Article 4
August 20, 1987

GORBACHEV'S JUNE 1987 REPORT
ON THE REFORMS

Gorbachev's summary of reforms: radical restructuring of economic management; moving from administrative to economic methods; giving enterprises more independence; moving from over-centralization to democracy; no abandonment of socialist planning; need to overcome stagnation and command methods. Difference between management and ownership. Decentralization in the 1950s. Meaning of sales, profits in a socialist system. Three pillars of socialism. Collectivization and urban growth. Will there be unemployment?

The most detailed and comprehensive exposition to date of the Soviet economic reforms is the report of General Secretary Mikhail Gorbachev on June 25, 1987, to a plenum of the Central Committee. 1 He explained that:

The restructuring was started on the initiative of the Party and is being carried out under its guidance. The Party has roused the country, its ideas have captivated millions of people, it has generated tremendous hopes.2

The reforms will enable the USSR to renew all spheres of life in Soviet society, the report says. Nothing less than the virtual transformation of all Soviet society is envisioned by the restructuring. The plenum produced a document on economic restructuring which summarized the tasks as follows:

The CPSU Central Committee believes the main political task of the Party in the economic field is to carry out a radical reform and create a streamlined, effective, and flexible system of management, making it possible to make maximum use of the advantages of socialism.

The radical reform of managing the country's economy is directed at: . . .

--Turning scientific and technological progress into the main factor of economic growth;

--Ensuring balance, overcoming shortages of material resources, consumer goods and services that obstruct efficient management and intensification of production;

--Giving the consumer priority in economic relations, rights and possibilities of economic choice;

--Creating a reliably operating cost-restricting mechanism for the functioning of the national economy. . . .

The essence of the radical restructuring . . . is the transition from predominantly administrative to economic methods of management at all levels . . . [and] an extensive democratization of management. . . .3

What is the difference between administrative and economic methods? Generally, the former refers to the arbitrary setting of prices in disregard of economic costs. In bourgeois economics it is said that prices are dictated exclusively by the market and that anything else is arbitrary, inefficient and the product of wanton willfulness. They conveniently forget the many rigged prices of monopoly capitalist corporations.

One of the aims of the new Soviet reform is to create a balance between the unit costs of labor, that is, socially necessary labor, and its reflection in socialist planning.

Gorbachev says that changing the economy involves first "a drastic extension in the margins of independence" of state enterprises (referred to as amalgamations). This means a transition to "full-scale profit-and-loss accounting and self-financing." In the course of his talk, he goes into some general details on how this is to be done, but more concrete guidelines are to be published later.

The second step is "radically restructuring centralized economic management" while at the same time relieving the center of "interference in the day-to-day activities of subordinate economic bodies." The bourgeois press refers to this as the first step in abandoning socialized planning. A great deal has been written by the bourgeois press on this, especially in the U.S., and we intend to go over it.

The third step is "a cardinal reform in planning, pricing, financing and crediting." The aim here is to create a "transition to wholesale trade in productive goods." Also projected is a reorganization of the "management over scientific and technological progress."

The fourth is to deepen specialization and "the direct involvement of science in production." It is on this basis that the USSR will achieve "a breakthrough to world-standard quality." Quality of production, of course, was an aim in past decades, one which has eluded Soviet planning to this day, but here again, not to the extent that the bourgeois press would have us believe. Witness the monumental achievements of the USSR in space and other industrial and scientific endeavors. The great drawback has been in the field of consumer goods.

The fifth aspect of the reforms is the transition from "an excessively centralized, command system of management to a democratic one." 4

Notwithstanding what seems to be a wholesale decentralization of the economy, it is important to note that no evidence exists of an intent to altogether abandon centralized, socialized planning. On the contrary, the plenum document reaffirms: "The Central Committee of the CPSU points out that the planned management of the economy as a single national economic complex is the major gain and advantage of the socialist economic system and the main instrument of the realization of the Party's economic policy." 5 (Emphasis added.) The reforms, therefore, are merely against over-centralization and to spread out much of the authority to subordinate organs and groups. But by no means is it contemplated that the socialist planning principle should be abandoned; the idea is to merely restructure it.

