Factory and Manager in the USSR [Reprint 2014 ed.] 9780674188273, 9780674188266

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THE RUSSIAN RESEARCH CENTER The Russian Research Center of Harvard University is supported by a grant from the Carnegie Corporation. The Center carries out interdisciplinary study of Russian institutions and behavior and related subjects.

RUSSIAN

RESEARCH

CENTER

STUDIES

1. Public Opinion in Soviet Russia: A Study in Mass Persuasion, by Alex Inkeles 2. Soviet Politics — The Dilemma of Power: The Role of Ideas in Social Change, by Barrington Moore, Jr. 3. Justice in Russia: An Interpretation of Soviet Law, by Harold J. Berman 4. Chinese Communism and the Rise of Mao, by Benjamin I. Schwartz 5. Titoism and the Cominform, by Adam B. Ulam 6. A Documentary History of Chinese Communism, by Conrad Brandt, Benjamin Schwartz, and John K. Fairbank 7. The New Man in Soviet Psychology, by Raymond A. Bauer 8. Soviet Opposition to Stalin: A Case Study in World War II, by George Fischer 9. Minerals: A Key to Soviet Power, by Demitri B. Shimkin 10. Soviet Law in Action: The Recollected Cases of a Soviet Lawyer, by Harold J. Berman and Boris A. Konstantinovsky 11. How Russia Is Ruled, by Merle Fainsod 12. Terror and Progress USSR: Some Sources of Change and Stability in the Soviet Dictatorship, by Barrington Moore, Jr. 13. The Formation of the Soviet Union: Communism and Nationalism, 1917-1923, by Richard Pipes 14. Marxism: The Unity of Theory and Practice, by Alfred G. Meyer 15. Soviet Industrial Production, 1928-1951, by Donald R. Hodgman 16. Soviet Taxation: The Fiscal and Monetary Problems of a Planned Economy, by Franklyn D. Holzman 17. Soviet Military Law and Administration, by Harold J. Berman and Miroslav Kerner 18. Documents on Soviet Military Law and Administration, edited and translated by Harold J. Berman and Miroslav Kerner 19. The Russian Marxists and the Origins of Bolshevism, by Leopold H. Haimson 20. The Permanent Purge: Politics in Soviet Totalitarianism, by Zbigniew K. Brzezinski 21. Belorussia: The Making of a Nation, by Nicholas P. Vakar 22. A Bibliographical Guide to Belorussia, by Nicholas P. Vakar 23. The Balkans in Our Time, by Robert Lee Wolff 24. How the Soviet System Works: Cultural, Psychological, and Social Themes, by Raymond A. Bauer, Alex Inkeles, and Clyde Kluckhohn" 25. The Economics of Soviet Steel, by M. Gardner Clark 26. Leninism, by Alfred G. Meyer 27. Factory and Manager in the USSR, by Joseph S. Berliner* * Publications of the Harvard Project on the Soviet Social System.

FACTORY and M A N A G E R

in the

USSR

FACTORY and M A N A G E R in the USSR

JOSEPH

S.

BERLINER

H A R V A R D UNIVERSITY PRESS • CAMBRIDGE 19 5 7

© Copyright, 1957, by the President and Fellows of Harvard College

Distributed in Great Britain by Oxford University Press, London This is study number 27 in the Russian Research Center series and a report of the Harvard Project on the Soviet Social System.

This volume was prepared under a grant from the Carnegie Corporation of New York. That Corporation is not, however, the author, owner, publisher, or proprietor of this publication and is not to be understood as approving by virtue of its grant any of the statements made or views expressed therein.

Library of Congress Catalog Card Number Printed in the United States of America

57-9068

TO ANN

ACKNOWLEDGMENTS

I wrote this book, but scarcely a soul who in the past six years committed the indiscretion of expressing an interest in my work succeeded in having no part in it. I wish to express my gratitude to the many colleagues and friends who bent a willing ear or cast a critical eye. Professor Alexander Gerschenkron suggested the line of inquiry which eventually led to this study. He has read more drafts and re-drafts than any living person, with the possible exception of myself. I wish to thank him for his invaluable criticisms and suggestions at all stages of the work. During the writing of the book I had the deep honor and inspiring experience of being associated with the Russian Research Center of Harvard University. It is impossible to express fully how much I owe to the formal seminars and informal table-talk of my colleagues at that institution. Professor Clyde Kluckhohn, the former director, has my profound gratitude for his infinite encouragement. I am indebted to Professor Gregory Grossman who first suggested that I present this study as a doctoral dissertation. To my fellow economists at the Center, particularly Professor Alexander Erlich, Professor Franklyn D. Holzman, and Dr. Alexander Eckstein, I wish to express my thanks. The study was undertaken as part of the Project on the Soviet Social System of the Russian Research Center, supported under contract AF No. 33 (038)-12909, by the Human Resources Research Institute, Maxwell Air Force Base. I wish to acknowledge my debt to my fellow participants in that interdisciplinary effort, for introducing me to the methods and approaches of the behavioral sciences. Field Director Raymond A. Bauer, Research Director Alex Inkeles, and my colleagues in the several disciplines coached me by example and by advice in the techniques of interviewing and of the analysis of survey research data. Of the many people who read and offered critical comment on all or parts of the manuscript, I wish particularly to thank Dr. Barrington Moore, Jr., and Mr. Abraham Brumberg. Mr. Robert Warshaw kindly gave his time to editing portions of the work. Mr. Marshall Shulman, Associate Director of the Russian Research Center, undertook the long nego-

X

Acknowledgments

tiations of seeing the manuscript through its revisions to the press. I wish also to thank the secretarial staff of the Center, particularly Mrs. Helen Parsons, Mrs. Elizabeth Fainsod, Mrs. Lillian Christmas, and Miss Rose Di Benedetto who cheerfully nursed the manuscript through innumerable retypings. While gathering material for this study I spent seven months in the constant company of former Soviet citizens, then residing as displaced persons in Germany. The least part of my debt to them is for their cooperation in sharing with me their experiences and attitudes during their lives in the Soviet Union. But the chief part of my debt is for the understanding they awakened in me of the full meaning of a life under tyranny, and for the love they kindled in me for the greathearted and democratic peoples of the Soviet Union. In acknowledging my gratitude, I wish to express to them my hope that the present ferment in their native land will lead eventually to the establishment of that freedom which is cherished by none so much as by those to whom it has been denied. To my wife Ann, who gave support and encouragement from beginning to end, this book is gratefully dedicated. JOSEPH S.

BERLINER

Syracuse, N. Y. January 1957

Note on translations: The book quotes copiously from personal interviews with former Soviet citizens and from published Soviet materials. Except where otherwise indicated, all translations were made by me. Responsibility for the accuracy of translations, as well as for all views expressed in the book, rests entirely with me. J. S. B.

CONTENTS

Foreword I. II.

Introduction

xiii 1

The Economic Milieu

12

III.

The Goals of Management

25

IV.

Premiums and Other Goals

44

V. Profit as a Goal VI. VII. VIII.

57

The Safety Factor and the Production Plan

75

The Safety Factor and the Procurement Plan

88

The Assortment of Production

114

IX.

The Quality of Production

136

X.

Falsification of Reporting

160

Blot

182

XII.

The Tolkach and Uses of Influence

207

XIII.

Inbuilt Controls over Management

231

XIV.

Control by the Ministry

248

XV.

Party and Trade Union Controls

264

XVI.

Other Controls over Management

279

A Critique of the Post-Stalin Reforms

301

Summary and Evaluation

318

Appendix

331

Bibliography

337

Endnotes

347

Index

375

XI.

XVII. XVIII.

FOREWORD

Interdisciplinary research is often equated with "team" research. It is true indeed that ordinarily the individual who goes beyond his own traditional field for concepts and methods has acquired these additional skills by prolonged and collaborative association with others who have had a different training. This is certainly the fact in the case of Professor Berliner. Yet the product of interdisciplinary research is not necessarily — as is sometimes carelessly assumed — a publication of which the hybrid roots are publicly validated by two or more authors who "represent" the several fields. In fact, in such instances, there is often evidence that no genuine integration has occurred. Collaboration has only advanced to the stage at which individuals with varying scholarly backgrounds have deemed it worthwhile to juxtapose their contributions within a single cover. Even less desirable are those not unfamiliar publications where no proper fusion has occurred, where the final text represents a series of compromises not fully satisfactory to any of the participants. These documents in another way lack the stamp of unity, and responsibility cannot be assigned because of the essential anonymity of the final authorship. Finally, there is the case where a single viewpoint is dominant and has reasonable internal consistency, but where there is no depth, no technical proficiency from the angle of any conventional discipline nor from that of a newly carved-out interstitial field. The present book is notable for its substantive contributions to an area in which Western scholarship has hitherto lacked firm data. It is equally notable for its innovating interpretations of phenomena that have been perplexing but which have both great intrinsic intellectual interest and immense practical import for citizens of non-Communist countries. I am not competent to comment upon Mr. Berliner's book as a study in technical economics, though my colleagues who are economists tell me that as such it is an impressive piece of work. To a layman in economics, the outstanding feature of Factory and Manager in the USSR is the success with which the author has evaded all the perils of so-called "interdisciplinary research" that have been enu-

xiv

Foreword

merated above. Positively, this book is as convincing testimony as I know to the value of work that ranges beyond parochial confines when this makes sense in terms of the issues that are being investigated. Joseph Berliner has attained to the ideal goal in these matters, for he has integrated relevant portions of several fields besides his own "under one skull." His book has true rather than artificially synthetic or superficial multidisciplinary quality. Without sacrificing the rigor of his own profession, he has used correctly yet with restraint and modesty ideas and approaches from sociology, psychology, anthropology, and political science. His treatment of the industrial enterprise as a system draws much from sociology and other social science theory. As for psychology, he remarks that "Economists never are (nor should they be) very comfortable talking about the goals of men." But I am sure that psychologists will find sensible and to the point everything that Berliner says about motivations. His technique of interviewing was essentially anthropological. And he deals with the crucial concepts of blat and tolkach by the contextual method which a linguistic anthropologist would use. He fully realizes that these are among "those many flavored words which are so intimate a part of a particular culture that they can be only awkwardly rendered in the language of another." It is not for me to evaluate Berliner's grasp of politics, but his treatment of the political matrix appears to possess sophistication. This is first and foremost a study of managerial behavior. There is much more to any system of behavior than meets the eye that studies the charts of organization which specify how the flow of communication is to proceed. The formal pattern of communication and control is one element and an element that cannot be overlooked. But the real alternatives are affected by all sorts of other factors. There are the actual necessities of economics, though, as Berliner reminds us, a living economic system is more like James Watt's first steam engine than like a fine watch mechanism. There are the built-in imperfections of each specific economic system. Then there are the "non-economic" factors in economic action. In this instance, the linkages to the political organization and the security police loom large. The motivations of managers are likewise influenced by their personal situations, including the precise points at which they find themselves in the complicated web. Yet there are demonstrable regularities in their behavior. The over-all picture, organizational and economic, necessitates the development of informal adjustive mechanisms and indeed some tolerance of these on the part of the state control apparatus. Perhaps the most dramatic aspect of Mr. Berliner's story is his answer to the question: "How does one explain that in a totalitarian regime, sturdily propped with all the murky paraphernalia

Foreword

xv

of a police state, managers go blithely about hoarding materials, engaging in blat, and systematically evading the intent of regulations?" One query that will inevitably be raised by readers is: No matter how excellent an account of the 1938-1941 period this may be, how much will it tell me about the present and the future of the Soviet industrial enterprise? Berliner faces this issue squarely. It will be noted that he has followed significant sources through 1956 and has devoted Chapter XVII to post-Stalin events. His materials support his findings that basic features of management as they emerged from interviews based upon pre-World War II experiences changed prior to Stalin's death only in details and that if change has occurred after 1953 it is not occurring with overwhelming suddenness. These conclusions cannot startle an anthropologist. Change always does take place, of course, and the cumulative effects over long time periods are often crucial. But, once a system has taken some kind of distinctive form, one must usually say of alterations over shorter time spans: "the more it changes, the more it is the same thing." Human habits are very persistent and not least those which channel interpersonal relationships and communication. Not even the most ruthless dictatorship is ever in a position to start with a clean slate as far as human beings are concerned. Hence, whatever may happen in the future as regards this sector of Soviet life, one can gain an intellectual comprehension of these events only against the background that Mr. Berliner has so skillfully delineated and analyzed. Clyde Kluckhohn April 21, 1957

FACTORY and M A N A G E R

in the

USSR

INTRODUCTION

I

The industrial and commercial life of modern nations is conducted by enterprises. They may be owned by single persons, by small groups, by millions of shareholders, or by that entity which is at once everybody and nobody, the state. Whatever the form of ownership, the conduct of modern enterprises is increasingly in the hands of salaried managers. The division manager of a United States manufacturing corporation has his counterpart in a Soviet enterprise. He is the Soviet plant manager. He and his enterprise are the focus of this study. What is it like to be the manager of a Soviet industrial enterprise? Obviously no one may presume to have found the answer to a question of this kind. What one may strive for, however, is an interpretation which is plausible, which is consistent within itself, and which fits as many as possible of the known facts. The objective of this study is to provide such an interpretation. However cautiously stated, such an objective will cause many a skeptical eyebrow to be raised. And properly so. For it is well known that the Soviet authorities have been more secretive in recent decades than the authorities of most other nations. Moreover, even when information has been provided, it is also true that the Soviet state is in the advertising business in a bigger way than perhaps any other state in history. Under such circumstances, how far can one really go in interpreting the real life situation of a Soviet managerial official? People who work in the field of Soviet studies are, to be sure, fully and painfully aware of the problems posed by these considerations. No other contemporary society presents quite the same kind of problem to those who would seek to understand it. Indeed, in many curious ways the problems of research are more akin to those encountered by the student of history, or prehistory. It is for this reason that research workers in the Soviet field like to compare themselves, with an ill-concealed note of self-pity, to such probers of the sparsely documented past as archeologists or paleontologists. Although they deal with Pravdas and plans instead of potsherds and skulls, and although it is space rather than time that separates them from their object of study, there are compelling similarities in their

2

Factory and Manager in the USSR

work. Both are engaged in "digging up" whatever evidence they can find and piecing together a spotty replica of an original which they may not examine at close hand. From time to time there is uncovered a marvelously preserved graveyard of dinosaurs or a 1941 National Economic Plan1 and then a whole set of previously unclassifiable data falls into place and another gap is filled. But neither can return to the original locale in order to gather independent evidence, and neither can submit the completeness of his data to the comforting test of direct observation. There are, however, certain problems which the Soviet researcher must face but with which the paleontologist need not be concerned, and these are the source of his self-pity. Foremost, perhaps, is the aforementioned problem of the credibility of the data with which he deals. The student of Soviet society must be ever careful of the data which reach him through the hands of a regime which is highly propaganda-conscious and which, moreover, has monopolized the machinery of propaganda. Can one footnote Pravda with the same confidence as one can footnote a fossil? The first thing to be said is that no state can live on propaganda alone. It is true that one major function of the tightly controlled media of mass communications is to secure the loyalty of the population and to kindle enthusiasm for the tasks which the state desires to have carried out. To this end the achievements of the regime are painted in bright colors, failures may be concealed or explained away, the ideal may be presented as the real, and the unfavorable distorted or omitted. But mass communications have other functions which are equally vital to the operation of the state. One such function is to inform. The people must be informed of changes in the laws, of what is expected of them in the next planning period, of certain areas of deficiency which they must be exhorted to remedy. Engineers and scientists must communicate some of their findings to others, Party officials must share experiences with other Party members so that all may benefit, planners must inform each other of new methods and their results. Another function is to criticize. There is an old Bolshevik tradition of "self-criticism" which requires responsible officials to avow their own mistakes candidly and to expose the mistakes of others, and the press devotes a portion of its space to articles and letters in which the authors engage in rather frank criticism of themselves and others. Although Soviet citizens understand full well that this exhortation to criticize does not extend to the basic features of the system or to established policies, within these limits there is much that may be said. Since such criticism is very pointed and cites names and places, its effectiveness would be greatly reduced if it were obviously falsified. If the functions of informing and criticizing are to be performed successfully, propaganda must give way at some points. In recent years a number of studies have appeared which have mined

