18  Means of Production (I)


    There is a widespread belief that the USSR today, whatever else might be said about it, remains fundamentally a planned economy, as opposed to an economy ruled by the anarchy of production.

    This theme is recited seven days a week by every organ of mass propaganda available to the Soviet authorities, and no revisionist primer for "popular" consumption fails to claim it as one of the most important advantages of the Soviet "socialist" system today. Millions of people take this claim as good coin, including many who are critical of Soviet revisionist rule in other respects. Even some people who set out to "expose" how capitalism has been restored in the USSR echo the refrain that under the "reforms" of 1965, central planning -- without quotation marks -- was retained.

    Yet this is a fallacy. Among those who know from their practical experience that the fundamental plannedness of the "new" Soviet economy is a myth are not only the Soviet workers who know it most concretely, but also the directors of Soviet enterprises, Soviet economists specializing in the study of the planning process and the most responsible and authoritative Soviet "planners" themselves.

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    Writing in the secluded pages of specialized academic or professional publications, behind a protective screen of jargon -- with other economists and "planners" as audience -- the Soviet writers are more or less obliged from time to time to interrupt their recitals of sleep-inducing generalities with remarks that touch on important practical problems arising in the work of their confraternity. At those moments the talk is very different.

    In the course of a droning recital of the "progress" of the 1965 "reforms," for example, the head of the Department of New Planning Methods of the USSR State Planning Committee (Gosplan), Y. N. Drogichinsky, cannot avoid touching, however lightly, on the fact -- no secret to his primary audience -- that the eighth Five-Year Plan (1966-70) unfortunately did not come off the drawing boards before the "planned" period was already over:

    "The work of drawing up five-year-plans, from the enterprise up to the USSR Gosplan, was not completed in the past five years and, therefore, the enterprises did not have such plans with a breakdown of assignments by years." A bit further on he calls for "the conversion of the five-year-plan into a working program of each enterprise." ("The Economic Reform in Action," in Soviet Economic Reform: Progress and Problems, Moscow, 1972, pp. 211, 224.)

    What is a plan if it is not a working program?

    Or again, in the course of a discussion on the theme of the relation between planning and prices, the deputy chairman of the State Committee on Prices of the USSR Council of Ministers, A. Komin, voices the complaint that, due to the frequent price changes which have become the practice, " it is practically impossible to compile a five-year plan," as the "potential of modern methodology" cannot keep up with the price fluctuations. ("Problems in the Methodology and Practice of Planned Price Formation," Planovoe Khoziaistvo, 1972, No. 9, translated in Problems of Economics, May 1973, p. 48.)

    Speaking on the same theme, deputy Gosplan department chief V. Kotov admits that "in fact, the planning of distribution never attains completed form. Merging with operational management of production, it is completed only with the end of the planned period." In a

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"considerable and ever-increasing" portion of the economy he admits, there is not even an attempt at planning, but rather "the actual cessation of planning;" and in this situation the plan "essentially loses its meaning" and "an objective assessment of the fulfillment of the plan is impossible." ("Prices: the Instrument of National Economic Planning and the Basis of the Value Indices of the Plan," same source as above, pp. 62, 64, 69, 61.)

    Further admissions of anarchy will be quoted later on. They appear, it should be noted, not in a mass-circulation medium but in the professional planners' journal, whose name ironically means "Planned Economy." It is as if chaos had broken out in the building industry of a country where architecture is the state religion: the politicians speak glowingly, as before, of the glories of the national design, covering up; but the architects, among themselves, must somehow come to grips with the stubborn facts such as the failure to complete blueprints before the buildings are finished, the need to convert construction schedules into "working programs" for contractors, the tendency for drafters to design one thing and builders to build another and so on. One of the Soviet "planners'" most frequent complaints, in fact, is that they cannot even find out what actually is happening in the economy, much less foresee what will happen, not even to speak of imposing a consistent design.

    How did the Soviet economy arrive at this state? The answer, in a word, lies in the conversion of means of production into commodities. It has already been shown (in part 17 of this series) that the "reforms" of 1965 converted the Soviet workers' labor power into a commodity. That is, that the relation between the workers and "their" enterprises was put on a purely commercial basis: produce a profit or get out. The subject now is the side of the 1965 measures which imposed the same social character on the means of production and created the same commercial basis for the relations between one state enterprise and another.