Gorbachev's report says that the key to achieving the projected result lies in the pursuit of democratizing all organs of the government. "Our experience demonstrates that success is achieved where Party, government and economic bodies make full use of the growing political and social activity of the working people. Let me say frankly--we will not be able to cope with the tasks of restructuring if we fail to pursue the policy of democratization firmly and consistently." 6 The reforms are "directed at the attainment of a new, qualitative state of socialist society. . . . The understanding that the restructuring was necessitated by the mounting contradictions in the development of society is deepening. These contradictions, gradually accumulating and not being solved in time, were actually acquiring pre-crisis forms." 7

What are the fundamental causes of this developing "pre-crisis"? They are "stagnation and conservatism." 8 Therefore, "An offensive is in progress against bureaucratism. Bossy, pressure management is gradually being overcome." These methods are often referred to as "command-and-administrative forms" of managing Soviet society. The aim is to do away with the rigid, inflexible command methods in the organization of the planned economy, because they have become an obstruction to the further growth of socialist construction. Indeed, according to the report, they have become a brake on the economy which has resulted in stagnation.

From this is drawn the conclusion that the large amalgamations, that is, industrial complexes and factories, should get a wide margin of independence. Full profit-and-loss methods of accounting are to be introduced and the amalgamations should be able to finance themselves on the basis of their resources while taking greater responsibility for achieving the highest economic results. In this way the management of the economy will go from an administrative method of management to economic methods at every level. This can be done only by the broadest democratization of the planning apparatus, Gorbachev says.

"What is the main drawback of the factory's economic management mechanism today?" he asks. It is the "weakness of internal stimuli for self-development." 9 Here is an example, according to the report: A factory is given a certain production quota and resources, but it is done through a system which uses "obligatory indices" and the marketing of the product is guaranteed. So the stimulus for self-development becomes eroded. Then what is the overall aim of the restructuring process? It is to achieve a fundamental breakthrough in the development of the economy. In other words, to create a genuine qualitative change, as the report calls it.

Let's leave the report for a moment and ask, what have been the real qualitative changes, great leaps forward and breakthroughs in Soviet society since the Bolshevik Revolution?

The first, of course, was the victory of the Civil War and the consolidation of Soviet power. The second was successfully overcoming the drawbacks of the New Economic Policy while taking advantage of the partial capitalist restoration in order to move forward. In the post-Lenin era we have the collectivization and industrialization, which came as a result of instituting the first five-year plan, a world historic turning point.

In what way are the Soviet reforms related to the collectivization and industrialization of the first five-year plan? In the first place the collectivization of the peasantry was not merely a change in the form of management of agriculture. To put it in Marxist terms, it was a change in the mode of production, or, more precisely, a fundamental change in property relations. Collectivization was a drastic overhauling of agriculture that changed the form of ownership from private to collective property.

The present Soviet reforms hope to achieve a change in the form of the management of the economy. A common error, both consciously and unconsciously cultivated by bourgeois elements, is to confuse ownership and management. They also try to confuse decentralization with democracy so as to give both of these concepts a bourgeois content. Such confusion serves the interests of the bourgeoisie. They hope that the new management concepts--the transfer of some functions and authority from the center to subordinate bodies, especially to the managers, by democratic means, by which they mean bourgeois democratic means--will ultimately force the USSR to abandon socialized property in favor of bourgeois property. That's a long, long stretch. But that is the orientation of the bourgeois publicists and the champions of the "free capitalist market," some of whom are in the USSR.

So as to avoid any confusion between management and ownership it is best to bear in mind the contrast between a change in management and a change in ownership. When the Chinese agricultural communes were dismantled by the People's Republic in the latter part of the 1970s, that constituted a change in the form of property from what were socialized, certainly state-directed, forms to what has now become private property among the peasants. The overwhelming bulk of agriculture in China is now privately owned and run. Only a small portion of some state and cooperative farms remains. Likewise, after the 1956 rebellions in Poland, what had been cooperatively-owned or state-controlled farms were dismantled in favor of private property forms of agricultural production.

The Soviet reforms concern themselves with the management of socialist industry. Restructuring the management of the economy is not an altogether new departure in Soviet society. On the contrary, some of these reforms and even some of the terminology are remarkably akin to the earlier reforms of May 1957 in the Khrushchev era and those in December 1965 under Kosygin.

Gorbachev himself refers to them in his report. "Over the past few decades there have also been repeated practical attempts to change the existing system of management. They were made in the 1950s, the second half of the 1960s and the late 1970s. But those attempts were not all-out or consistent. They only had what was at best a short-lived effect and did not lead to the desired breakthrough," he said.

Attempts were made to get prices to reflect economic costs on the basis of profit and loss in the various enterprises. Large industrial enterprises were brought together in associations as a means of furthering advances in the economy. Demands were made to set up a form of competition among the enterprises in an effort to get prices to reflect economic costs more accurately. Both the 1957 and 1965 reforms were characterized by emphasizing the stimulus of material incentives in production. The bonus system, which had its origins in the earlier Stalin period, became more widespread. None of this was significantly changed in the Brezhnev-Andropov-Chernenko era.