3

Introduction 2

the Soviet sources and made them yield gold. A wide variety of materials have been used: political and industrial newspapers, textbooks, engineering and economic journals, belletristic literature, handbooks for planners and officials, economic treatises, law books, collected laws, and many others. By a critical and astute use of such materials the writers have not only succeeded in reconstructing the official picture of things as they should be, but have gone far in peering behind the legal façade to discover much of things as they really are. The raiser of skeptical brows need only peruse these works and note their documentation in Soviet sources to be persuaded that one can go further than he imagined in finding out what it is like to be a Soviet managerial official. While the study of management can go far on the basis of published materials, there do remain stern limitations. Some of these limitations could be removed only by free access to the system, which has been effectively denied in the past few decades to non-Soviet observers. The recent liberalization of foreign travel in the USSR has been limited to short periods and has not permitted extensive and intimate contact with the system in operation. More serious, perhaps, are the harsh fetters which the Soviet state places upon the critical and dissenting voices among its own people. We are thus deprived not only of those insights which we might gain were we able to observe the system at close hand, but we are also deprived of the views actually held by those who are part of that system. An interpretation of Soviet society based exclusively upon published sources must therefore be offered with more than the usual scholarly humility. For there is more than the usual chance that, however successfully this interpretation squares with the assembled facts, it may have missed the vital point. Who has not had the experience of reading a description of his own society by an alien writer, and feeling that, while none of the facts are in error, yet the picture is all wrong? Thus the student of Soviet society must live with the ever present discomfiture that his carefully documented view of, say, the goals of industrial managers may appear to a real live Russian to be grossly misconstrued. This discomfiture is accompanied by the frustrating awareness that, but for a curtain, the things he writes about might be directly observed. If the paleontologist works blind, the student of Soviet society works blindfolded. Firm as much of our accumulated knowledge of the system appears to be, one cannot help trying to remove the blind-fold, or at least to peek. As a result of the upheaval of the last war, an unusual opportunity to peek was provided. Masses of Soviet citizens were cast upon western Europe, masses returned home afterward and masses remained. The mountain, or at least a foothill, came to Mohammed. If we could not ob-

4

Factory and Manager in the USSR

serve the Soviet system in situ, we could at least talk freely and intimately with large numbers of people who had lived and worked in it. The problems of sampling and bias were enormous; but the hungry man does not refuse to eat because the food is not what he would have ordered. It was as if an Egyptologist were suddenly informed of the discovery of a colony of Israelite tribesmen, miraculously preserved alive through the centuries. One can hardly imagine his refusing to interview them because they were "defectors." THE INTERVIEWS

In the fall of 1950 a team of social scientists under the sponsorship of the Russian Research Center of Harvard University went to Germany to interview former Soviet citizens.3 With the cooperation of leaders of the displaced persons' community, hundreds of personal interviews were conducted and thousands of written questionnaires were administered. Testimony was gathered on a wide variety of subjects covering the life experiences and attitudes of the interviewees. Those who had had managerial experience in Soviet enterprises were interviewed further on this subject. The interpretation of the Soviet enterprise presented in the following chapters is based in part on these interviews with former managerial officials. The original purpose of interviewing managerial officials was to add to our existing knowledge of the operation of enterprises. Accordingly, the interview guide ranged broadly over such matters as planning, production, purchasing, marketing, and finance. In the course of the interviewing period, however, it soon became clear that the informants were revealing much more than the mere unpublished details of the operation of enterprises. It was observed that certain themes began to crop up again and again in the most varied contexts in the testimonies of different informants. These themes ran like scarlet threads through the industrial experiences of the informants. If reality has many faces, at least one of them was showing itself in these themes. It is this face of Soviet reality which the present study depicts. The analysis of the interview testimonies centered about the elaboration of those themes which, by their frequent reiteration in varied circumstances in different interviews, appeared to express some universal feature of Soviet industrial experience. Initially the themes seemed to bear little relation to each other, but when "lived with" long enough they were finally seen to fall into three distinct categories. There were, first, those that expressed some notions about the motivations of managerial officials, about the reasons why certain decisions were made. There were, second, those that described the typical decisions made by managers and the practices flowing from these decisions. And third, there were those that

Introduction

5

revealed certain characteristics of the economic system that helped to explain the prevalence and persistence of these practices. The argument of the book follows this system of classification. The interpretation of Soviet industrial management presented here originated, therefore, in the common experiences and attitudes of the informants. Subsequent study of the published materials led to some modifications but to no essential change. 4 The picture of the Soviet enterprise as it emerged from the interviews can be reconstructed, in large measure, from the published sources. Indeed, many of the features of Soviet management which appeared in the interviews had been previously noted by other non-Soviet students on the basis of their study of the published sources. The primary contribution of the interviews was that they provided a means of sifting and arranging these "building blocks" so as to provide an authentic depiction of the Soviet enterprise as it is seen through the eyes of the managers themselves. RELIABILITY OF THE INFORMANTS

Since the study purports to view the enterprise through the eyes of former managers, something must be said about the quality of those eyes. The question which the critical reader will ask is "How much reliance can be placed upon the testimony of people who refused to return to their native land presumably because they harbored an enormous antipathy for the regime?" In considering the matter w e may first ask who these people were. The group of displaced persons from whom the informants were selected were former Soviet citizens who had chosen not to return to their native land. They had come to western Europe in various ways. Some had been forcibly sent or voluntarily went to Germany as laborers in factories during the war. Some had been prisoners of war and were later released in Germany. Some had voluntarily quit the occupied portions of the Soviet Union, when Soviet troops were driving out the German occupiers, for fear of reprisals and for other reasons. When the war ended, large numbers of these people elected to return to their homeland. But many chose to remain in the West, even in the unhappy status of displaced persons, rather than return to their homes. This group was constantly replenished with new escapees from the Soviet army and civilian employees in lands occupied by the Soviets. The attitudes of the colony of displaced persons toward the Soviet regime were far from homogeneous. A whole spectrum of views was represented. There were some who, especially after a number of years of rather desperate physical and moral conditions of life in displaced persons' camps, thought nostalgically of their lives back home. Many others expressed a desire to return if they could be assured that there

6

Factory and Manager in the USSR

would be no personal reprisals for their defection. Of those who had left because of a desire to better their standard of living, many had not succeeded for various reasons and some thought they had made a mistake. Among these groups that felt rejected and betrayed by the West, criticism of the Soviet regime was often mild. Another small group among the displaced persons consisted of those who accepted much of the Communist ideology and of Soviet institutions but rejected Stalinism with its terror and its pressure on the people. One of our informants was in this group. A former Communist Party member, he accepted most of the Soviet society, except the Stalinist terror and the lack of freedom. Unlike the overwhelming majority of his fellow exiles, he even accepted the collective farm system, although he objected to the lack of democracy in the administration of the collectives. Such persons were in the distinct minority, but they were especially useful for obtaining contrasting ideological positions. By far the greatest number of displaced persons were strongly antiSoviet, and most of the interviewees fall into this category. It is with reference to these persons that the question of reliability is most relevant. There are many reasons why they may have deliberately distorted their testimony. Dedicated to an anti-Communist position, they may have wanted to propagandize the interviewer to a like position. Those who felt that their future depended upon the eventual overthrow of the Soviet regime may have seen in the interview situation an opportunity to stir up anti-Communist feelings in a potential American ally. Those who were awaiting the opportunity to emigrate to the United States may have hoped that by emphasizing their anti-Communism they would somehow help their chances. To be sure, the informants were assured that the interviewers were private citizens who had no great influence with the United States government, but many informants found this impossible to believe, as perhaps they did not fully believe our assurances that their anonymity would be preserved. In all these cases one must reckon with the possibility that the informants deliberately distorted their replies to the questions asked. There are, however, cogent reasons for the view that such deliberate distortion was not widespread. First, it must be pointed out that, despite the anti-Soviet sentiments of the overwhelming majority, most of them are at the same time convinced adherents to many of the basic features of the socialized economy. The principles of economic planning and of government ownership of industry, and especially of heavy industry, found overwhelming support among them. Certain of the social services provided by the Soviet regime, such as social security and free medical care, were widely pointed to as positive features of the regime, and the absence of similar services in the West was looked upon as an unde-

Introduction

7

sirable feature. While there was much criticism of bureaucracy, inefficiency, and special privileges in the administration of state-owned industry and the social services, state ownership and free social services were looked upon as things which should be kept if the Soviet regime were overthrown. By contrast, the concepts of "capitalism" and "private property" were looked upon as reactionary and undesirable, especially among the managerial group from which our informants were drawn. Our Soviet factories were built with the sweat and blood of all the people, was the common feeling. We can never allow them to become the private property of a few capitalists. It happens that the interviews which form the basis of this study dealt precisely with the organization of the socialized economy, the basic principles of which most of the informants approved. It is therefore reasonable to believe that in the non-political, technical interview on their industrial experience, the informants were less motivated to manifest their anti-Soviet sentiments by deliberate exaggeration than they were in a discussion of, say, the terror or the forced collectivization. Furthermore, most of the informants were professional engineers and economists, and possessed a strong sense of professional dignity and pride. They were proud of their technical education, their professional competence, their engineering or managerial achievements and, indeed, of their enterprises too. When they complained heatedly about the interference in their work by the bungling bureaucrats in Moscow or by the incompetent Party snoopers, they spoke not as anti-Soviet propagandists but as engineers and managers voicing the universal business man's hostility toward the bureaucrat who has "never met a payroll." It was precisely on matters dealing with their professional experience and knowledge that the interviews were focused, and the informants were quick to assume their professional roles. Before the interviews began, each informant was carefully briefed on the nature of our research on the Soviet enterprise. It was emphasized that the results of the study would be published and, since people's judgments about the Soviet Union might be influenced by our findings, it was extremely important neither to overestimate nor to underestimate the achievements and efficiency of the economic system. While it is difficult to gauge the success of this briefing, the high level of education of the informants makes it somewhat more likely that it had the desired effect. One indication of this is that several informants asked about the views which other informants had expressed on certain key issues, wanting to correct any anti-Soviet exaggeration which may have been made. There were two ways which anti-Soviet bias manifested itself in interviews; by magnification of the danger of Soviet power and by minimization of the achievements of the regime. In the former case the

8

Factory and Manager in the USSR

practice was to depict the regime as ominously strong economically and militarily, and in the latter case it was to depict the regime as verging on economic collapse. These extreme positions showed up in some of the general interviews but not in the specialized interviews on the enterprise. Finally, wherever possible, the testimony of the informants was checked for indications of inconsistencies with the views of other informants or with the published literature. Some of the informants, in particular, tended to exaggerate, a fact which was evident from the more extreme manner in which certain subjects were described in comparison with the descriptions of the same subjects by other informants. Unless the differences could be explained by variation in local conditions, the more extreme statements were considered exaggerations. But this check for consistency was of limited value because in practice the differences between enterprises and industries made it possible for two contradictory statements both to be correct under different conditions. If most of the informants agreed on something and one disagreed, it was still possible that the conditions in the latter's enterprise were different and that the informant had been correct within his experience. Thus, contradictions in testimony actually served more as a source of information on the variations of a practice than as a test of reliability. Clearly there are no acid tests for assessing the reliability of an informant or a statement. Inevitably the judgment of the interviewer in the face-to-face interview must be given some weight in appraising the integrity of the informants. The writer's opinion, which is shared by colleagues who interviewed people on other specialized subjects, is that the great majority of the informants sought to tell the truth as they saw it, and those who were inclined to exaggerate were rather easy to detect. Forty-one informants who had occupied managerial positions in Soviet industry were interviewed on the subject of industrial management. These are the informants of this study. Twenty-six were interviewed by the writer and fifteen by Mr. Alex Peskin. A breakdown of the background of the informants, by type of industry and managerial position, is presented in the Appendix. Most of the informants had worked in heavy industry and most had occupied intermediate-level managerial positions. While heavy industry is the focus of this study, evidence is also drawn from other industrial branches, and the broad findings apply to most industrial and commercial activity. The interviews followed the anthropological rather than the sociological approach. That is, the persons interviewed were treated not as "average respondents" representative of a parent statistical population, but as "expert informants" capable of stepping out of their own roles and reporting objectively on their own and others' experiences. They

Introduction

9

were treated not as data but as sources of data. This approach was demanded by the smallness of the sample and had the positive merit of permitting the use of a fairly unstructured interview. It also mitigated the problem of sampling, since the concern is not for representativeness but rather for breadth of knowledge and experience. The interviews were tailored to fit the knowledge and experience of the informants, who were encouraged to talk about what they considered important. Only the broad framework was set by the interviewer. Since experiences differed greatly, the interviews were quite varied in the range of topics covered. The interviews required from two to over twelve hours of actual interviewing time, sometimes extended over several days. The notes vary from a dozen to over a hundred typed pages. Detailed notes were taken during the interview sessions, and immediately after each session a dictated record was made reconstructing the entire interview as close to verbatim as possible. The interviews were conducted in Russian and later translated into English. TIME P E R I O D

The interviews deal primarily with the period between about 1938 and the outbreak of the war. To have gone back much further would have involved us in a period in which the basic structure of industry was still evolving. Not until the late thirties did the forms of organization of industry settle down to a stable position, which has varied only in detail since then. But more important, the people who managed the enterprises in the period before the great purges of 1936-1937 were very different individuals from those who replaced them. The older men, represented by the "Red Directors," had chosen their careers in a revolutionary movement of protest and had become managers only by the accident of history. Huge numbers of them disappeared in the purge, and the toll of time gradually removed the rest. The younger men who replaced them "were not only new individuals but also new types, men of new backgrounds, experiences and attitudes, who probably even represented a new social stratum, one not consolidated but in process of formation." 5 They were people trained in Soviet schools and universities, who chose to devote their lives not to tearing down but to building anew. The man who elects a career in revolution is fundamentally different from one who elects a career in an established industrial bureaucracy. He is different in motivation, in ideology, and in his social perceptions. To have treated the prepurge managers together with those of the postpurge would have been to talk about very dissimilar things. It was possible to add to the interview data a considerable body of published documentation from the prewar period. The richness of the

