"RESTRUCTURING" THE SOVIET WORKPLACE: THE NEW STATE ENTERPRISE LAW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP08S01350R000301010002-1
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 26
• Document Creation Date: December 23, 2016
• Document Release Date: February 28, 2012
• Sequence Number: 2
• Publication Date: May 1, 1987
• Content Type: REPORT

Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
Directorate of
Intelligence
Enterprise Law
"Restructuring" the Soviet
Workplace: The New State
SOV 87-10031
May 1987 ~
Copy 4 0 t
Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
 Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
 Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
Directorate of Confidential
Intelligence 25X1
Enterprise Law
"Restructuring" the Soviet
Workplace: The New State
Domestic Policy Division, SOVA,
This paper was prepared by ~ the
Office of Soviet Analysis. Comments and queries are
welcome and may be directed to the Chief,
Confidential
SOV 87-10031
May /987
25X1
25X1
Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
 Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
Confidential
Enterprise Law
"Restructuring" the Soviet
Workplace: The New State
Key Judgments The strength of the Gorbachev regime's commitment to economic reform
Irt/ormation available will undergo a key test this summer when the Supreme Soviet is scheduled
as of 13 May 1987 to approve a new law on Soviet enterprises. The leadership released a draft
was used in this report.
version of the law in February 1987 and authorized an extraordinary
public discussion of it. The ensuing public debate has highlighted a number
of weaknesses that, if uncorrected, would subvert the law's intent
the economy. They hope that it will significantly increase the autonomy of
state enterprises, long dominated by their supervising ministries, and give
managers and workers greater incentive to improve enterprise perfor-
mance. It will replace a 1965 law that had similar goals but was eventually
undermined by a lack of strong leadership backing and the refusal of the
ministries to loosen their rein. The draft law contains new sanctions against
ministerial interference, but the effectiveness of these sanctions is at best
uncertain. 25X1
Soviet reformers have much at stake in the law. Gorbachev and his
supporters have touted it as the centerpiece of his effort to "restructure"
The difficult history and the contentious public debate it has generated
testify to both the political significance and controversial nature of the law.
Originally slated for completion last year, the draft apparently was delayed
by resistance from the ministries and was remanded by the Politburo for
additional work. The document that finally emerged reflects many of
Gorbachev's ideas but is an obvious product of political compromise that
leaves both the "reformers" and their opponents room for further maneu-
vering.
Among the victories for reform advocates are provisions that:
? Call for the election of enterprise managers (subject to confirmation by
"superior organs") and the creation of elected "labor collective councils"
to represent the workers' interests. Such measures, not in the 1965 law,
respond to Gorbachev's recent calls for "democratization" and worker
"self-management."
? Make explicit the state's right to close down enterprises that operate at a
loss. This unprecedented "bankruptcy" provision has been pushed by
some reform economists as an essential ingredient of true "financial
autonomy."
Confidential
SOV 87-10031
May 1987
Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
 Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
? Endorse the wider dissemination of rights previously granted only to
selected enterprises. These rights would enable the enterprises to deal
more directly with their suppliers, rather than funnel their requirements
through Moscow, and keep a larger percentage of their profits for
investment and incentives.
Unless the draft is strengthened during the amendment process, however,
its ambiguity and vague language, combined with a continued reliance on
centrally determined output goals, could severely limit the enforceability of
many of its provisions and lead to the same fate that befell the 1965 law.
For example:
? Although claiming to expand an enterprise's rights to make production
decisions without ministerial interference, the draft law also enjoins
ministries to "closely monitor" enterprise activities-a function that in
the past has led to micromanagement.
? The draft provides enterprises with mechanisms for redress when minis-
tries overstep their bounds; however, the burden of proof will be on the
enterprises, and it is uncertain whether managers will risk challenging
their superiors so openly.
? Although it endorses the wider adoption of such principles as "wholesale
trade" and "self-financing," the draft contains no new language that
would either strengthen the earlier decrees on these issues or enforce
their broader application.
? The draft makes no real progress toward Gorbachev's announced goal of
"flexible" pricing-an essential step if enterprise managers are to make
progress toward a more rational use of their resources.
The draft law affects the interests of all key economic actors. Government
ministers, most of whom hold membership in the Central Committee, are
understandably reluctant to relinquish some of their authority, given their
continued accountability for the performance of subordinate enterprises.
Not all enterprise managers are eager to assume the responsibility that will
come with their increased authority, and workers probably fear that
allowing unprofitable firms to go bankrupt will threaten their job security.
Workers and managers alike seem unconvinced of the merits of several
initiatives, including a new quality-control system and multiple work shifts,
which the new law endorses.
