtSNeminolton reounnied by this memorandum has been completed, Room 361, Executive Office Building USIA, IRS/A, Mr. Warren Phelps, Room 1002, 1750 - Pennsylvania Avenue, N N. W W. Attn: Mr. Richard T. Davies, 11Y; Vie. ,~ . 6 S- C~1C l~ ri4~ xc nA a tlc downgrading and dec;gsslttcaticn Director, Soviet Union and EEurope, Room 808 25X1A 1-7 Approved For Release 2001 91 114 P79TO1003A002400070001-7 Popoaajs for Reorganizing Soviet Economic Management --- October 1965 (C 1-NFZDENTIAL) St/A/DS Distribution of Current Support Brief No. 65.57, X osygin Copy No. Recipient a xx,& 11-13 gxxxW 14-19 g 20 AAXKRQ 171. 21 - 27 28 - 34 35 36 - 40 41 - 46 47 48 - 53 54 - 55 56 - 57 58 59 - 64 65 66 67 68 69 70 71 72 25X1A 73 74 75 76 77 78 - 79 80 O/DDI, Room 7E32, Hq. O / DDI, D/ONE St/CS St/PR 175 D/A (1 each branch) D/T (1 each branch) D/R (1 each branch) MRA D/P (1 each branch) D/F (1 each branch) St/PS D/I (1 each branch GD/OBI CD/OBI CD/X/OBI RID/SS/DS, Unit 4, Room 1B4004, Hq. St/P/A St/FM Analyst/Branch GR/CR BR/CR FIB /SR/CR, Library/CR IPI/CR Room 1G27, Hq. Archival File - Records Center Chief, OCR/FDD DCS/SD OCI/SA/R, Room 5G19, Hq. DDI/CGS, Room 7G00, Hq. DDI/CGS/HR, Room 7G00, Hq. DDI/RS, Room 4G39, Hq. 25X1A 25X1A UIWUP I Approved For Release j A C `MM94t, 3AO02400070001-7 Approved For Release 2001/ A-R 79T01003A002400070001-7 Copy No. Recipient 81 - 83 D/OSI 84 D/OBI 85 DD/S&T/SpINT 86 - 87 OTR/IS/IP, Room 532, 1000 Glebe (1 - OTR/SIC) 88 NPIC/CSD/REF, Room 15518, 89 NSAL, Room 3W136, Ft. Meade (via GB31, Hq.) 90 - 98 OCI Internal (via SDS/DD/OCR) 99 - 107 NSA _ (via GB31, Hq. ) 108 - 109 National Indications Center, Room 1E821, Pentagon 110 - 121 State, INR Communications Center, Room 6527, State Dept. Bldg. 122 - 125 USIA, IRS /A, Room 1002, 1750 Pennsylvania Avenue, N. W., Attn: Warren Phelps Defense Intelligence Agency, DIAAQ-3, A Building, Arlington Hall Station 76 - * 240 St/P/C/RR, Room 4F41, Hq. 341 - 325 Records Center 25X1A 25X1A Approved For Release 2O6/ Cl! DP79TO1003A002400070001-7 " Approved For Release 2001/03/16 : CIA-RDP79T01003A002400070001-7 14 October 1965 MEMORANDUM FOR: Chief, Dissemination Control Branch, DD/CR FROM : Acting Chief, Publications Staff, ORR SUBJECT Transmittal of Material It is requested that the attached copies of CIA/RR CB 65-57, R2Mjaj P'r 2sals for Reorgainizing Soviet Economic Max-,,agerent, October 1965, Couridential, be forwarded as follove: State, INR Communications Center, Room 6527, State Dept. Bldg. Suggested distribution for Embassies in Bcrli, Bucharest., Budapest., Moscow, Prague, Sofia? Warsaw, Bonn,, London, Canberra., and Ottawa ACTION IPETEII The dissemination requested by this memorandum has been completedt BY: "?' Date: /j 6,S Attachments: Copies 236 ec CGS/RB 40, #326 - #333 od C 65_57 25X1A ti ~;i''s+ tt ^^ 4 6~.LIG.w"iit?n 11tt1Ci Approved For Release 2001/03/d16 1003A002400070001-7 Approved For Release 2001/ 'l A R 79T01003A002400070001-7 Project No. 135282 Report Series CIA/RR CB 65-57 Kosygin's Proposals for Reorganizing Soviet Economic Management Responsible Analyst and Branch A/SI 25X1A RECOMMENDED DISTRIBUTION TO STATE POSTS Berlin, Germany - -Bucharest, Romania Budapest, Hungary -Moscow, USSR _.Prague, Czechoslovakia Sofia, Bulgaria Warsaw, Poland Europe Belgrade, Yugoslavia Bern, Switzerland r--Bonn, Germany Brussels, Belgium Copenhagen, Denmark Geneva, Switzerland Helsinki, Finland The Hague, Netherlands Lisbon, Portugal `London, England Luxembourg, Luxembourg Madrid, Spain OsJ.o, Norway Paris, France Rome, Italy Stockholm, Sweden Vienna, Austria Pacific Wellington, New Zealand Manila, Philippine s ---Canberra, Australia . 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