10

Factory and Manager in the USSR

published materials available for that period has never since been equaled. Three sources in particular — the newspaper organs of the machinery industry (Mashinostroenie), heavy industry (Industriia), and the iron and steel industry (Chernaia metallurgia) — provided a steady flow of intimate detail on the activities of individual enterprises. Unfortunately, these splendid sources are not available for the postwar period; it was necessary to rely instead upon the much leaner materials found in the general and economic press. The postwar materials are of particular importance, however, for they are the only basis upon which to form a judgment about continuity and change since the war. As the documentation of the following chapters will show, the basic features of management as they emerged from the interviews and the prewar sources have changed during the postwar period only in details. An excellent illustration of the stability of managerial behavior is afforded by a comparison of two major reports on the subject delivered by G. M. Malenkov to the Party, one in 1941 and one in 1952.6 We may imagine that Malenkov, in preparing the reports, surveyed the whole field of Soviet managerial performance and problems and decided with some deliberation which points were important enough to present to the assembled Party officials. The reports cover a span of eleven years, dominated by war and reconstruction, a period long enough so that many of the old managers must have been replaced by new. And yet the problems which Malenkov thought important enough to stress in 1941 are virtually the same as those he chose to present in 1952. The major evidence of change that emerges from an analysis of the two reports are the signs of increasing industrial maturity; in 1952, for example, he no longer felt the need to chastise managers for the filthy condition of their enterprises, as he had done in 1941. But the signs of change seem small compared with the large range of managerial characteristics which appear not to have changed over this period. The postwar sources present cogent evidence that the people who ran Soviet business at the outbreak of the last war were essentially the same kind of people, faced the same types of problems, and employed the same solutions as their postwar successors. The foregoing conclusion was arrived at in the years 1951-1952. In 1953 Stalin died and the Soviet scene has been shifting rapidly ever since. Despite the effort to take note of all new decrees and regulations that affect management, there can be no assurance that none have escaped attention. Partly because the details are often withheld, partly because we are still so close to moving events, it is difficult to assess the extent to which these changes may have already begun to alter the basic character of management. We can, however, pose the question

Introduction

11

of how much the new laws may be expected to alter the character of management. This has been reserved for a later chapter. The least that can be said about change at this time is that, if it is occurring, it is not occurring with overwhelming suddenness. The Soviet economic system has not always behaved according to the motto of Alfred Marshall, natura non facit sdltum, but the present-day system, despite the many new laws, is not changing character by leaps. Current Soviet discussions of the problems of management disclose as yet little that is new and much that is old. Premier Bulganin's 1955 report on industrial management, for example, which constitutes the new regime's first major pronouncement on the subject, raises most of the familiar old problems which can be adequately understood in the light of the interpretation of management presented here.7 If a new type of Soviet management is about to emerge, it is likely to do so gradually, and the new type will for many years contain many elements of the old. In that case it may be hoped that this study will contribute to the understanding of the new management of tomorrow.

[POSTSCRIPT: The description of industrial organization presented in Chapter II applies to the period with which this study deals, from 1938 to early 1957. After the book was sent to the printer, the Supreme Soviet of the USSR passed a law changing the system of supervision over industrial enterprises (Pravda, May 11, 1957). The country is to be organized into 92 economic regions, each of which is to establish a new economic administrative organ called a Council of the National Economy. Most of the industrial ministries are to be abolished and their enterprises turned over to the jurisdiction of the Councils of the National Economy in the territory of which they are located. These Councils are under the political jurisdiction of the governments of the constituent republics. In the past the state relied upon industrial ministries to assure that enterprises fulfill their portions of the National Economic Plan; now reliance is to be shifted to regional economic bodies to achieve the same end. It will take some time before the details of the new system are worked out. A longer period will have to elapse before the practical consequences, both positive and negative, begin to make themselves felt. The critique of the postStalin reforms in Chapter XVII therefore does not attempt to deal with the change in progress at the time of this writing. We must leave it to time and Mr. Khrushchev to tell whether the administrative change will alter the basic features of managerial behavior as depicted in this study. J.S.B. May 19, 1957.]

THE ECONOMIC

MILIEU

II

The economic world in which the Soviet manager moves has been the subject of considerable study in recent years. That world, however, is still sufficiently unfamiliar to non-Soviet readers to warrant a sketch of its outstanding features; and in particular those features that illuminate what subsequent chapters have to tell about the activities of the men who manage it.1 It is somewhat easier to describe the organization of Soviet institutions — not only economic but most social institutions — than to describe those of free societies. In free societies most social institutions develop out of the needs, wishes, and conflicts of individuals and groups, and they take their peculiar shapes from the incessant impact of varied and changing social forces. The consequence is a great variety in the forms of institutions. In Soviet society, however, few institutions are suffered to emerge and develop in this anarchic fashion. The state carefully guides the emergence and development of most social institutions, and consciously fashions the forms of organization. The result is a degree of homogeneity which is of doubtful pleasure to those who live in the society, but which nevertheless eases the task of those who would describe those institutions. Thus, the business manager in a capitalist society who sets about organizing a new firm is limited only by his imagination and by his assessment of the advantages of the possible forms of organization. By contrast, the Soviet business manager, authorized to set up a new firm, has the structure all laid out for him in advance. The Soviet manager who is transferred to a different firm, whether or not in the same industry, has many fewer new "ropes" to learn than a manager in a capitalist economy who has been similarly transferred. It is this broad outline of the organization of the firm, the set of relationships which a Soviet business manager would expect to find in any firm to which he might be transferred, which will first be described.2 The firm itself — the "enterprise" (predpriiatie), in Soviet terminology— is the organization directly responsible for the production of goods and services. In its physical characteristics the Soviet firm is not

The Economic Milieu

13

very different from its counterpart in a market economy. Thus, in manufacturing industry it consists of one or more plants equipped with the machinery and inventories necessary to carry out its line of production. In retail trade it has one or more stores stocked with goods to be sold. In transportation it has a length of railroad, terminals, rolling stock, and other resources necessary to the performance of its service. Again, as in a market economy, Soviet firms vary enormously in size, depending among other things on the nature of the technology. The most common type of firm has one or more plants usually occupying a single contiguous area and producing a specified line of products. Such a firm, for example, is the Kharkov Locomotive Plant, or the Caliber Plant which produces measuring instruments. Sometimes, however, it is found expedient to bring together into a single firm a number of plants, some of which produce the raw materials needed by others. Such vertically integrated firms, called combines (kombinat), include the giants of industry, such as the Magnitogorsk Iron and Steel Combine, a firm which operates iron mines, steel mills, coke ovens, and chemical by-product plants in the area of the city of Magnitogorsk. Finally, a number of plants such as textile mills, producing similar products, may be combined into a single firm. Horizontally integrated firms of this kind are commonly known as trusts. Often the trust owns a number of plants or mines scattered over a broad geographical area, so that the trust management may not be in intimate contact with its plants at all times. The chief executive of the firm is the director. He is appointed to his position by a higher agency of the state and holds his post as long as his performance satisfies that agency. He bears full responsibility for the execution by his firm of the state directives dealing with production, finance, marketing, and so forth. The director and his sizable staff of officials constitute the firm management. Since many of these officials play an active role in the account of management which follows, they will be described in some detail. The chief engineer is second in command. He is often referred to as the deputy (zamestitel') director, and takes over the position of the director when the latter is out of town on business. The chief engineer is responsible to the director, and to the senior agency which appoints them both, for the technical operation of the enterprise; that is, for the operation of the machinery, for the maintenance of plant and equipment, for the design of products, and so forth. The director and the chief engineer constitute the top-level management of the firm. On the intermediate level are several officials, some of whom report to the director and some to the chief engineer. Among those who report to the director, the chief accountant and the chiefs of the planning and

14

Factory and Manager in the USSR

purchasing departments play the most active parts in the life of the firm. The chief accountant is a combined head bookkeeper, comptroller, and cost accountant — which alone would make him a most important person — but he is more than that. It is he who prepares the crucial annual report on which the fate of the firm management depends in significant measure. He is often the closest advisor to the director on matters of broad policy and the confidant of the director in matters which may involve a brush with the law. The chief of the planning department is responsible to the director for the drafting of the various plans which map out the work of the firm, and for maintaining a check over the progress of plan fulfillment. He is in charge of the complex task of recording the production results and computing the degree of plan fulfillment. His staff provides the current information on the basis of which the management knows where it stands and what alternatives are open to it. He is in the key position to detect incipient difficulties and to make recommendations for dealing with them. The chief of the purchasing department is responsible for preparing the purchasing plan of the firm. Most of the materials used by the firm are received in accordance with this plan. The preparation of the purchasing plan is therefore a most important function, since failure to anticipate needs for materials may involve the firm in endless difficulties. But even more important than the planning of purchases is the practical matter of seeing that the needed materials are actually delivered on time and in the proper quantities and qualities. Because of the nature of his work, the chief of the purchasing department has more personal contacts with other firms and agencies than do the other managerial officials. The success of the director and the firm is closely linked to the performance of these three officials. It is they who the director usually takes with him to Moscow on critical occasions; the chief accountant to present and defend the annual report; the chief of the planning department to negotiate for next year's plan; or the chief of the purchasing department to press for an additional allocation of some critical material. They are the officials who appear most often with the director in the accounts of former Soviet citizens. As for the other managerial officials who report to the director, their precise number and titles vary somewhat according to the industry and the size of the firm, but certain of them are fairly standard. There are chiefs of the following departments ( o t d e l y ) , the titles of which are fairly self-descriptive: department of quality control, personnel department, finance department, department of labor organization (for setting labor norms and piece rates), marketing department — the list is not

The Economic Milieu

15

unfamiliar to anyone acquainted with industrial organization in the United States. Sometimes, in large firms, the director may have one or more deputies to whom the chiefs of some of these departments report, rather than directly to him. The chief engineer also has a number of intermediate level officials who report to him. The chief designer (konstruktor) heads the department which designs new products and prepares the blueprints. The chief of the technical department is responsible for establishing the process by which a given product is to be manufactured. The chief mechanical engineer and his staff maintain and repair the plant and equipment. These and several other officials carry out the "staff" functions of a technical nature. They and the officials who report to the director have substantial staffs of assistants to whom they delegate some of their work and who constitute part of the firm's junior management. The final group of intermediate level managers are the "line" officials, the engineers in charge of the actual production work of the enterprise. The production units of the firm are designated as "shops" (tsekhy). An iron and steel firm, for example, will have several blast-furnace shops, open-hearth furnace shops, forging shops, casting shops, rollingmill shops, and so forth. At the head of each shop is the shop chief, who is responsible to the director or the chief engineer. The organization of the shop is like a microcosm of the firm itself, with the shop chief as the microcosmic director. He has a staff of assistants such as a shop chief engineer, a shop accountant, a shop mechanic (for maintenance work) and a shop planner. The junior shop officials in turn have their own small staffs called bureaus. In multishift operation, the shop chief also has a number of line officials known as shift engineers, one for each shift. A number of foremen supervise the workers on each shift, and each foreman's workers are divided into brigades. At the head of each brigade is a brigade leader who reports to the foreman. The foreman is usually considered to be at the bottom rung of the managerial hierarchy, having been dubbed by Stalin "the junior commander of production." No good purpose would be served by a painful cataloguing of the "obligations and rights" of all these individuals. It might be noted in passing, however, that the obligations and rights have been standardized and fixed by law and regulation, as has the table of organization from which we have just emerged. All that need be said at this point is that the powers of the various officials are distributed formally according to the principle of edinonachalie, which may be crudely translated as "unified authority." The notion behind edinonachalie is that a line official at any level assumes full responsibility for the entire unit over which he has charge, and he alone may issue orders to people under his jurisdiction. For example, if the director or the chief of the

16

Factory and Manager in the

USSR

planning department wants something done in a shop, they may issue orders to the foremen, but only to the shop chief. Similarly shop chief may not issue orders to a worker over the head of foreman, but only to the foreman directly. The objective is to responsibility with authority.

not the his arm

THE STATE AND THE FIRM

The first lesson in the primer of the Soviet manager is that all the productive resources which he manages are owned by the state 3 and are to be used in the interests of the owner. By the "state" he understands the highest Party and governmental bodies in the land, namely, the Central Committee of the Communist Party and the Council of Ministers of the USSR. They are the bodies in whose names the great decrees issue forth which set the direction of the national economic activity. But while the state is the indisputable lawful owner, it is an absentee owner, and the life of the enterprise is affected concretely by the persons whom the state has designated as its stewards. It is the state's steward who hires and fires the director of the firm, who transmits to him the instructions of the state, who sits in judgment upon his performance as director, and who is in turn responsible to the state for the firm's performance. The state is the owner, but it is with the steward that the director must deal. The position and importance of the man who plays the role of state's steward over the firm depends, among other things, on the importance of the firm itself. If it is a small firm producing mainly for a local market and using mainly locally produced materials, it is called a firm of "local jurisdiction." It is under the general supervision of one of the local state bodies, such as the county (oblast') or district (raion) executive committee. 4 The man who acts as state's steward with respect to the local firm is the head of the industrial department of the executive committee. If it is a firm of moderately large production and sales and not in one of the leading branches of industry, it is declared to be of "republican jurisdiction" and is under the general supervision of a higher state body, a republic council of ministers. 5 The man with whom the firm will have to deal is one of the republican ministers, or one of his assistants (before 1946 ministers were called "people's commissars"). If it is a large and important enterprise in a leading branch of industry, it is called "of all-union jurisdiction" and is directly under the supervision of the All-Union (USSR) Council of Ministers. The direct boss of the firm in this case is one of the all-union ministers himself or one of his assistants.

The Economic Milieu

17

The details of state supervision differ for the three types of enterprise, but the general picture can be brought out by a consideration of the most important, the enterprise of all-union jurisdiction. There are roughly a score of all-union ministers (the precise number changes from time to time) who share among them the responsibility for administering all-union enterprises. Each minister's enterprises constitute a broad industrial grouping, as can be seen from their titles: Minister of the Iron and Steel Industry, Minister of the Automotive Industry, Minister of Electric Power Stations. If an enterprise is one of the few largest in the ministry, it is likely to be under the direct supervision of the minister himself. Major directives to the enterprise are signed by the minister, and the director may go directly to the minister on important matters, although for routine matters the director and his staff negotiate with the minister's assistants. On accounting matters they go to the office of the chief accountant of the ministry, on planning matters to the office of the chief of the ministry planning department. The important point is that these giant firms deal directly with the ministry officials. Most of the firms in the ministry, however, do not rate the minister's direct attention. These firms are separated into a number of groups, each group corresponding roughly to a sub-industry of the ministry. The groups are called "chief administrations," and the heads of the chief administrations are the ministers' assistants in supervising the work of these firms. Directors of such firms rarely have occasion to visit the minister himself or even the departments of the ministry. All their negotiations are with the head of the chief administration or his staff. When financial problems arise, the director and his chief accountant deal with the head of the chief administration or the chief accountant of the chief administration. When procurement problems arise, the director may send one of his supply agents to complain to the chief of the purchasing department of the chief administration. Most Soviet firms in an all-union ministry have little knowledge of the ministry personnel; as far as they are concerned, the state's steward is the head of the chief administration. THE P U N N I N G PROCESS

Thus, for every enterprise there is one man who acts as the steward of the state and who, for all practical purposes, is the director's "boss." If it is a small firm of local jurisdiction, the boss may be many stages removed from the high seat of power, and may be a quite unimposing official. If it is one of the giant all-union firms, on the other hand, the director's immediate boss may be a famous and powerful minister, part of the state itself, virtually one of the owners.