    The socialist viewpoint on this question was succinctly advanced by Stalin in 1952:

    "Can means of production be regarded as commodities

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in our socialist system? In my opinion they certainly cannot.

    "A commodity is a product which may be sold to any purchaser, and when its owner sells it, he loses ownership of it and the purchaser becomes the owner of the commodity, which he may resell, pledge or allow to rot. Do means of production come within this category? They obviously do not. In the first place, means of production are not 'sold' to any purchaser, they are not 'sold' even to collective farms; they are only allocated by the state to its enterprises. In the second place, when transferring means of production to any enterprise, their owner -- the state -- does not at all lose the ownership of them; on the contrary, it retains it fully. In the third place, directors of enterprises who receive means of production from the Soviet state, far from becoming their owners, are deemed to be the agents of the state in the utilization of the means of production in accordance with the plans established by the state.

    "It will be seen, then, that under our system, means of production can certainly not be classed in the category of commodities." (Economic Problems of Socialism, p. 53.)

    To this should be added the fact that in Soviet socialist practice, the enterprises could hardly have "bought" means of production even if they had had the right to do so. The enterprise had no funds at its disposition for such a purpose, not even depreciation funds to replace the worn-out equipment. When the time came to replace or add equipment, or when machinery was transferred from one plant to another -- always on plan orders -- the corresponding sums of money were allocated or transferred from the center as a bookkeeping operation. (See e.g., Dobb, Soviet Economic Development Since 1917, New York, 1966, Ch. 15.)

    (By "means of production" is meant here mainly the principal machinery and equipment of industry, specifically in state-owned industry; minor tools and implements, agricultural raw materials, land and foreign trade are separate questions here left aside.)

    By the time we come to the 1965 "reforms," the principles Stalin outlined in 1952 had already undergone heavy modifications during the Khrushchev years. As was shown earlier, the state under Khrushchev sold off the

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machine and tractor stations to the collective farms, converting these means of production into commodities. Additionally the central industrial ministries were abolished, along with much of the compulsory character of such planning as remained.

    As a result, a widespread "gray market" sprang up, in which enterprise directors illegally traded means of production and other goods among one another. (See part 13 of this series) Thus the conversion of means of production into commodities -- the restoration of a basic capitalist relation of production -- was already quite advanced during the Khrushchev years.

    Reference was made earlier also to the June 1965 Moscow conference, which concluded that the "market problem exists not only for consumer goods but also for the means of production." (part 14) A week later came what the Sovietologist Felker terms "a major departure from traditional centralized controls over heavy industry. It was announced that a number of Soviet machine tool enterprises would be permitted to engage in direct business dealings with their customers; in addition, the performance of the plants would in the future be evaluated on the basis of profits rather than on the fulfillment of extraneous plan targets." (Felker, Soviet Economic Controversies, p. 92.)

    At that time, however, enterprises wishing to purchase these machine tools and entering into direct ties with the producer enterprises for that purpose, had as yet no funds (at least not legally) with which to make payment; thus special administrative action was required to create an effective demand (paying customers) for the producer enterprises in the experiment. Nor was there yet a lead market in second-hand means of production, as enterprise directors were not yet permitted to sell off the state property entrusted to them. These limitations on the market in means of production, however, did not last long. In September came the "reforms."

    Alexi Kosygin's sum-up of the experience of the Moscow Transport pilot plants has already been cited. These enterprises prospered, he said, when they "sold superfluous trucks and equipment and discontinued the employment of the superfluous personnel." The explicit

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right to sell off the means of production on their own judgement of what constitutes "surplus" equipment was granted to enterprise directors under the terms of the new Statute on the Socialist State Production Enterprises, approved by the USSR Council of Ministers that Oct. 4. The new law also provides that, "sums obtained from the sale of material values representing fixed assets will remain at the disposal of the enterprise and are to be used for capital investments in excess of the annual plan." (The statute is translated in Problems of Economics, January 1966, p. 11.)