Confidential iv
Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
 Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
Confidential
25X1
The idea of electing factory managers is especially controversial. Although
workers seem to applaud the notion, the managers themselves have already
made their reservations known. Some party conservatives also may fear
that allowing workers a role in choosing their bosses will begin a process of
worker involvement that could lead to something approaching genuine
unionization. 25X1
In sum, the draft law gives Gorbachev room to push his ideas further but
does not guarantee his ability to do so. One early and visible test of his
mettle will be his success in using the current public "debate" of the draft
to give it more teeth before its adoption as law at the next Supreme Soviet
session, after its approval at a Central Committee plenum on economic
management that Gorbachev has called for this June. Another will be the
content of new regulations for the government ministries, which are also
expected to be discussed at the plenum. Meanwhile, Gorbachev seems to be
using the debate of the draft to lay the groundwork for the plenum
discussions. That debate has now widened to include proposals that
challenge the basic precepts of a planned economy and that have placed the
most conservative opponents of reform on the defensive.
Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
 Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
Key Judgments
Protection of Enterprise Rights 1
"Self-Management"
Quality Control
Financial Autonomy 7
Planning
Supply
B. The Fruits of Public Debate: Proposals for Revision Published in 17
Key Central Newspapers
Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
 Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
Confidential
"Restructuring" the Soviet
Workplace: The New State
? Enterprise Law
A key element of Mikhail Gorbachev's strategy to
reinvigorate the Soviet economy has been his effort to
increase the authority and responsibility of enterprise
managers. By giving them more authority in day-to-
day management, he hopes to transform an economy
that has been tightly controlled by the bureaucrats in
Moscow into one that will be more "self-regulating"
and efficient. By increasing the managers' responsibil-
ity for enterprise performance and giving them more
incentive to improve it, he hopes to give amuch-
needed boost to productivity. Enterprises will be more
productive, he reasons, if their relationship to the
ministries is changed from one of administrative
subordination to one of economic accountability. This
will allow enterprises to base their decisions on profit
motives, rather than merely to follow orders handed
down from the ministries.
The long-awaited centerpiece of this effort-a new
Law on State Enterprises-was approved in draft
form at the January 1987 Central Committee plenum.
It was released for public discussion in February and
is scheduled for adoption at the next session of the
Supreme Soviet after its approval at a Central Com-
mittee plenum Gorbachev has called for this June. It
will replace a 1965 law that also was intended to
increase enterprise autonomy but was eventually un-
dermined by the leadership's efforts to ensure that
enterprise actions were compatible with national ob-
jectives and by the ministries' reluctance to loosen
their rein. To help avoid this fate, Gorbachev included
some sanctions in the new law that are intended to
prevent the ministries from circumventing its intent.
Originally slated for completion in 1986, the draft
apparently encountered resistance from the ministries
and was remanded by the Politburo for additional
work. The document that finally emerged reflects
many of Gorbachev's ideas but is an obvious product
of political compromise that leaves both the
"reformers" and their opponents room for further
maneuvering.
As currently written, the draft for the most part reads
more like a "declaration of independence" for Soviet
enterprises than a law with enforceable provisions. It
endorses a number of Gorbachev-backed ideas encom-
passed in earlier decrees, which had applied to only a
small number of enterprises or contained other re-
strictions limiting their impact. The draft's endorse-
ment of the widespread application of these ideas is a
victory for Gorbachev, but its vagueness concerning
implementation leaves considerable doubt about its
ultimate impact.
The ambiguity of the draft language is illustrated by
its assertions on the legal rights of enterprises. The
draft gives the enterprises the right to make decisions
on "all production and social questions" that are not
expressly precluded by law, while specifying that the
ministries can exercise only those powers expressly
granted by law. At the same time, however, the
ministries are instructed to closely "monitor" enter-
prise activities-a function that in the past has led to
micromanagement.' The 1965 law had similarly in-
structed economic agencies to "ensure strict obser-
vance of the rights of enterprises" and had told them
that they could revise an enterprise's plan "only in
exceptional cases"-provisions that have been rou-
tinely violated ever since. Unlike the 1965 law, the
new draft provides the enterprises with mechanisms
for redress when the ministries overstep their bounds.
The burden of proof, however, will be on the enter-
prises, and it remains to be seen whether they will risk
so openly challenging their superiors (see appendix A).
' Aleksandr Levikov, the economics editor of Literaturnaya Gazeta,
recently called for "relieving ministries of responsibility for the
results of enterprises' activity" and observed that it was "illogical"
to ask ministries to take ahands-off attitude toward subordinate
enterprises while continuing to hold them accountable for enter-
25X1
25X1
25X1
Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
 Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
Confidential
The "Law on the Socialist State Production Enter-
prise, "issued in October 1965, was one of many
regulations designed to implement an economic re-
form introduced by Premier Kosygin. As spelled out
by Kosygin in September 1965, that reform consisted
oj:? an administrative reorganization of the bureau-
cracy; some decentralization olPlanning and deci-
sionmakingfunctionsfrom the ministries to the en-
terprises; achange in success criteria for enterprises;
a revision of wholesale prices; and a reform of the
industrial supply system.