IS

Factory and Manager in the USSR

The process by which the state decides what use it wishes to make of its resources and how to communicate these wishes through its stewards at all levels down to the tens of thousands of firms is highly complex. Only a small portion of the total process involves the firm directly and only that portion need be considered here.® Sometime late in the summer the director of an all-union firm receives from "Moscow" 7 a most important set of documents called "directives and control figures for the drafting of the annual technical-industrialfinancial plan." These'"control figures" constitute a set of preliminary targets of various kinds, such as a 5 per cent increase in labor productivity, a 3 per cent decrease in cost of production, a 9 per cent increase in the total value of output, the production of a specified number of yards of cloth or tractors or hand-saws, the establishment of a production line for a new product recently approved for mass production, and so forth. The director is required to submit to the chief administration, not later than a specified date, a detailed draft production plan designed to achieve the "control figure" targets. 8 There follows a period of hectic activity in the firm, especially for the chief of the planning department and his staff. Large numbers of people at all levels are customarily drawn into the planning process, partly for their edification and partly for whatever creative suggestions they can offer. The guardian of this custom is the Communist Party organization within the enterprise, operating either directly or through the trade union, which it guides. This organization calls many meetings and conferences, either of the whole enterprise or of individual shops or brigades, at which the relevant portions of the control figures are read and discussed. Special commissions are established to study specific portions of the total plan and to submit drafts of what can be achieved and how. As the deadline draws near, the planning department compiles the drafts submitted by the special commissions, and by the shop planning bureaus into a composite enterprise plan. Meanwhile much continuous negotiation goes on at various levels of management: a shop chief insists that a particular output target is absolutely impossible, another demands that a difficult assignment be transferred to some shop other than his own, a third refuses to be responsible for a proposed target unless he is provided with certain equipment which the purchasing department insists cannot be obtained. Eventually such conflicts are resolved by the director or chief engineer and the detailed draft plan is ready for submission to the chief administration. The submission of the draft plan is also often accompanied by some hard bargaining. For, although only a draft is involved at this stage, the draft will become the basis of the final plan of the firm, and the firm management's interests require that it not be saddled with exces-

The Economic Milieu

19

sively difficult tasks. The officials of the chief administration are the arbiters among the conflicting demands of the various firms; some firms will have certain of their control figure targets raised, others will have theirs reduced. The chief administration's approval of the draft plans completes the first stage of the planning process. Sometime in the last months of the year9 the firm's director is summoned to Moscow to receive the final set of directives for drafting the firm's annual plan. In the intervening months the draft plans of all enterprises have been combined, amended and co-ordinated by the State Economic Commission (formerly by the State Planning Commission) into a single national economic plan. The national economic plan has been approved officially by the state, and each minister has been assigned a specific portion of the plan to be achieved by the enterprises in his ministry. The ministry plan has in turn been apportioned among the chief administrations, each one of which has again apportioned its planned tasks among its firms. Thus, when the firm director is called to Moscow to receive his target figures for the next year, he knows there is much less room for bargaining than before. In the first stage, the purpose of the draft plan was to provide the information to the State Economic Commission on which to base the national economic plan. The original directives and control figures were primarily for orientation purposes, and if a good case could be made out, one could expect to have them changed. Now, however, the national economic plan has been officially and finally approved and the chief administration's targets are largely dictated by the requirements of the national economic plan. When the chief administration summons the directors this time and assigns specific targets to each of them, it may still accept a director's plea for a small reduction of some target, but this must now be made up by a corresponding increase in someone else's target. The second stage of planning in the firm is carried out, then, with the awareness that the new target figures cannot be changed very much. Since, in general, the new targets are different from those submitted a few months earlier in the draft plan, corresponding changes must be made in the final plan. If the changes are small, they are made relatively easily by the firm's officials. If they involve the assumption of large new tasks, however, it may be necessary to call more conferences and meetings in order to find a way of accomplishing the new tasks. At last the final detailed plan is prepared. In the past the chief administration was required to approve the full plan. Now, official approval is required only for the main indicators of the plan. The director himself approves the full plan, which becomes the main guide for the firm's production activity in the following year.

20

Factory and Manager in the USSR

The enterprise plan is often referred to as the tekh-prom-fin-plan, or the "technical-industrial-financial plan." It is composed of several sections, the keystone of which is the production plan. The production plan consists, first, of two aggregative targets: the total gross value of output and the total value of marketed output. 10 It also contains a listing of output targets, usually in physical units, of the principal products produced by the firm. The production plan is the basis of production scheduling for each shop in the firm. A second major section is the procurement plan, which lists the principal materials and equipment the firm is authorized to purchase in the course of the year. A third section is the labor and payroll plan, which lists the number of workers in each labor classification to be employed, the average wage for each classification, and the total wage bill. The projected wage bill presupposes the achievement of the planned target for raising labor productivity. The financial plan is a translation into money terms of the other sections of the plan. The planned money revenues are computed on the basis of the output plan and the prices of the products. The planned money expenditures are computed on the basis of the purchasing plan, the prices of materials, and the labor and wage plan. The planned profit is computed as the diiference between total revenues and total expenditures, after deduction of certain taxes to be paid to the state. In computing profit, the planned target of cost reduction is taken into account. The aforementioned sections of the plan constitute the heart of the industrial life of the enterprise. The plan, however, has other subsidiary sections, such as the plan of organization and technical measures. This plan is a listing of the various improvements in technique and in production management designed to help achieve the planned targets of cost reduction and increase in labor productivity. If the enterprise has been authorized to expand its capital plant, there is a construction plan to provide for all the details of the new investment. The various targets included in the plan are to be considered as minima or maxima. The value of output targets, for example, are to be exceeded if possible. A cost reduction target of 3 per cent is meant to be read as "at least 3 per cent." In Soviet terms, management must strive not only for "fulfillment" but for "overfulfillment." PURCHASING AND MARKETING

In order to carry out the production assignments of the tekhpromfinplan, the enterprise must enter into purchase and sale relationships with other firms. The organization of interfirm purchases is fairly complex but its principal features may be indicated briefly. A firm that needs to

The Economic Milieu

21

purchase a large quantity of some important industrial commodity is usually told by the purchasing department of its own chief administration from which firm it is to buy. Similarly the selling firm, when the system operates smoothly, is instructed by the marketing department of its chief administration to sell a certain quantity of that commodity to the other firm. On the basis of these instructions the two firms are required to draw up a contract specifying such details of the delivery as amount, grade, time of delivery, and price. At the proper time the shipment will be made directly from the producer to the customer. If the quantities involved are not large, direct shipments are inexpedient and a form of wholesaling is employed. For this purpose most ministries have special wholesaling organizations, also called chief administrations, which are of two kinds. First, there is a chief purchasing administration (glavsnab) which buys large lots of commodities commonly used by the firms in that ministry, and sells them in small quantities to the firms. Second, there is a chief marketing administration (glavsbyt), which purchases much of the production of the firms in the ministry and sells it in small lots to small purchasers. The purchasing and marketing chief administrations operate numerous warehouses and business offices in the vicinities of the firms with which they deal. Consider a hypothetical firm, the Moscow Electric Motor Plant, which purchases large quantities of copper wire and small quantities of lubricating oil. Periodically it receives from the marketing department (otdel sbyta) of its own Chief Administration for Electric Motors a distribution order (raznariadka) instructing it to sell so many motors of a certain kind to the Kolomensk Gramophone Plant, so many to the Briansk Locomotive Plant, and so forth. The marketing department of the firm then communicates with these purchasers and draws up contracts specifying the details of the deliveries. The firm also receives instructions to deliver certain specified quantities of motors to the local warehouse of the Chief Electrical Machinery Marketing Administration (glavsbyt), which is the wholesaler for the products of all the firms in its own Ministry of Electrical Machinery. Small purchasers in other industries come to the wholesaler to buy their motors. Sometimes, however, the Moscow Electric Motor Plant may sell small quantities directly to local purchasers. As for the copper wire which it needs, the firm is instructed by the purchasing department ( otdel snabzheniia ) of its chief administration to buy certain specified quantities directly from the Urals Copper Wire Plant. The latter finds on its distribution order instructions to sell this amount to the Moscow Electric Motor Plant and the contract is drawn up. The lubricating oil will be bought from the nearest warehouse of the chief purchasing administration (glavsnab) of the firm's own Ministry of Electrical Machinery. If the chief purchasing administration doesn't

22

Factory and Manager in the USSR

stock lubricating oil, the purchasing department officials of the firm must then go to the nearest warehouse of the Chief Petroleum Products Marketing Administration of the Ministry of the Petroleum Industry. This system of procedures, of which there are several minor variations, applies only to the more important industrial commodities. There are four levels of importance, and all commodities are officially assigned to one of them. 11 The most important are called "funded" commodities, and the distribution of funded commodities among customer ministries is determined by one of the organs of the Council of Ministers itself, usually by the State Economic Committee. Commodities of secondary importance are called "planned centralized," and are distributed by decision of the producing USSR ministries or by republic councils of ministries. The third group, or "planned decentralized" commodities, are distributed by order of local government organs or of local offices of the chief marketing administration. All other commodities, primarily locally produced and consumed, are "decentralized," and may be sold by the producing firms without specific authorization from above. The organization in charge of the distribution of funded or planned commodities issues to an authorized purchaser a document known as an "allocation order" (nariad). The allocation order attests to the right of the customer to purchase the stated amount of the funded or planned commodity. No producer is allowed to sell any funded or planned commodity to any firm unless the latter possesses an allocation order. Since most of the major industrial commodities are either funded or planned, the allocation order is one of the most crucial documents in the life of the firm. As subsequent chapters will show, much of the activity of management focuses on this document. FINANCE

There remains one more major area of the firm's activity to be discussed, its finances. The fixed capital of the firm, its buildings and equipment, are provided interest-free. Certain small additions to fixed capital may be undertaken at the discretion of the firm's management through the purchase of equipment or building materials out of its own resources. Any substantial investment, however, must be authorized by a higher body. Such investment is financed by some combination of the firm's profit, past amortization allowances, and interest-free grants from the state treasury. The firm's fixed capital is owned by the state and given over in trust to the director to be used for the purposes specified in the plan. The firm is also granted a quantity of interest-free working capital, referred to as the firm's "own" working capital. In addition, the firm usually has a certain quantity of borrowed working capital, lent to it by

The Economic Milieu

23

the State Bank at a nominal rate of interest for the purpose of financing seasonal requirements or other temporary needs for funds. At any moment in time the firm's working capital is held in several forms, partly as stocks of raw materials in its warehouse, partly as goods in process of production, partly as cash in its deposit account in the State Bank, and so forth. The firm's major need for cash is the semi-monthly wage-payroll. Commodity sales and purchases, however, are carried out through a system of clearings operated by the State Bank. When the firm takes delivery of a shipment of raw materials, it authorizes the State Bank to debit its account for the amount of the purchase and credit the account of the seller. Similarly, when the firm sells its output, its bank account is increased by the amount of the sale. In addition to its strictly banking function, the State Bank is also required by the state to assure that the transaction is lawful and that the state-fixed prices are adhered to. Although in some instances state-fixed prices may deliberately be kept so low that the firm is expected to suffer a financial loss, most firms earn a profit on their sales. A portion of the profit is taxed away by the state, and the rest allowed to remain with the firm to be used for certain specified purposes. THE SYSTEM IN OPERATION

The foregoing description has been largely confined to the mechanics of the system, the ways in which the firm carries out its functions, and the persons and organizations who play the leading roles in the process. They are the things the manager might talk about if he were asked, "How does a Soviet firm work?" But for a fuller understanding of the economic milieu, a knowledge of more than the bare mechanics is required. We need to know those things the manager would talk about if he were asked "What is it like to run a Soviet firm?" It is, indeed, the main object of this book to answer that question. But a few anticipatory remarks may serve to round out the setting. Perhaps the outstanding feature of the ethos within which the Soviet firm functions, the most "massive fact" about the life of the Soviet manager, is the sense of pressure from above. It is not the nature of the planning mechanism itself, but the pace at which it is kept in motion by the state, that generates this pressure. The word "tempo," one of the proudest slogans in the Bolshevik economic glossary, encapsulates for the manager all the strain and urgency that is normal to Soviet economic life. The pressure takes the form, first of all, of an incessant demand for more and more production. "Fulfillment and overfulfillment" of production targets, and the ever increasing levels of the targets, are the requirements constantly put before the manager and urged upon him by all the agencies of state and Party. This in itself, however, is only one blade of

24

Factory and Manager in the USSR

the scissors. The other is the perpetual shortage of supplies: of some raw material, or machinery, or labor. The drive for increasing output would be quite acceptable, even highly satisfying to many professional managers, if it were not for the endless and frustrating search for overcommitted resources. Nor would the shortage of supplies be as taxing if the production demands were more reasonably and flexibly adjusted to the availability of resources. It is the combination of high targets with perpetual shortages that constitutes the most salient fact of life for the Soviet manager.

T H E G O A L S OF

MANAGEMENT

III

In the course of running his business, the Soviet manager is continually called upon to make various kinds of decisions. These decisions, it will be shown, fall into a fairly regular pattern in the sense that under specified circumstances certain decisions are repeatedly made. But only half the story is in what the manager does; the other half is in the why—the goals he seeks to attain in doing the things he does. It is appropriate therefore to begin with an inquiry into those goals. Economists never are (nor should they be) very comfortable talking about the goals of men. Motivations are a complex matter, and even in simple economic decisions there are undoubtedly many different motivations operating at different levels at the same time. It must be kept in mind, however, that the economist's interest in motivations is a very modest one. Of the full range of goals that motivate men he is interested only in the relatively few that have a direct and major influence upon economic behavior. Nor is he concerned with explaining why people pursue the goals they do; that unenviable task belongs to the behavioral scientists. An inquiry into goals is relevant here only for the part they play in extending our understanding of the operations of the enterprise. It was through a rather accidental circumstance that the matter of goals came to occupy a major role in this study. The original interview research design did not provide for a direct inquiry into goals. Primary attention was focused upon the practices of managers, the ways in which the enterprises' activities were carried out. In the course of the interview discussions, however, the question often arose as to why one alternative was chosen rather than another. After a brief period in the field, the writer was struck by the frequency with which the informants, in discussing a choice between alternatives, would spontaneously refer to "premiums," or money bonuses, as the basis on which the choice was made. The references to premiums cropped up again and again in such a wide variety of contexts, even when no problem of choice was explicitly raised, that they led to a strong presumption that they represented a general and potent basis of decision-making. The way in which the references to premiums were introduced into the

26

Factory and Manager in the USSR

interviews by the informants may best be illustrated by an example. Informant 190 1 was an industrial engineer. Because he had a job in a different city from that in which the interview took place, the session was necessarily brief and was confined to rather general statements about the structure of the management of his enterprise and the process of planning and production. The following is his statement about how the operational plans are formulated after the annual plan has been confirmed, a topic quite unrelated to goals: The quarterly plans are divided into monthly plans, the monthly into daily. Usually the plan is underfulfilled during the first three weeks of the month, because of the setting up of new machines. But in the last week they work furiously in order to fulfill the monthly plan. The section which gets the highest percentage overfulfillment receives the Red Banner. The leader of this section also received a premium at the end of the month. Similarly, there is a shop banner for the shop which received the highest percentage overfulfillment and the shop chief also received a premium. There are also quarterly and annual premiums. Although the informant had not been asked why his enterprise strove to fulfill the plan, he spontaneously related this striving to the desire for a premium. The crucial point is the fact that the informant's reference to premiums was spontaneous, without the prior solicitation of this bit of information by the interviewer. It is an axiom of interviewing technique that spontaneous utterances by an informant are a surer key to the prominence of these things in his consciousness than if the remark is made in answer to a direct question. 2 In the quotation above, Informant 190 related the last-week speed-up in the work of the enterprise not only to the desire for the premium but also to the desire to fulfill the monthly plan and to receive the Red Banner, the award for winning a production contest ("socialist competition"). In this case we cannot be sure which of these was the immediate goal, for they all work in the same direction. But other references to premiums are uncomplicated by such coinciding consequences, and the premium goal stands forth by itself.* Spontaneous references to premiums occur also in the manuscripts 8 In fact, premiums and plan fulfillment were often closely linked together in the statements of the informants. For example, "The main criterion was the plan. If it is fulfilled the director is good. How he does it is not important. That is how directors were measured. Q. Did this also apply to engineers? A. To a certain extent yes. Take our electric installation. If our machines work without interruption they say that we work well and we get additional pay. If we have fewer interruptions than foreseen by the plan, we get a premium." (Informant

517.) The relationship of premiums to plan fulfillment as goals of managers is discussed later in this chapter.