    Even more significant than putting funds at the disposition of the enterprise director was the provision of the "reform" which allowed enterprises to retain a substantial portion of the profits they generated. (In the past, virtually all profits, if any, had gone directly to the center.) In the first year of the "reforms" operation, enterprises retained 26%, on the average, of "their" profits; by 1968 this had risen to 33% and by 1969, 40%. (Drogichinsky, work cited above, p. 207.)

    The largest and fastest-growing portion of these retained profits went into a "production development fund," earmarked for capital investment by the enterprise. On top of this, enterprises were allowed by statute to retain their own depreciation funds for "complete renewal of fixed assets" and to decide when existing equipment was "to be written off" and new equipment purchased. Finally, enterprises were given the right to borrow from the state bank to finance purchases of means of production.

    In this way the enterprises, which had been financial "paupers" under the rules of the Soviet socialist period, became rapidly flush with liquid assets. Their treasuries swelled up particularly after the 1966-67 wholesale price "reform," which was undertaken -- along the lines laid out by Kosygin in his speech -- in order to allow every "normally functioning" enterprise to operate at a profit. And what a profit! By raising wholesale prices in all industry an average of 8% and prices in heavy industry (chiefly producing means of production) an average of 15%, the price "reform" raised average enterprise profitability to a rate of 20%, while several branches of

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heavy industry, principally machine-building, established profit rates of over 40%. (L. Maizenberg, "Improvements in the Wholesale Price System," Voprosy Ekonomiki, 1970, No. 6. in Problems of Economics, Feb. 1971, p. 49.)

    The resulting flood of revenues into enterprise funds, while somewhat short of realizing the "principle of total self-financing" that was said to be the goal, came fairly close. (N. Fedorenko, "On the Elaboration of a System of Optimal Functioning of the Socialist Economy," Voprosy Ekonomiki, 1972, No. 6, in Problems of Economics, Jan. 1973, p. 21.)

    In 1969-70, some 80% of total capital investment within the USSR, presumably excluding the military sector, was classified as "centralized," 20% as "decentralized." The latter represents capital investments by enterprises outside the "plan" and derives entirely from the "own" funds. Of the so-called "centralized" investments -- i.e., investments that are classified as coming under the central "plan," despite the actual failure to work out the central plan before the period was over -- some 73.5% (or 58.8% of total USSR investment) also came from the enterprises' "own" funds.

    Another 23.5% of the "centralized" investment (or 18.8% of total USSR investment) was centralized in the genuine sense, representing grants out of the national budget for the establishment of new industries (mainly automobile, aircraft and new branches of chemical industry) and the "development" of new regions (mainly the Far East and Siberia). The remaining 3% of the "centralized" investment (or 2.4% of the total investment) was in the form of long-term loans at interest by the state investment bank (Stroibank).

    Thus, investment financed out of the enterprises' "own" funds amounted to 78.8% of total (nonmilitary) investment in the USSR. (I. Sher, "Long-Term Credit for Industry,'' Voprosy Ekonomiki, 1970, No. 6, in Problems of Economics, Dec. 1970, p. 46, and T. S. Khachaturov, "The Economic Reform and Efficiency of Investments," in Soviet Economic Reform. . . . pp. 156, 164.)

    No wonder, then, that one of the much-discussed consequences of the 1965 "reform" has been the failure of bank loans to grow beyond what the economist V. N.

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Kulikov terms an "insignificant" role in capital investment. At the top of the list of generally known "basic reasons" for this situation Kulikov cites "the high profitability of the majority of existing enterprises which makes it possible to make capital investments from their own resources." ("Some Problems of Long-Term Crediting of Centralized Capital Investments," Finansy SSR, 1974, No. 5, Problems of Economics, Feb. 1975, p. 61) In the Soviet literature, incidentally, the word "own" in this context is not usually put in quotation marks.