The 1957 reform abolished the industrial ministries of the government which were controlled centrally from the very top. It aimed to spread out their authority among territorial economic councils (Sovnarkhozy). In other words, their responsibility was transferred to various republics and regions. The abolished ministries were derisively referred to during the Khrushchev era as "empires." The overall goal was to strengthen national and industrial coordination, but by developing planning authorities in the regions and republics as well as on a national basis. Gosplan, the supreme planning agency until 1987, was to coordinate the councils. The 1957 reform dismantled about 20 ministries and created more than a hundred regional councils.

Diffusing the economic administration by creating such a large number of separate entities came into conflict with centralized planning. Some of the regional councils were concerned mainly with their own region and, where buying and selling were involved, this could add up to substantial disorder. It also brought about an increase of corruption and profiteering. The councils were soon dismantled, however, because the growth and multiplication of these separate bodies made the planning process more complicated rather than simpler. Nevertheless, there was a considerable spreading out ("decentralization") in the sense of relieving the center of some elements of the planned economy.

It was more or less inevitable that a consolidation would take place during both the Kosygin and Brezhnev eras. But what must not be lost sight of in discussing these organizational changes in industry, or what in the Gorbachev era would be called restructuring, is the broader economic aim of the Khrushchev and Kosygin reforms. They were an attempt (and that's all they amounted to in the end) to at long last give some degree of priority to the production of consumer goods. Of course, the great emphasis was always on the development of heavy industry, without which the country would have forever remained backward, without the elements necessary for socialist construction or its own defense.

Unlike Khrushchev, Kosygin considerably widened the concept of profitability; less emphasis was put on a quantitative increase in total productive output as the fundamental lever for Soviet planning. Enterprises were given more freedom to decide what to manufacture. Managers were given a wider latitude and greater freedom to decide how and what to produce. The number of ministries was cut from about 50 to around ten.

It is necessary to explain the appearance of such categories as sales, profits, return on investment, interest, rent and so on which have long existed in the USSR but were widened during the Kosygin era. Concepts such as profitability, a return on investment, sales and so on are familiar phenomena under capitalism. Do they have the same social and economic significance in the planned Soviet economy as they do in a capitalist country? Bourgeois analysts of the USSR have studied these categories for decades hoping to detect an avenue conducive to the restoration of capitalism.

Marxism proceeds from a wholly different methodological plane. Marxism first analyzes the specific mode of production, the specific social system, such as ancient slavery, feudalism or capitalism. Marxism searches out the driving force, the motor force, behind each of these specific social systems or modes of production and then analyzes the function that categories such as rent, profit and so on play in each system.

These categories do not make their first appearance with the capitalist mode of production. They have a considerable history. In modes of production prior to capitalism they existed but were incidental, as production was generally for immediate consumption. But under capitalism the driving force is profit, not immediate consumption as in earlier societies. The bourgeois analysts are trying to confuse the function that these categories play in other social systems with the way they function in the USSR.

As Marx says, "The direct purpose of capitalist production is not the production of commodities [as in a socialist society--S.M.] but of surplus-value or profit (in its developed form); the aim is not the product, but the surplus product. Labor itself, from this standpoint, is productive only insofar as it creates profit or surplus product for capital. If the worker does not create profit, his labor is unproductive."10

And, says Marx, "The whole aim of capitalist production is appropriation of the greatest possible amount of surplus-labor, in other words, the realization of the greatest possible amount of immediate labor-time with the given capital." 11

In the USSR, no matter how big the bonus of a manager, worker or administrator, no manager, plant director or government official, no matter how high-ranking, has the power to alienate state property. He or she cannot utilize accumulated savings or bonuses to either sell or buy government property. No property can be transferred away from the state and used in a personal way for profit. The ownership of the means of production is strictly controlled by the state.

Under capitalism, any entrepreneur can utilize income or profit from a giant mining concern, or transportation, utilities, communications or other kinds of corporations, and buy whatever, be it a racetrack, gambling casino or brothel. That is a bourgeois right under capitalism. But it cannot be done under a socialist system and cannot be done under present Soviet law. This is the big difference between capitalist profit and "profitability" in the USSR.