The Goals of Management

27

written for the interviewer by informants whose private responsibilities made it impossible for them to be interviewed in person. Such informants were asked to describe from their own experience and observation what they considered to be the main problems and methods of plant management. In his manuscript Informant 90 wrote, "Besides, the striving to work at a higher level of productivity is supported by the direct interest in an increased income, since for overfulfillment of a few per cent the administrative and technical personnel receive large premiums." Of all the incentives for high productivity which he might have indicated, and none were directly asked for, this informant too selected the premium as the one to be mentioned. It is not possible to include here the many additional quotations which support the point. Many of them will be found elsewhere in the book, especially in the remainder of this chapter, where they have been cited as illustrations of other points. A reading of these other quotations will indicate why the spontaneity of the references to premiums is taken as one piece of evidence in support of the importance of premiums as a goal. THE NATURE OF PREMIUMS

It would seem appropriate to interrupt the argument at this point to say something more about the nature of premiums. A premium is essentially a bonus earned by a managerial official, over and above his fixed salary, for performance equal to or better than a plan target. The principal type, which may be called the basic premium, is computed according to a scale which increases with the percentage fulfillment of the monthly production-plan target. For the senior management and staff officials the relevant plan is the enterprise plan. For managerial officials in charge of discrete units, such as shop chiefs or certain department chiefs, it is the shop or department plan. The premium rates are fixed by the ministry and vary considerably; they are higher in large enterprises than in small, they are higher for senior officials than for junior, and so forth. A second kind of premium is that which is paid for the successful performance of a specific task. These specific premiums are less standardized than the basic premiums and they vary considerably from industry to industry and from period to period. One can find references to specific premiums for such tasks as production of consumer goods from waste and scrap, production of spare parts, production of high-quality output, reducing the cost of purchasing operations, successful introduction of new models into production, evening-out of production schedules, and economizing on fuel and materials. 3 While no single official has access to all these specific premiums, in most cases there is a substantial number available to him. Referring to his own firm, Informant 202, who had been a civil engineer, stated:

28

Factory and Manager in the USSR The advantages of making an economy were purely personal. There was the system of premiums which was based upon fulfillment of the plan. If the plan is 90 per cent fulfilled, you get a certain salary. If it is 100 per cent fulfilled you get more, and so forth. Premiums are also paid for specific economies. There may be x rubles for an economy of wages, and y rubles for an economy of materials. Therefore your premiums are based upon (1) fulfillment of plan, ( 2 ) economy of materials, (3) economy of labor, ( 4 ) economy of wages, ( 5 ) economy of administrative-business expenditures. For each of these economies you would get x per cent extra. If there was an overexpenditure, a certain proportion would be deducted.

The basic and specific premiums are the most important for the explanation of the predominant types of managerial behavior. There are, however, several minor sources of premiums. People are encouraged to work out methods of rationalizing production operations, and if they are approved by the "section for rationalization proposals," a premium is awarded in proportion to the savings made. "Many people go to this section," said Informant 190, "and it is very important. It is used by workers, foremen, industrial engineers, everyone." For many talented people these premiums undoubtedly are a very real incentive. Substantial premiums are also paid to managerial officials in enterprises that have won socialist competitions and been awarded the Red Banner.4 Ministers from time to time issue large amounts of money for special premiums, either for a specific task or for "over-all success." 5 For example, on the occasion of the ninetieth-anniversary celebration of the founding of a famous and well-functioning enterprise the minister of the industry ordered the payment of special premiums to 798 persons who worked in the plant.6 Finally, an interesting variation is the premium which is paid in kind. A premium of this sort that is often referred to is the putevka, the admission ticket to a rest home or vacation resort. These are often purchased by the enterprise out of certain funds at the disposal of the director, and distributed to various plant personnel. Other forms of premiums in kind are gifts of clothing and consumer goods: Say we had a plan for three thousand airplane veneers and we made three thousand and five hundred. The chief administration would automatically send funds as premiums to our leading personnel. They might also send clothing as well as money. Usually this was done at a meeting or celebration, where they would give out a suit of clothes or an overcoat or a dress. The director might get a premium of five thousand rubles. Also the commercial director and the shop chiefs. (Informant 481.) Such gifts may be awarded to individuals by the ministry for some special

The Goals of Management

29

7

performance, or they may be awarded to whole enterprises, to be distributed among the management and workers. THE SIZE O F

PREMIUMS

The emphasis upon premiums in the testimony of the informants raises the question of their size; for unless they prove to constitute a substantial proportion of managerial income it would be difficult to imagine them playing a significant role in determining business decisions. Unfortunately, only scattered information is available. In the prewar period, when premium rates apparently changed often, one can find occasional references to such laws as that of June 2, 1940, which established premium rates for shop chiefs in the iron and steel industry at 5 per cent of their monthly salary for each 1 per cent of production-plan fulfillment between 80 and 90 per cent, and at 25 per cent of their salary for each 1 per cent overfulfillment of the production plan. 8 In the postwar period, although a more unified and centralized premium system has been introduced, data are still fairly scarce. Table 1 presents some postwar premium scales for the heavy machinery industry in 1951, the automotive transport industry of the Russian republic in 1948, and the mining and chemical industries in 1952. The enterprises are divided into three groups: Group I comprises the largest and most important enterprises in the industry, Group II the intermediate, and Group III the smallest and least important. The rates are given as maxima. The table shows that the director of a large mining enterprise can double his monthly salary if he just fulfills his production target, and can earn an additional 10 per cent for each 1 per cent overfulfillment of the plan. In the less important automotive transport industry, the director of a large trucking firm can increase his salary by 30 per cent for plan fulfillment and another 20 per cent if he overfulfills his plan by 5 per cent. The premium rates for senior management are greater in all cases than for the lower levels of management. But this is counterbalanced by the fact that the basic premium is the principal one available to the director and the chief engineer, whereas the lower levels of management may earn premiums from other sources, such as the specific premiums. The additional premium sources bring the relative size of the premiums for lower management closer to that of the senior management. The official premium scales, impressive as they are, are not sufficient evidence of the quantitative importance of premiums, for they express only maxima, and tell nothing about how much of these maxima are actually paid out. In studying the Soviet Union it is always well to check the laws on things as they are supposed to be against data on things as they are. The director's right to earn a premium up to 100 per cent of his salary for plan fulfillment might be equivalent to the constitutional right

30

Factory and Manager in the

USSR

Table 1. POSTWAR PREMIUM SCALES FOR PLANT M A N A G E M E N T (percentage of basic monthly salary)

For 100% plan fulfillment Position and industry

Group I

Group II

For each per cent of plan overfulfillment

Group III

Group I

Group II

Group III

Senior management (Director, Chief engineer) Machinery Automotive transport Coal mining Chemical

37 30 100 75

30 25 — —

22 20 — —

4 4 10 8

3 3 — —

2 2 — —

2 2

2

Intermediate management (Deputy directors, Shop chiefs, Department chiefs) Machinery Automotive transport

30 25

22 20

15 15

3 3

Junior management (Deputy shop and Department chiefs, Senior engineers, Senior foremen) Machinery Automotive transport

22 20

15 15

15 15

2 3

2

^A 2

Sources: Machinery data from E. L. Manevich, Zarábotnaia plata i ee formy v promyshlennosti SSSR (The Forms of Wage Payment in Industry in the USSR) (Gosplanizdat, 1951), p. 190; transport data from L. Bronshtein and B. Budrin, Planirovanie i uchet avtomobil'nogo transporta (Planning and Accounting in Automotive Transport) (Gosplanizdat, 1948), p. 150; coal mining and chemical data from A. Vikent'ev, Ocherki razvitiia sovetskoi ekonomiki v chetvertoi piatiletke (Essays on Soviet Economic Development in the Fourth Five Year Plan) (Gospolitizdat, 1952), p. 175.

of the union republics to secede from the USSR. Fortunately there are some scattered data available on the proportion of premiums in the incomes paid out to management. In June 1940 almost half of all the engineering and technical personnel in the iron and steel industry earned premiums, and the average premium payment was 429 rubles per month. 9 In 1940 premiums accounted for 11 per cent of the total earnings of managerial personnel. During the war premiums were given an "especially wide application" because of their crucial importance, and in 1944 they rose to 28 per cent of total managerial earnings.10 The Fourth Five Year Plan explicitly stated the need to increase the share of premiums in income, and in 1946 a new decree was passed formalizing the system of premiums and raising the rates. In 1947, premiums were almost three times as great as they had been in 1940.11 The 1947 distribution of income between base salaries and premiums for managerial personnel is shown

The Goals of Management

31

in the accompanying tabulation, which lists the premiums, for each industry, as the percentage of monthly salary. 4 Iron and steel industry Light industry Chemical industry Textile industry Coal industry Construction- and roadbuilding-machinery industry

51.4 45.1 42.0 35.5 34.4 32.0

Non-ferrous metals industry Construction-materials industry Automotive industry Agricultural-machinery industry Food industry

26.0 26.1 22.5 21.6 21.0

Unfortunately, these data give only averages for entire industries. It would be useful to know the distribution of premiums around the average within each industry, for from the point of view of incentives the maximum is more significant than the average. As in a lottery, the incentive power of premiums is based upon the large earnings which may accrue to the successful managerial official; in the course of the month's work he is motivated not by the average but by what he may earn if he is successful. The relatively high average of earned premiums, however, acts as constant evidence to the official that a premium is quite an accessible thing. We have considered the premium rates and the proportion of premiums in the total earnings of management. It is interesting to see what the role of premiums is in the earnings of individual managerial officials. Some scattered reports are available. In July 1940, for example, the following premiums were earned by certain shop chiefs in the iron and steel industry: Shop Chief Zuev, 5,460 rubles for 107.4 per cent fulfillment of the shop production plan; Shop Chief D'iakov, 5,940 rubles for 113 per cent; Shop Chief Shvartsman, 6,041 rubles for 111.9 per cent. The significance of these premiums is shown by the fact that the average monthly earnings for engineering and technical personnel in iron and steel plants in 1940 was around 1,100 rubles. The author of the article from which these figures are taken is careful to state that "it should be noted that such premiums are not a mass phenomenon." 12 Undoubtedly these shop chiefs were uncommonly successful, but their enormous premiums represent real earnings to which all managerial officials may aspire. For the postwar period, the accompanying tabulation presents a breakdown of the earnings of a junior managerial official in the Caliber Plant, one of the largest precision-instrument plants in the Soviet Union. In 1947, Comrade Tolkachev, a materials-group head in the purchasing department, earned a total of 16,362 rubles, from the following sources, f ° Tabulation from Manevich, p. 192.

f Tabulation from G. S. Shifrin, Organizatsiia materiaTnogo khoziaistva i povyshenie rentabel'nosti (Organization of Materials Management and Increasing Profitability) (Gosfinizdat, 1948), p. 35.

32 Salary Specific premiums Basic premium

Factory and Manager in the USSR

8,420 4,722 2,720

Premium from the director's fund for medical treatment

500

His total earnings were almost twice his base salary, and premiums were almost equal to the base salary. This is about twice the average amount of premiums in the iron and steel industry in 1947 (see page 31). Comrade Tolkachev was clearly an unusually successful junior manager. It is instructive to look at the parts played by the different sources of Tolkachev's premiums. More than half of all the premiums earned were specific premiums. These are not generally available to the senior managerial personnel, so that the official premium rates, which provide for higher rates for senior management than for the lower levels of management, do not discriminate against the latter. The official rates apply only to the basic premium which is paid for overfulfillment of the production target. In the case of Comrade Tolkachev this premium amounted to 2,720 rubles, or 32 per cent of the salary. The director of the plant undoubtedly earned a much larger percentage of his salary as a basic premium. Tolkachev made this up by a large volume of specific premiums. The premiums from the "director's fund," which will be discussed later, accounted for an insignificant portion of his earnings. OPERATIONAL S I G N I F I C A N C E OF PREMIUMS

Premiums have several of the most important qualities which one would ideally require of the kind of goal that might explain economic decisions. First, they are concrete and operational, in the sense that they are directly associated with day-to-day operating decisions in concrete situations. Other more general goals such as power or prestige are undoubtedly present, but they are better thought of as psychological explanations of why a more immediate goal is pursued, and not as the direct motivators of concrete actions. The entrepreneur in the market economy, for example, may reduce output when costs rise because he seeks to maximize profit, and he seeks to maximize profit because he also seeks power or prestige. The latter are his ultimate goals, but profit maximization is the concrete goal which motivates the operational decision. It is in this sense that premiums are a concrete goal. Secondly, the premium goal offers a clear guide to the kinds of alternatives which are of interest. Other goals may be present at the same time, but they are often consistent with several courses of action and therefore fail to explain why one course is preferred to the others. Such goals have little explanatory usefulness because they fail to discriminate between the relevant alternatives. Premiums, on the other hand, are often given as the reason why one course is preferred to the others.