The fate of the 1965 law was largely determined by
the government bureaucracy, which reacted to re-
form, in Gertrude Schroeder's words, "merely by
doing what comes naturally to large, entrenched
bureaucracies anywhere when they are threatened
with change-that is, procrastinating, assimilating,
complicating and regulating.' a Because the ministries
continued to be held responsible for the performance
of subordinate enterprises, they continued to exercise
`petty tutelage" and effectively nullified much of the
new freedom of the enterprises.
a See "Soviet Economic Reform at an Impasse, "Problems of
Communism. July-August 1971
The vagueness of the draft's provisions on the legal
rights of enterprises already has led some managers to
express their reservations about the effectiveness of
the draft as currently written. One of the strongest
criticisms has come from Nikolay Travkin, a con-
struction-trust leader who had previously won Gorba-
chev's public praise as an effective manager. Speaking
at the trade union congress in February, Travkin
complained:
The draft law sins with its excessive declarations.
There are very many truisms there. But as regards
specific rights of enterprises in management and
planning, the plans are not formulated clearly... .
There is much here that has been left unsaid. And it
is far from harmless. Because sloppiness in the formu-
lation could leave a loophole so that later on, with the
aid of instructions, clarifications, and various clauses,
The law was also subverted 6y central authorities'
later efforts to ensure that enterprise actions were
compatible with traditional economic and ideological
objectives. For example, the freedom of enterprise
managers to determine average wages and to use
incentive funds as they saw fit was curtailed by
subsequent decrees issued when Moscow became con-
cerned that wage outlays were growinglaster than
productivity and that white-collar workers were bene-
jitingdisproportionately from bonus payments.
Implementation of the law also sufl`eredfrom a lack
of strong leadership backing. Its initiator, Kosygin,
became increasingly overshadowed by Brezhnev, who
lacked Kosygin's commitment to the law and to
economic reform in general. The climatefor a decen-
tralization of economic decision making became even
less favorable of ter the Czechoslovak "spring" of
1968, which underscored the political risks of reform.
Consequently, neither the law nor the larger econom-
ic reform was ever implemented as initially intended.
the very essence of this law could be emasculated. It
would not be the first time for us. And we all know to
what extent our ministries and the planning and
finance bodies can forbid and not allow.
"Self-Management"
The draft law most clearly breaks new ground in
calling for greater worker participation in the man-
agement of enterprises, a concept first articulated by
Gorbachev at the party congress last year and pushed
vigorously at the January 1987 plenum. If adopted,
the draft law would for the first time legalize the
"democratic" election of managers by workers
25X1
25X1
25X1
25X1
Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
 Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
Confidential
Figure 1. Gorbachev meets
with managers and workers at
of enterprise funds.
The clear intent of Gorbachev's effort is to give Soviet
workers a greater sense of participation in manage-
ment decisions and, hence, of their own responsibility
for enterprise performance. As Izvestiya noted in a
recent editorial, workers will no longer be able to
blame their poor performance on a poor leader,
"because they will have elected him themselves."
Another intent may be to increase the pressure "from
below" on enterprise managers to improve their
performance.
25X1
25X1
throughout the Soviet Union. Unlike the 1965 law,
which specified that managers were to be appointed
by their superiors, the new draft calls for the election
of enterprise directors for five-year terms and lower
level managers for two- or three-year terms at regu-
larly scheduled meetings of workers. Between these
meetings, the workers' interests are to be represented
by an elected "labor collective's council," which is to
operate primarily in an advisory capacity but also is to
have some decisionmaking authority in the utilization
to remedy that situation.
A Law on Labor Collectives, adopted in 1983, had no
provision for the establishment of such councils. Al-
though it called for greater participation by workers
in the decisions affecting them, their interests were to
be represented during the periods between general
meetings by enterprise management and elected bod-
ies of party, trade union, and Komsomol organiza-
tions. Judging from the remarks of Gorbachev and
other leaders, the labor collectives law has been
ineffective in fostering a sense of greater worker
involvement in enterprise decision making, and the
establishment of the councils apparently is an attempt
Gorbachev is attempting to balance his objective of
giving workers a stake in the success of the plant and
his desire to maintain an ultimate political veto over
the selection of managers. In his speech at the
January plenum, he took pains to reassure the Central
Committee that his intent is to enhance-not to
weaken-the "one-man management" principle of
enterprises. Limits on the free selection of managers
are suggested by the draft's requirement that elected
directors be "confirmed" by superior organs, and
lower level managers, by enterprise leaders. The
experience of the best known Soviet experiment in the
Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
 Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
Confidential
Figure 2. A cynical Soviet view
q/' how the ministers' behavior
has changed as a result of Gor-
bachev's "restructuring" e,11'ort.
In the topframe, the minister is
signing a stack ct1'instructions,
orders, and directives for sub-
ordinate enterprises. In the bot-
tomframe, he is adding the
words "on restructuring" to ev-
ery directive. The caption
reads: "Now let them say I'm
failing to keep pace with li(e!"
25X1
Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
 Declassified in Part -Sanitized Copy Approved for Release 2012/05/14 :CIA-RDP08S01350R000301010002-1
Confidential
Corer rpyposoro xonnexrxsa
Pasrosop o pa6oveM ca-
MoynpasneHNN, HayaTwN
genosoN scrpe4eil s AKa-
AeMNM HapOJ{HOfO X03AN-
CTBa npN COBeTe MNHNCT-
pos CCCP, sblssan N