    The 1965 measures, in sum, wiped out the legal and financial barriers that had kept the emerging market in means of production underground during the Khrushchev years. The exchange of means of production as commodities -- hard to finance; illegal, but widespread, under Khrushchev -- became respectable, universal and amply supplied with liquidity. So well supplied, in fact, that some enterprises cannot profitably place all "their" funds, but accumulate what is called a "free profit remainder," in which case they "are entitled to offer loans to Gosbank [the central commercial and central bank] for a certain interest fixed by the government." (Manevich, "Ways of Improving. . ." Voprosy ekonomiki, 1973, No. 12, Problems of Economics, June 1974, p. 11)

    Within the enterprises, all power to dispose of enterprise funds is concentrated in the hands of the director. Except for moneys spent for "socio-cultural" purposes, where the trade union officials must be consulted, the enterprise director under the new law brooks no internal interference in decisions regarding how much to invest, when, where and for what. There is no pretense here at "workers' management" or "workers' coparticipation" in investment decisions, as in the Yugoslav and West German variants, respectively.

    Evidently the "new economic system" has brought great changes in the role of enterprise directors. Gone is the enterprise director of the earlier period, who could neither fire the workers nor suppress their criticism; who risked jail or worse if the plan was not met. Gone is the mere "agent of the state" who could not "resell, pledge or allow to rot" the enterprise assets and who could lay hands on hardly more investment funds than could a church

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mouse. The old enterprise director was little more than the hired conductor of an orchestra.

    Under Khrushchev, many of these people -- willingly or unwillingly -- turned into black-marketeers, embezzlers and other varieties of crooks. The circumstances left little alternative. But this was only a transitional stage in the process of metamorphosis. With the "reforms" of 1965 they emerged as enterprise directors of a new kind. They became not only dictators of the production process iron-fisted industrialists, but also managers of important sums of money, who have to have the eagle eye of investors to succeed.

    What is the political-economic character of these directors? This may be seen by tracing briefly the cycle of their activity. The cycle begins with money, with a certain wage fund and a certain fund "for the development of production."

    The director's activity starts with the purchase of the corresponding commodities -- labor power and means of production. His task then is to combine and to consume these elements of the production process in such a way that, with the sale of the product, the money spent at the outset comes back expanded and multiplied. How the directors arrange the production process to achieve this, some glimpses have been given in part 17.

    A director's task, in a word, is to make the elements of the production process function for him as the component parts of capital, as value that begets value. Should any portion of these elements fail to perform this role for him, the director as has been seen "sells the superfluous equipment and discontinues the employment of the superfluous personnel."

    The greater profit of society, or even a steady high rate of profit such as might be assigned to a given enterprise under a social plan, do not interest this kind of director. As Kotov very justly observes, "enterprises are interested not in high profits in general but in increases in profits paid into their funds." ("Prices. . ." article quoted above, p. 60) Not just steady high profit, but ever more profit, unlimited profit -- and above all, profit for them. Then, with the enterprise funds once more replenished (the director personally of course receives a "share"), the cycle begins

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    In Khachaturov's words, "an enterprise itself has to decide what investments it is advisable to make for expanding and technically improving production. . . . Of all the alternatives, an enterprise will choose one that provides for the biggest rise in profitability." ("The Economic Reform and Efficiency of Investments" in Soviet Economic Reform. . . , p. 156)

    What is the political-economic character of the director of such an enterprise? Marx pinpointed it a century ago: "The expansion of value . . . becomes his subjective aim" and is "the sole motive of his operations." "The restless never-ending process of profit-making alone is what he aims at." He therefore "functions as a capitalist, that is, as capital personified and endowed with consciousness and a will." (Capital 1, p. 152, emphasis added.)

    The fact that the director is appointed and removed from above and occupies a definite slot in a bureaucracy does not alter the character of his function. He is a bureaucrat-capitalist, but he is put into his post in order to function as capitalist and, should he fail in this role, the bureaucracy relieves him of his duties. His capitalist side is the decisive, overriding element in his character, on which the other side depends. The proof of this lies not, however, in abstract reasoning, nor even merely in comparisons of the "new" Soviet director with his twins in Western state and private corporations; it lies rather in the shreds and tatters to which the Soviet directors, as capitalists, have reduced the power of the bureaucracy that is supposed to "harmonize" their strivings: the central planning machinery.