The Goals of Management

33

These qualities of the premium goal may be clearly seen both in the interviews and in the Soviet sources. Preceding quotations from interviews have shown that striving to overfulfill the plan and to raise labor productivity are linked in the minds of the informants with the earning of a premium. In such cases the premium goal operates in the direction desired by the state. But since the state provides other rewards for good performance, such as promotion, prestige, and political favor, one cannot be sure whether it is the premium or the other goals which motivate management in these instances. In fact, the western student is likely, perhaps erroneously, to be more impressed by a monetary goal than by a social or psychological one. If a Soviet manager should report that he worked to overfulfill his plan because he loved the state, and, besides, because he earned a large premium for it, we are likely to take notice only of the premium. It may be that we underestimate the social motivations in Soviet industry. But in circumstances in which social goals lead to the same actions as monetary goals, one cannot be sure about which is acting at the fore, even though the informants tended to relate these actions primarily to monetary goals. It is, therefore, in those cases in which the premium goal leads directly to actions contrary to the desire of the state, actions in which the stateoriented managers would never engage, that the primacy of the premium goal as the direct operating motivation stands out. For example, one of the long persisting problems of Soviet industry is the shortage of spare parts. For many years there have been periodic attacks upon managers who fail to produce spare parts for their products, and numerous campaigns have been conducted for the increased production of spare parts. Yet the shortage persists.13 The role played by premiums in this resistance by management to the demands of the state is revealed in the following statement by Informant 388, a planning engineer in a machinery manufacturing plant: 14 The director of this factory figures that if he puts out 100 with the proper quantity of spare parts, he does not get a But if he puts out 102 machines and no spare parts, then engineer and all the technical personnel get premiums. not enough stimulus for producing spare parts.

machines premium. the chief There is

In the view of this informant the pursuit of premiums was the basis upon which the operational decision was made. A premium was available only for overfulfillment of basic production while spare parts were considered a supplementary task. "If spare parts were considered as a unit of fulfilled production," the informant continued, "then more of them would be produced, because it all depends upon the premiums which are given." Since the state exhorted managers not to neglect spare parts, a stateoriented manager would presumably have produced 100 machines and

34

Factory and Manager in the USSR

the corresponding volume of spare parts, even though this would have reduced the amount of premiums earned. The premium goal leads typically to the making of the particular choice among a number of courses of action that provides a larger amount of premiums, at the expense of some other facet of the enterprise plan which the state may be equally desirous of having achieved. For example, the plan requires not only a specified volume of output but also that the output be of high quality. Since it is often possible to increase output by reducing quality, the manager has a certain range of choice. The persistent complaints about the large amount of subquality production can be explained in large measure by the preference of management for those premiums which accompany volume of output, even at the expense of quality. The Soviet press frequently points out quite candidly that it is the premiums which motivate this self-oriented choice. In the following case, a severe bottleneck had developed in the delivery of crushed limestone to the metallurgical shops of a certain plant. Accordingly, a premium system was introduced for the management of the limestone-crushing mill, based on fulfillment of the plan of delivery of crushed limestone. The premium goal worked very well indeed, but not in the desired direction: 15 On March 22 Comrades Zarovnyi and Emel'ianov reported their first "success"; the delivery plan had been fulfilled 100 per cent. But on that same day the crushing mill worked just as poorly as ever. The imaginary success had been achieved by means of an increase in the loading of uncrushed limestone. At the same time the metallurgical people received a considerable quantity of clay, rubble, and silica instead of a high-quality flux. Not only the basic premium but also the specific premiums sometimes motivate actions contrary to the desire of the state. For example, a Decree of the Council of People's Commissars of June 2, 1940, provided for the payment of a specific premium of a half-month's salary to the senior plant management if the monthly profit plan were overfulfilled. In July 1940, the Semiluskii Refractory Plant fulfilled its production plan only 65.8 per cent and management therefore failed to earn their basic premiums. If each month's current output were shipped out promptly, they would also have failed to meet their profit target. But, by delaying shipment of the June output until the following month, a huge volume of sales were reported in July and a large profit earned: 1 8 This can happen because the enterprise sold in the course of the month a large quantity of output which had not been shipped out in the preceding month by accident or for some other reason . . . Instead of a planned profit of 50,000 rubles the plant made an actual profit of 199,000 rubles, and the management thereby obtained the

The Goals of

Management

35

formal right to a premium which they succeeded in getting despite the objections of the chief administration . . . The fact of the matter is that this system of premiums, in which there is no provision for the fulfillment of a series of qualitative indices, may often serve as the first cause of poor work which results in heavy losses. It was the specific premium for profit-earning which motivated the deliberate delay in shipping the June output. The same motivation, operating under somewhat different conditions, explains why in another case management deliberately raised its fuel-utilization target; for a specific premium was earned when actual fuel consumption proved to be less than the target. "It is the present premium system which leads to this artificial raising of the fuel-utilization target," writes the critic, pointing out that the senior managers earned an average premium of 2,556 rubles from this manipulation. 17 Soviet economists are aware, and are troubled by their awareness, that wherever a specific premium is tied to a particular element of plant operation, managers begin to focus their attention on that element to the deliberate detriment of other facets of plant operation.18 A most interesting testimonial to the importance of the premium motivation was the running race between managers and the state over the units in which plan fulfillment was to be measured. Up to the mid-thirties the size of the basic premium was determined by the percentage fulfillment of the plan of "gross output," which is defined as the output of finished products plus or minus the net change in the value of unfinished goods still in process. In computing gross output, products were valued at "constant prices of 1926-27." These prices, originally designed to serve as the weights for the index of industrial production, became quite outdated as techniques of production changed and new products were introduced; by the mid-thirties they no longer reflected current cost-price relationships. Nevertheless, since gross output was computed at these prices, they continued to be the basis on which production decisions were made. "Since the most important indices of the plan and of calculating plan fulfillment are linked to valuation in 1926-27 prices," wrote the eminent economist Turetskii, "the attention of many managers and planners is strongly fixed upon just these indices, rather than upon actual cost of production, finance, and profit." 19 Products whose outdated 1926-27 prices happened to be most advantageous to the enterprise were then concentrated upon at the expense of products more important from the state's point of view. Moreover, since gross output includes the net change in goods in process, managers often found it expedient to overfulfill their plans by diverting resources from the finishing of products into the amassing of larger stocks of unfinished goods in process. This unintended consequence of the premium motivation led the state

36

Factory and Manager in the USSR

to try to plug up the loophole by shifting the basis of measurement of plan fulfillment from gross output to "market output." Market output measures only the value of finished products delivered to the enterprise warehouse, and assigns no credit for increases of stocks of goods still in process; also, products are valued at current prices instead of the constant prices of 1926-27. Under the new system, if an enterprise "produced the required quantity but did not produce it in finished products, its program is not to be considered fulfilled." 20 Although a long series of official pronouncements stressed the importance of market output, gross output continued to be the principal measure of plan fulfillment, and was declared to be so by Soviet commentators as late as 1940.21 One major reason for this curious persistence is that while many commissariats declared that no premium would be paid unless the plan of market output was fulfilled, the size of the premiums continued to depend upon the value of gross output. The official pronouncements had some effect, in that managers at least tried to meet the market output plan; but beyond this minimum, all efforts were bent toward increasing the value of gross output. In some cases, however, the premium motivation was put to work, and premiums were computed according to the percentage fulfillment of the market output target. Now, indeed, market output became the basis for making decisions, but with consequences scarcely more favorable in the eyes of the state. Instead of piling up large quantities of goods in process, "plant managers, in the drive for market output, 'ate up' the goods in process from the preceding months" in order to fulfill the target of finished products, 22 a practice which must soon interrupt the rhythm of the production process. Furthermore, the emphasis on finished products led to the increased delivery to the warehouse of products with parts missing, or of poor quality, or of an unsalable assortment. Once more a loophole had to be plugged, and after Malenkov s sharp denunciation of these practices at the Eighteenth Party Conference in 1941, it was officially resolved that no premium would be paid to managers who had overfulfilled their market output plans unless the output was actually salable. 23 The potency of the premium goal is evident not only in direct operating decisions, but also in the reporting of plan fulfillment. Since slight reinterpretations of accounting categories can make a substantial difference in the income of managerial officials, reports such as the following are readily understandable: 2 4 However, there are other people in the enterprise for whom cheating, simulating, and deceiving are a "common phenomenon" . . . Take the transportation shop of the Zaporozh'e Steel Plant. In the matter of lying there are genuine specialists here. They lie shrewdly and skillfully. Often this talent serves even for getting premiums.

The Goals of

Management

37

Quite recently and with great tardiness, the shop managers presented documents for the payment of premiums for reducing the time during which large locomotives were kept in repair in September. Instead of 12.84 per cent of the working time, the locomotives were in repair only 10.27 per cent as reported. Thus the task of curtailing the time in repair was fulfilled 126 per cent. Their bonus for this was to be three months' salary. But on a first check a gross lie was disclosed. Locomotives had been in the repair shop seven to eight days and nights awaiting repair, but in the work orders it was stated, "held in cold stand-by." . . . This simulation was sanctioned by Comrade Prudikov, chief of the transport shop. The affidavit which the plant management drew up on this matter stated cheerfully, "This, of course, might have been expected. ( ! ) " When it is realized that a single percentage of reported plan fulfillment may mean the difference of up to 100 per cent in the earnings of managerial personnel, it is clear that a great strain is placed upon honesty in reporting. Informant 316, an official in a planning department, reports the following action by the plant management in order to secure the cooperation of the officials in the planning department, who are responsible for the computation of plan fulfillment In our plant at one time the technical personnel in the planning department did not earn specific premiums. Therefore they were not interested in juggling the figures in order to increase plan fulfillment so that the other people in the plant could earn specific premiums. Therefore the management itself went to the trust and asked that the planning department also be permitted to earn premiums. The trust had no right to do this, but it did. The temptation to falsify reports of fulfillment is encouraged by the fact that it is only the marginal quantities of output which must be falsified in order to earn the premium. The difference between 99 per cent of plan fulfillment and 100 per cent, requiring a relatively small amount of falsification, is sufficient to cause a large, discontinuous increase in earnings: 23 In some shops they have begun arbitrarily to reduce the production plan at the end and even near the end of the month. The tool shop, for example, fulfilled its monthly plan 99 per cent. The former shop * A similar illustration of the pressure upon planning-department personnel to manipulate figures in order to show successful performance appears in the following report from the press: "In order to establish a basis, albeit a formal one, for giving out premiums the plant director required the officials of the planning department not to exclude from the computation of the volume of output several thousand tons of subquality steel. The planning department included in the output of 3 July 500 tons which had been cast in the previous six months but had been rejected." I n d , August 22, 1939, p. 3.

38

Factory and Manager in the USSR

chief, Comrade Bagin, wrote an official deposition to the chief engineer and, contrary to the truth, explained that the plan was underfulfilled because of the shortage of metal and the lack of clarity of the blueprints. The plan was reduced by 29,000 rubles, and the percentage fulfillment was 100.34. As a result of this machination 3,165 rubles were received as premiums. In March the tool shop fulfilled its plan 98.2 per cent. But Comrade Bagin used the tested method: he reduced the plan by 42,000 rubles and achieved an overfulfillment of 102 per cent. The plant director and chief engineer were not long in approving the questionable machination of Bagin. Such slight degrees of falsification were facilitated by the widely reported sloppiness of plant accounting. Premiums were paid "without sufficient accounting of quality . . . and in many cases there was no accounting at all, but round numbers were used. In some enterprises, because of the poor organization of accounting and planning, the percentage of fulfillment by the auxiliary shops was artificially increased." 26 Under such conditions it was extremely difficult for auditors to pick out actual falsification from mere errors. Finally, the personal relationships among officials at various levels within the enterprise, and indeed between enterprise and ministry, vitiated the state's efforts to employ senior officials who could control the granting of premiums to junior officials. For example, the Decree of the Council of People's Commissars of June 2, 1940, strictly limited the amounts the director was permitted to grant as premiums, and specified the persons to whom they might be granted. Nevertheless there were persistent indications that directors continued to pay out premiums with scant regard for the law. Premiums were reported to have been granted regularly to officials who were not entitled to them: 27 Now the directors of our enterprises pay out wages extremely freely, violating the Decree of June 2, 1940, and Order 231 of the Commissar of the Iron and Steel Industry, especially with regard to giving premiums to the leading engineering-technical and managerial officials. Thus, in the Red October Plant (Director Comrade Mamai) in the category of head officials have been included the manager of the communal-housing section, the warehouse manager, and his deputies. In the Ray of Freedom Plant (Director Comrade Roskoshnyi) the lawyer received a premium every month. In the Karl Marx Plant in June, despite underfulfillment of the plan for high quality of production, eight officials among the administrative staff were given premiums. In August the chief engineer Comrade Shvartsev widened the list of head officials even more, adding on the chief of the fire department of the plant, the chief of the business department and the economist of the planning department.

The Goals of Management

39

In other cases premiums were paid to authorized officials, but the conditions under which they were to be paid were grandly ignored: 28 Once more there have been some attempts to transform premiums for work without breakdown and for an economy of fuel into a guaranteed earning, to distribute the surpayment for unbroken employment to all categories of employees. These efforts were especially vigorously made in the Central Ural District Electric Plant. In 1939 there were nine breakdowns in this plant. Most of them occurred during the shifts of engineers Vikharev and Mart'ianov. Despite this fact neither of them has even been deprived of his premium by director Comrade Bykov . . . In the same plant an affidavit was drawn up asserting that the breakdown of Boiler No. 1 was due to a rupture in a baffle tube. The ones guilty of this breakdown were the chief engineer, Comrade Molokanov, the chief of the boiler room, Comrade Beliakov, and the former deputy chief of the boiler room, Comrade Ruvimskii. It would seem that these people should have been deprived of their premiums. But the chief engineer of the plant, Comrade Molokanov (the very one who was guilty of the breakdown), confirmed the granting of a premium to the chief and deputy chief of the boiler room "for work uninterrupted by breakdown." It is clear that such a practice can only corrupt people, and transform the new system of wages into a "useless piece of paper." Unfortunately, the managers of the Central Ural District Electric Plant are not alone. It is curious that despite the apparent ease with which the legal restrictions on payment of premiums are evaded, one of the chief complaints of directors is that they cannot adequately reward their best officials in an appropriate manner.29 One might guess that if the legal restrictions were relaxed, abuse of the premium system might get quite out of hand. GENERAL ACKNOWLEDGMENT OF THE POTENCY OF PREMIUMS

Apart from the statements in the interviews and in the Soviet sources which show that concrete operating decisions are made on the basis of a conscious striving for premiums, there is further evidence that the striving for premiums is recognized to be a potent motivation which may be used to induce managers to do specific things. For example, one of the persistent problems of plant operation is the tendency for plants to lag behind their plan in the first f e w weeks of the month, and to step up the tempo of operations to an exhausting pace at the end of the month in order to meet the planned target. This practice is referred to by the disparaging term shturmovshchina, or "storming." In the plant of Informant 388, an effort was made by the commissariat to compel management to even out the rhythm of production by raising

40

Factory and Manager in the USSR

the importance of the ten-day planning period. The reasoning was that if management were held responsible for meeting the ten-day target as well as the monthly target they would not allow themselves to lag behind until the last days of the month. In order to motivate observance of the new system, the premium was made to depend upon the fulfillment of the ten-day plan. "There was no direct compulsion to fulfill the ten-day plan," said the informant, "but there were indirect sanctions. The ten-day plan was an order to the shop chiefs and their premiums depended upon it." In the plant of Informant 190, the problem was that shop chiefs made production decisions primarily on the basis of what was best for their own shop, without sufficient regard to the effect of such decisions upon the requirements of the next shops in the production process. For example, if toward the end of the month the machine shop had been falling behind, it would try to build up its volume of output by reducing the number of tool resettings and producing a larger quantity of the products for which it was already tooled up. Consequently the assembly shop would be swamped with certain parts and undersupplied with others. In order to motivate shop chiefs to pay due regard to the needs of the other shops, the premium system was adapted accordingly. Said the informant, "But if the underfulfilled items in our shop cause a lag in production in another shop, then our shop will not receive its premiums even though it has overfulfilled its plan." Premiums are thus made to do double work in motivating production, but not without certain disadvantages. Such premium systems intensify the latent conflict between the self-interests of different shops and further encourage various forms of deception between shops, especially on such matters as the quality of intermediate products passed on to the next stage of production An amazing incident occurred recently in the Zaporozh'e Steel Plant. Three buckets of molten iron were delivered from blast furnace 3 for mixture in the open-hearth furnace. The open-hearth people discovered that the iron was no good and sent it back. Two hours later the dispatcher of the blast-furnace shop, Comrade Kozlov, delivered a new batch of iron from another blast furnace. This time four buckets were delivered. The analysis presented showed that the iron was of good quality. Nevertheless it was decided to test it. In three of the buckets * Cher, met., January 4, 1941, p. 4. How such activities are related directly to the way in which premiums are awarded is reflected in the following case: "The chiefs of the basic and auxiliary shops of iron and steel enterprises receive premiums, starting from 80 per cent of plan fulfillment, regardless of the volume of rejects Under the conditions of operation of the refractory industry this leads to the fact that the chiefs of the grinding and forming shops let a huge amount of spoilage pass, amounting to 20 to 35 per cent; so that the volume of accepted production will amount to at least 80 per cent." Cher, met., November 19, 1940, p. 2.