Commodity exchange between enterprises, especially on a wholesale level; profitability; return on investment (that is, capital)--all this appearing in the Soviet economy may turn out to be an embryonic tendency in the direction of capitalism. But that is very, very far removed today and is mere conjecture in light of the existence of the three firm pillars of socialism--public ownership of the means of production, the existence of a planned economy (notwithstanding so-called decentralization), and a monopoly of foreign trade (notwithstanding the recent breach of it by legalizing projected joint ventures with imperialist countries, as we discussed in the last article, and which have yet to prove to be of any real significance).

One of the important disputes that arose in the last days of the Stalin period was a controversy between Khrushchev and Stalin over the projected transfer of machine and tractor stations to the collective farms. It never took place while Stalin was alive. But later, in 1957, Khrushchev did transfer the machine and tractor stations to the collective farms. It raised an important political and theoretical question. The machine and tractor stations were part of the industrial, not the agricultural sector. The former is socialized state property; the latter is collective property. The farms are owned by the collectives and at least in theory the profit, except for taxes, goes to the collective.

Theoretically, it would seem that the transfer of the machine and tractor stations would weaken socialized industry in favor of a lower form of ownership--collective ownership--and lead away from the further development of socialism and in the direction of private property. But viewed in a historical perspective this did not happen. For one thing, Soviet industry is so vast and powerful that the sale or the donation of the machine and tractor stations to the collective farms could only encourage rather than discourage socialist development of agriculture.

We saw earlier that the collectivization of agriculture caused a profound revolution in property relations from private to collectivized forms of ownership. But it did more. It released millions of peasants from the land, from the villages and from all the rural areas into industry. The numerical growth of the working class was staggering by capitalist standards. Underemployment was not a problem. Each succeeding five-year plan brought out this characteristic feature of the Soviet economy--no unemployment. Referring to that period, Gorbachev says that ". . . the number of workplaces grew rapidly . . . in conditions of predominantly extensive production development. Filling vacancies was the main problem." 12

In other words, industrial production was extending and growing on the basis of accumulating labor power (extensive growth of production as differentiated from intensive, meaning the greater use of technology). The situation, says Gorbachev, is radically changing now. "The scale on which the excessive workforce will be trimmed will increase considerably with the speedup of scientific and technological progress." 13 There lies a crucial issue and a great deal depends on how it is resolved.

We all know what an "excessive workforce" means under capitalism, especially in the conditions of the on-going scientific-technological revolution in the capitalist West, most of all in the U.S. It has wreaked havoc on the working class and brought the familiar reappearance of unemployment on a massive scale.

When one takes into account the size and scale on which the Soviet reforms are to take place, that is, the technological modernization aspect in which they hope to introduce sophisticated high technology on the scale of the Western capitalist countries, the question arises of how the social problem, that is, unemployment, will be solved. In the earlier period, excess workers resulting from technological changes in the workforce were absorbed in Soviet industry or retrained for jobs in other areas. This was not on the scale posed by the scientific-technological revolution, however, which multiplies the problem many times.

The Soviet constitution guarantees a job for every worker. This right is affirmed in Gorbachev's report. "We must ensure social guarantees for employment of the working people, for their constitutional right to work," he says. "The socialist system has such opportunities." 14 But the real problem, he says, is how the "excessive workforce" will be "trimmed" in light of the speeding up of the scientific and technological revolution. Will the new "economic mechanism" give an orderly and painless transition to a new phase in the development of the socialist economy? This is the real question. One of the fundamental problems of the new reforms is how to combine the breath-taking speed of the scientific-technological revolution with the tardiness of social progress, which historically lags behind material conditions in society.

References

1. Mikhail Gorbachev, On the Tasks of the Party in the Radical Restructuring of Economic Management (Moscow: Novosti Press Agency Publishing House, 1987).

2. Ibid., p. 12.

3. "Basic Provisions for Radical Restructuring of Economic Management," Pravda, June 27, 1987, translated and published on June 29, 1987, by the Foreign Broadcast Information Service (Washington), pp. 1-2.

4. All the above excerpts are from Gorbachev, p. 43.

5. "Basic Provisions . . . ," p. 6.

6. Gorbachev, p. 30.

7. Ibid., p. 6.

8. Ibid., p. 7.

9. Ibid., p. 44.

10. Karl Marx, Theories of Surplus Value, Part II (Moscow: Progress Publishers, 1968), p. 521.

11. Ibid., p. 547.

12. Gorbachev, p. 59.

13. Ibid.

14. Ibid.

CHAPTERS:
Index Introduction 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Appendix 1 Appendix 2 Glossary Chronology Bibliography


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