The Goals of

Management

41

it turned out that it was the same rejected metal. They had simply driven it around the shop and slipped it in again later as "new" iron. Premiums are used not only to induce shops to deliver the proper assortment of output to other shops in the enterprise, but efforts have also been made to use the same technique for motivating enterprises to meet the assortment requirements of their customers. 30 Although data are not available to support the following argument, it is likely that the use of premiums for regulating the assortment of output is more successful in the case of the shop than the enterprise. The reason for this view is that the premium-issuing unit itself, the plant management in the first case, suffers if the shops do not integrate their production correctly; the plant management will therefore be diligent in withholding premiums if the shops fail to meet the required assortment. But the premiums of the senior management of the enterprise are determined by their own ministry, and the ministry itself does not suffer if customers in other ministries fail to receive the correct assortment of the commodities they require. This is even more so under conditions of a perpetual sellers' market. Consequently the premium goal is most effective in those cases in which the agency issuing premiums is crucially affected by the actions which the premiums are designed to motivate. If the purchasing ministry had the right to deny premiums to the plants of the selling ministry in case the latter did not ship the correct assortment of products, then premiums might be more successful as a regulating device. The recognition of the strong motivating power of premiums can be seen in the Soviet sources as well as in the interviews. Writers on various aspects of managerial activity, seeking ways to strengthen management's interest in the particular problems which interest them, often turn to a premium as the motivating mechanism. For example, one Soviet economist, concerned with the lack of interest displayed by management in reducing costs, wrote: 3 1 It is well known that the premium systems in the salaries of engineering and technical personnel are designed to stimulate interest in the quantitative indices, i.e., volume of production. The dependence of premiums upon the reduction of cost of production is expressed in the fact that premiums are paid only on condition that the plan of cost of production is fulfilled . . . The absence of a direct connection between the magnitude of the premium and the magnitude of the economy due to cost reduction, in our opinion, weakens the importance of the index of cost of production . . . It is necessary to grant the industrial ministries the further right to establish for enterprises, within the limits of the existing premium rates, differential scales of premiums which depend upon the reduction of cost of production.

42

Factory and Manager in the USSR

This critic was content to use premiums for directing managerial efforts toward reducing average cost of production. Others desire premiums to be utilized to direct attention to some of the individual items that enter into cost of production. Thus, one finds criticism of "a poorly thought-out statute on premiums for shop officials for conserving power and fuel." 3 2 But the scope of problems that premiums are expected to solve goes far beyond cost of production. The author of a journal article ascribes low-quality production to the incompetence of quality-control officials, because of low pay rates and because "the absence of a premium system does not facilitate the attraction of skilled engineers and technicians into the apparatus of the department of quality control." 33 A commissar worried about quality of output also reaches for premiums as the way "to compel blast-furnace personnel to produce good-quality pig iron, and we must not pay a single kopek in premiums for pig iron which deviates from the standard." 34 The editorial writer for an economic journal expresses his faith in premiums as the goal that would turn managerial attention to the problem that interested him, namely, the problem of maximizing the number of hours of equipment use. He urges the establishment of "a system whereby the size of the premiums and other incentives to groups and to individuals will be determined by taking into account also the level of utilization of fixed capital." 3 5 And the State Planning Commission looks to premiums for motivating a wide range of things, from the production of consumer goods to efficient garbage collection by restaurants: 36 In order to create a material interest in increasing the output of mass consumer goods it is necessary to introduce a premium system of payment to the managerial and engineering-technical officials of the artels37 and the producers' cooperatives, and also a premium-stimulus system of payment to the managerial and engineering-technical officials of local industry enterprises, for the overfulfillment of the production plan, for the mastery of new mass consumer goods products, and for the utilization of new types of raw materials toward these ends. . . . The managers of catering establishments must be permitted to give premiums out of the director's fund to the officials and workers of dining rooms for improved organization of the collection of food waste. It is true that in the foregoing cases the tasks which the writers want singled out for special premiums are the normal obligations of management. Premium or no premium, management is supposed to minimize costs, to maximize the utilization of fixed capital, to increase the production of consumer goods out of idle capacity and local resources. But when it is recognized that the tasks are not being executed to the desired extent, the critics look to premiums as the effective means of motivating

The Goals of Management

43

management to pay greater attention to them. The Soviet sources thus lend strong support to the indications found in the interviews of the potency of premiums as a basis of decision-making. In later chapters which discuss the various kinds of problems facing the manager in the course of his work, it will be shown that in a wide range of situations premiums provide a sufficient explanation of why the empirically observed decisions are made. The adequacy of premiums for explaining behavior is cogent argument for considering them to be the dominant goal of management. The dominant goal may be thought of as that which answers the question, "What more than anything else stands at the forefront in the making of decisions and explains why one alternative is chosen in preference to another?" It is in this sense that profit maximization is the dominant goal in the theory of the firm in the market economy.* None but the most singleminded of theorizers would insist that any one goal is sufficient to explain all economic behavior; indeed, to require this in the case of the Soviet firm is to require that w e understand more about the Soviet economy than we understand about our own. The selection of a single goal is an abstraction from a complex reality, performed for the purpose of providing a system of explanation for as wide a segment of that reality as we can encompass. The economist's case for this kind of abstraction is well stated by George Stigler with respect to the assumption of profit maximization as the goal of the capitalist entrepreneur: 38 No economist would deny that all entrepreneurs are subject also to other desires that may conflict with profit maximization, nor even that some of these other forces may be widespread and important. Rather, the position is that profit maximization is the strongest, the most universal, the most persistent of the forces governing entrepreneurial behavior . . . The reason for not adopting such alternative goals is that unless they are developed in content and their scope of operation and strength are approximately determined, they impoverish rather than enrich economic analysis. W e turn, then, to a consideration of some alternative goals which operate along with premiums in motivating the behavior of Soviet managers. * In referring to premiums as the dominant goal of Soviet managers, w e have been careful to avoid any reference to "premium maximization." In fact, for reasons to be explained in Chapter VI, managers sometimes find it unwise to maximize premiums. A more appropriate concept may be "premium optimization," signifying that there is some optimum quantity of premiums beyond which managers would cease to strive for more. Most managers, however, rarely find themselves in the fortunate position of having to worry about earning too large premiums.

PREMIUMS AND OTHER

GOALS

IV

Since the basic premium is closely related to production-plan fulfillment, it might be argued that either the premium or the striving for plan fulfillment could be construed as the dominant goal motivating managerial decisions. Certainly much could be explained by the striving for plan fulfillment, and there is no quarrel in principle with that view. The case for the premium goal, however, rests upon the fact that it has three distinct advantages as an organizing principle in explaining managerial behavior. First, a premium represents a direct personal material reward whereas plan fulfillment is a rather impersonal thing. Therefore less violence is done to the traditional conception of what motivates people if the premium is treated as an end and plan fulfillment as the means to that end. The relationship of premiums to plan fulfillment in the Soviet firm is rather like the relationship of profit to the equalization of marginal revenue and marginal cost in the theoretical market-economy firm. While the capitalist may be conceived of as motivated by the desire to equalize these marginal quantities, his reason for wanting to do so would be rather odd, to say the least, unless we postulated a somewhat more plausible personal motivation such as profit. The same applies to the premiums of the Soviet firm. Second, when plan fulfillment is thought of as a means and the premiums as the end, we are better able to explain such actions as the unlawful issuance of premiums when the plan is underfulfilled, the falsification of reports of plan fulfillment, and the wide variety of ways of simulating plan fulfillment. Certain of these characteristic practices could be explained by stating the goal to be "reported plan fulfillment," but this is a most inelegant formulation. The premium goal says the same thing more economically. Third, if plan fulfillment is thought of as a means and premiums as the end, it is possible to broaden the range of explained actions by including other means to the same end. Plan fulfillment explains actions leading to the basic premium but not those leading to the specific premiums. When the firm delays shipping its production in one month in order to earn a

Premiums and Other Goals

45

specific premium for profit-making in the next month, or when junior managerial personnel undermine the enterprise's performance by some action which earns a specific premium for their own shop or departments, such decisions are not explained by plan fulfillment, but they are explained by premiums. It is true that there are actions which are not explained by the premium goal either. In the course of a campaign waged by the state to achieve a certain objective, management may forego both premiums and plan fulfillment in order to concentrate on that objective. When national attention has been focused upon the achievements of record-breaking workers, firms have been known to concentrate upon the achievement of one-day production records at the expense of fulfillment of the monthly production plan.1 When Pravda editorials begin to place unusual emphasis upon quality of production and some managers are convicted in highly publicized trials of deliberate lowering of quality, firms may well concentrate on quality so heavily for a period of time that production falls off.2 The premium goal is not sufficiently general to encompass all such variations. Following one practice of western theory, we may include these variations in a more general explanation by proposing that it is "long-run premiums" that are the goal of management rather than "short-run premiums." This formulation is perilously close to an irrefutable proposition, for virtually any action of a manager can be explained simply by saying that it increases his "long-run premiums." Since such irrefutable propositions are also meaningless propositions, little would be gained by such a formulation. It is more useful to think in terms of the direct short-run premium goal and to treat the deviations described above as exceptions to the general rule. PREMIUMS A N D THE BASE SALARY

Although the base salary of a manager is usually larger than the premiums, it is rarely referred to in the interviews. The reason is simple: the size of the base salary is not directly affected by a particular decision, but the size of the premium is. Premiums are the variable portion of income, and if one alternative yields a larger premium than another, there is a clear basis for a choice. Since the base salary is fixed and is paid whichever alternative is chosen, it provides no basis for a choice in this concrete case. The salary of a manager depends upon his job and upon the importance of his plant and industry. The size of the salary therefore tells something about the manager's position, but it tells nothing at all about his performance in his position. From the salary one cannot judge whether he is on the way up or the way down. The size of his premium,

46

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USSR

on the other hand, is a test of his success in his position, and a large and steady volume of premiums is an indication that the man is on the way up. The salary may be looked upon as the payment for carrying out the normal functions of office—for doing a month's work. The premium is a payment for the excellence of the work. The salary is paid for doing the job, the premium for doing it well. The increase in the ratio of premiums to base salary in managerial income in recent years is evidence of the state's awareness of the relatively greater effectiveness of premiums as a goal. The close link between premiums and successful performance has endowed premiums with a symbolic significance. The manager who is known to earn large premiums is considered by this very fact to be highly successful, and when the officials of a certain enterprise regularly earn large premiums, that enterprise develops a good reputation for itself and for its management. Thus premiums, like profit in the market economy, bring not only affluence but prestige. The significance of premiums does not seem to suffer from the common knowledge that many managers earn their premiums by methods which would not quite stand the light of day. Informant 316 described the following case: Once there was a large iron and steel combine in the Donets Basin which used to overfulfill its plan by a great percentage and used to earn enormous specific premiums for the technical personnel. This plant became famous, and one day they sent one of their engineers to talk to all the technical personnel in our community. There were about six hundred of us listening to him. Then someone asked how they were able to earn such large incomes. He explained that by an order of Commissar Ordzhonikidze the State Bank was instructed to pay premiums according to a specially high scale. Other plants could not easily do this. When we heard this a great roar of laughter went through the audience. There are two features of the typical decision-making situations faced by Soviet managers which the premium goal is peculiarly fitted to explain. The first, a fact of some interest to the non-Soviet economist, is that the alternatives usually involve marginal quantities, the last few units of labor or the last few percentages of plan fulfillment. The characteristic practice of shifting some labor and machines from the production of one item to another which happens to be more advantageous to the firm, at the expense of the planned assortment of output, applies to the marginal production, the production which makes the difference between slight underfulfillment and fulfillment of plan. The practice of seeking to have the plan target set at a level below actual capacity so that it can be more easily fulfilled is limited to relatively small quantities at the margin of capacity. Hence it is significant that

Premiums and Other Goals

47

it is the variable portion of income, the premiums and not the base salary, which are tied to the marginal production and which therefore explain these decisions. The second point deals with the long-run effects of the decisions of management. The base salary may be considered fixed only in the short run. In the longer run the successful manager will be promoted to a higher position in the same enterprise or in a more important enterprise and the salary will be larger. The unsuccessful manager will be demoted to a lower post with a smaller salary. In the longer run, then, the salary too varies with performance. Since this is so, it may be argued that, while the premiums are relevant for short-run decisions, the salary is more relevant for long-run decisions. Now the interesting thing about the characteristic behavior of Soviet managers is that it is sharply focused upon short-run considerations. The practices of management about which the informants talked most and which are most prominent in Soviet writings on the subjects are predominantly short-run in nature. Most of them are day-to-day problems dealing with such matters as how much of a scarce raw material to order, whether to shift labor from one production line to another, whether to omit a finishing operation in order to meet the plan target, whether to ship a lot of production to an unauthorized purchaser who happens to produce a badly needed commodity. One reason for this short-run orientation Is the prime importance of the monthly plan. For most of the year the full attention of management is focused upon the end of the current month. Toward the end of the year a series of decisions must be made for the preparation of the next year's annual plan. But few of the decisions which fall within the competence of plant management deal with periods longer than a year. Capital investment decisions, except for certain very minor and inexpensive outlays, are largely made at higher levels than the firm. Apart from these objective reasons for a predominantly short-run orientation, there is a subjective reason of considerable importance. For the Soviet manager does not expect to retain his present job for a long period of time. The expectation of a short tenure of office is manifest in the interview records. In discussions dealing with the possible consequences of various courses of action, the informants rather frequently referred to the dismissal of the director, often for what seemed to be a relatively minor transgression; * the informants gave the impression that * "Sometimes the work stops because the norms of materials have been used up. If this is because of bad management, or because of the fault of the director then the director would be removed and a new director would start off with a new supply of materials." (Informant 396 ) "Underfulfillment of plan usually is followed by a change in the leading personnel Sometimes the director succeeds in changing some of his chiefs of sectors, departments or shops before he himself is changed. Sometimes only the chief engineer is changed, or on the other hand, the director alone " (Informant 4 0 0 . )

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the managerial officials are changed with rather great frequency.* There was reason to wonder whether such statements were merely exaggeration for dramatic effect, or whether there was a bias in this direction because of the nature of the interview guide. At one point the following exchange took place with Informant 450:3 If the chief administration accepts our explanation of the overexpenditure, then our report is accepted. If it does not accept our explanation, then we are considered to have made a loss and the director of the trust may be brought up for trial. Q. You and other people I've interviewed have given me the impression that the director expects to be kicked out every year. Is it possibly true that directors are replaced so often? A. It is true. I worked on this construction project from 1937 to 1940. During that time there were seven directors. All had been removed. If he was a good party man and he was kicked out of a job, then he would simply be given a job somewhere else. If he was simply a person from the locality, he would be made manager of some store, or he would simply be put up on trial. The informants gave the impression that the director usually stays in one plant for a period of about two years, often less and sometimes longer. These impressions are corroborated by data compiled by Granick.4 From Soviet studies for the years 1934 and 1936, an earlier period than that with which we deal, it was found that only 3 to 8 per cent of the directors in the sample had held their jobs for more than five years, 16 to 20 per cent from three to five years, 40 to 55 per cent from one to three years, and 25 to 30 per cent for less than a year. Statistics gathered independently by Granick for the postpurge period show that the same general pattern of tenure of office continued. Moreover, chief engineers and shop chiefs were shown to follow a similar pattern. Stern criticism of what is called the "leap-frog" transfer of managers appears from time to time in the press. "Last year in the enterprises of the Chief Administration of Non-ferrous Metals six directors and four chief engineers were changed," we read in an industrial newspaper in 1940.5 "The executives of many enterprises are changed too often," remarked Bulganin in 1955. "In the coal industry, for example, about 40 per cent of the heads and chief engineers of mines, and some 50 per cent of the sector managers, change every year." 6 If managers occupy their posts for about two or three years, then at any point in time the average manager has only about one to oneand-a-half years left. In fact, however, the manager does not operate on the basis of some average period of tenure. He judges his own chances 0 "During the five years of my stay my construction section had five different chiefs." (Informant 202.)

Premiums and Other Goals

49

of being transferred on the basis of the signs he learns to recognize. A position is vacant in the chief administration or in another enterprise, he knows personally most of the likely candidates for the position, and he knows roughly where he stands on the list. In a Pravda feuilleton we read an acid reference to overeager managers who, learning that a chief administration director has fallen ill, "rush to the ministry and say: 'You have a vacancy in the making. Appoint me fast. I'm first in line'."7 Similarly, Director Juravliov in Ehrenburg's novel The Thaw reflects, "Zaitsev said last autumn there was talk of transferring me to Moscow." 8 From such signs the manager estimates the probable duration of the remainder of his tenure in a plant. Since the remainder of his tenure is likely to be short, it is little wonder that he focuses upon short-run problems, often, indeed, at the expense of the long-run welfare of the enterprise.9 For the Soviet manager, even more than for Lord Keynes, wisdom teaches that "In the long run we are dead." Since this is so, the long-run variability of the base salary does not argue for its motivating power in concrete decision-making situations. It is with the short run that the manager is concerned and only the premiums vary in the short run. PREMIUMS AND NONMONETARY GOALS

In our emphasis on a monetary goal, we may appear to have turned the Soviet manager into a homo economicus, socialist in form perhaps, but bourgeois in content. It must be remembered, however, that the economist's interest in goals is different from that of other social scientists. We are not interested in the manager as a personality type, as the psychologist is; nor as the incumbent of a role, as the sociologist is; nor as the bearer of cultural values, as the anthropologist is. Our more modest aim, though bold enough, is to provide a systematic explanation of the process by which goods and services are produced, and for this purpose our prime interest is in goals of an economic type. We are concerned not with whole man but in that single abstract part of him that is relevant to the economic problem at hand. But quite apart from this methodological argument, the reader of modern Soviet economic writings would find our emphasis upon material rewards quite in keeping with at least one dominant theme in these writings. Ever since Stalin's condemnation in 1931 of the "Leftist" 10 uravnilovka — equality-mongering — it has been common practice for Soviet writers to extol the virtues of "material self-interest" as a proper incentive under socialism. Sometimes, indeed, one comes across quite lyrical passages about the benefits of a properly guided self-interest which strike a most familiar chord. The Great Soviet Encyclopedia puts it thus:11

50

Factory

and Manager

in the

USSR

Socialism not only does not deny the private material interest of working people in the results of their work, but elevates this interest to a higher place than in any preceding systems of production. The private material interests of socialist working people in raising the productivity of their labor is directed toward the good of all the people, toward the strengthening and growth of the social wealth. The invisible hand has been transformed into a quite visible one, but something of the "Fable of the Bees" remains. It is not only quite proper for the Soviet manager to pursue his "private material interest," but it is for the benefit of the whole society that he should do so. In this climate one should expect in any statement of the goals of managers that a very important role be assigned to material objectives.0 It is nevertheless of interest to consider some of the nonmaterial goals pursued by Soviet managers. There is, first, the desire for advancement. The Soviet economy is a rapidly expanding one, and the rate of upward mobility is extremely high. Opportunity for advancement is virtually unlimited for the young person with the proper educational, personal, and political requisites. Undoubtedly there is a considerable desire for personal advancement in the system, although this kind of goal is not often mentioned in Soviet economic literature. It is not a highly approved goal for, taken by itself, it smacks too much of bourgeois individualism. In literature and in economic writings it is usually expressed as the desire to advance the socialist construction of the nation. In the interviews it is often referred to, but is usually ascribed to someone other than the informant, and is usually derogated. The word "careerist" conveys, in the interviews, a connotation of ruthless ambition and subservience to the regime. However, the frequent references to this term suggest that advancement is indeed a goal of many persons, and undoubtedly is not always the vicious sort of thing described by the informants. The desire for advancement need not conflict with the goal of premiums. For insofar as premiums are a reward for excellence of 6 The enthusiastic application of this doctrine in the outer Communist world is reflected in the following remarks from a speech by Li Shao-chi to Chinese businessmen in 1950: "As Communists we consider that you are exploiting your workers, but we realize that, at the present stage of China's economic development, such exploitation is unavoidable and even socially useful. What we want is for you to go ahead and develop production as fast as possible and we will do what we can to help you. You may be afraid of what will happen to you and your families when we develop from New Democracy to Socialism. But you need not really be afraid. If you do a really good job in developing your business, and train your children to be first-class technical experts, you will be the obvious people to put in charge of the nationalized enterprise and you may find that you earn more as managers of a socialized enterprise than as owners." (Italics supplied.) Quoted by Morris Watnick in his article in Remhard Bendix and Seymour Martin Lipset, Class, Status and Power (Glencoe, 1953), p. 661.

Premiums and Other Goals

51

managerial performance, and since good performance is at least one of the ways of building a career, the person motivated by a desire to advance will behave in most cases as the one who is motivated primarily by premiums. Indeed, since in recent years the emphasis placed by the state upon premiums has converted them into a symbol of good work, the ambitious manager will work as hard for them as will his more money-oriented colleague. Even if he were not interested in premiums for their own sake, the criteria of good performance in the eyes of his superiors are the same as those which will earn him the premiums. The pursuit of premiums, as will be developed later, demands that the manager do many things that are contrary to the regulations and the intent of the state. If the ambitious manager is not also a moral and ideological purist, he will do the same things. Like the manager who is oriented toward winning premiums, the ambitious manager will break those regulations that are less important for his own purposes in order to fulfill those that will best satisfy his superiors. The manager who can show a record of consistent plan fulfillment is the one who is most likely to succeed and at the same time the most likely to earn large premiums. For the purpose of explaining managerial behavior, therefore, the goal of advancement may be subsumed under the goal of premiums. Insofar as the love of power means a special wish to manifest power over others, it is different from the desire for advancement. It may take the form, for example, of demanding excessive effort from subordinates. In the case of a factory director, such behavior will usually result in the earning of premiums, and he is likely to be advanced. But if this demand for excessive effort is not carefully manifested, it may well lead to the opposite effect. For example, if he should insist on setting the targets of his subordinates, and therefore his own target, at levels higher than can be achieved, then he is likely to underfulfill them too often to show a good record of performance. If he is a minister who terrorizes his plant managers into taking on impossible tasks, the plans of his own ministry are not likely to be fulfilled. 12 Thus, the love of power either leads to behavior which is consistent with the premium goal, or else the power-driven manager will drive himself out of authority. The love of creating and building is often cited as a major goal of industrial managers. For many people, especially for those who possess the traits of the executive, a large part of the satisfaction of the job is the fact of having done it well. If the official accepts society's definition of the good job, then he should have no difficulty co-ordinating his love of doing a good job with the demands of the society. If, for example, he is willing to measure his own performance of his job by plan fulfillment, then his motivation is likely to lead to the kind of

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Factory and Manager in the USSR

decision desired by the state. Since most people's standards are conditioned by those of the society and of their local environment, undoubtedly plan fulfillment has become a major criterion for those who are strongly motivated to do a good job, quite apart from the premium motivation. There are numerous statements in the interviews which reflect the pride of work that is associated with plan fulfillment. For example, the following statement by Informant 524, a former plant director: Q. Did the higher organs appreciate this? A. Well, one should not praise himself, but this is the truth. Before my arrival at the plant they had been fulfilling their plan only 35 to 40 per cent; three months later it was fulfilled and then overfulfilled. This director had accepted plan fulfillment as the criterion of his personal appraisal of his own work, and is, therefore, likely* to have acted in most cases in the same way as the premium-oriented manager. But an official who allows his love of good work to becloud his perceptions of the realities of industrial life may be a successful engineer but hardly a successful manager. Ehrenburg introduces this distinction into the reflections of his Director Ivan Juravliov concerning one of the plant engineers named Dmitry: 1 3 Dmitry might be good at his machines, but of the mysteries of agement he understood nothing. Ivan knew what would happen mentioned his difficulties to Moscow. They would only frown up and say, "Juravliov is panicky." People liked honey, and if they served with pepper instead it made them cross.

manif he there were

The love of creating and building means to the Russians something other than the mere personal satisfaction with one's own work. It is usually associated not with an art-for-art's-sake philosophy, but with the desire to serve the people and to build for them. Russians like to think of this self-denying motivation as characteristically Russian. Expressions of it are to be found in prerevolutionary literature, although in recent years it is usually associated with the building of socialism. A typical expression of it is found in the words of Robert Magidoff's friend, the director Golovenko, who did not care that his "bones will rot in the mines," as long as he could "bring to life the entire wealth of our land." 1 4 Suggestions of this motivation are found in the interviews too, usually followed by bitter complaints about how the bureaucracy interfered and prevented people from doing their best. Such selfless building for the people may involve the manager in trouble with his superiors, for he may refuse to accept their definition of a job well done. Only if he accepts this definition will he act as the premiumoriented manager acts and thus be permitted to continue creating.

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The same may be said of political idealism. No one seriously doubts the existence of managers, especially among the young, who are passionate believers in the regime and seek to identify their goals with those of the regime. To the extent that they succeed in harmonizing their idealism with those principles of management that make for success, they will act as premium-oriented managers. But if they refuse to engage in such actions or to countenance them in their colleagues and superiors, they run into serious difficulties. Furthermore, the quality of idealism is perhaps too delicate to flourish long in the climate of Soviet economic reality. Idealism is something people associate with the heroic old days of revolution, and is not of our time. The disillusioned young career-bent artist in The Thaw reflects, "It's all right when father talks about ideas — that's his right, he grew u p in that sort of time — revolution, romanticism. But Savchenko is an ordinary engineer, his business is with machines, not with ideas." 1 5 While there can be no doubt that indoctrination and the positive accomplishments of the regime evoke strong emotional idealism in many of the young, it is difficult for such feelings to withstand the accumulated impact of years of direct contact and involvement in the bureaucracy, cynicism, and latent repressive ethos of the system. In a sense, many of these goals may be expressed in terms of their opposites; the complement of the desire for advancement is the fear of failure. But the fear of getting into trouble may also be treated as a distinct negative kind of goal, for it certainly plays a role in the making of decisions. In the interviews this goal appears in the rather frequent reiteration of the desire "to sleep peacefully" or "to live quietly." In the published sources w e often come upon criticism of managers who appear to desire neither plaudits nor premiums but only to fulfill the plan sufficiently to be able to squeeze by and sit with folded arms. These are the "bureaucratic" managers whom the Party is exhorted to shake into action. However, the pressures which the system contrives to exert on its managers are such that it is quite doubtful that this kind of behavior is very widespread. Moreover, what may appear to be indolence in a manager may in fact be a quite normal reaction to these pressures; having fulfilled his plan, he relaxes his effort not because he enjoys sitting with folded arms but because to produce too much is to show his hand and perhaps find his new targets raised. As w e shall see, this interpretation is consistent with one of the major informal principles of managerial behavior. The prevalence of the theme of "sleeping peacefully," then, does not suggest indolence as a goal of many managers. Its significance is rather to be found in the curious fact that the expression often appears in the context of an explanation of w h y some illegal action was taken. If you

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located some vital materials somewhere, said Informant 316, you might persuade the lawful possessor to give them to you for "everybody tried to live peacefully and to help each other out." The exchange of materials, a quite unlawful act, was not difficult to arrange, said Informant 320. "It is all done quietly in a friendly and cooperative way. People realize that they must help each other out so that all can live." The prevalence of this rather nostalgic desire is widespread enough to have had attention called to it in critical articles. "But the state suffers considerable losses," one reads, "because the heads of construction projects still forget about their excess materials because, they say, it is more peaceful with excesses." 16 Those guilty of having this motivation are often charged with laxity in applying pressure upon others and with the toleration of unlawful actions: 17 The fear of "quarreling," the desire to live in peace and quiet with everyone, this is characteristic of the type of management in this plant, beginning with the director himself and ending with the shop chiefs. Not one case can be recalled in the plant in which people guilty of underfulfillment of the schedule or of belated delivery of supplies were called to account for it. What is the value after all this of the innumerable orders and other papers, registered in the accounting office of the plant administration, and sent out "to all chiefs of shops and departments"? Now it would seem that the person who desired to "live peacefully" would tend to adhere to the letter of the law and not to evade it or tolerate evasions. That this is not the case is a reflection of the fact that in the Soviet system the need for evasion of some regulations in order to fulfill others is so widespread that all but the pathologically fearful do so. "The word abuse' [zloupotreblenie: includes all sorts of swindling] does not sound bad to Soviet ears," stated Informant 384. "It is a general phenomenon, and all look the other way when they see it." Managers writing in the Soviet press from time to time even boast of unlawful actions which enabled them to fulfill their plans, assuming that the success justifies the means. 18 Thus, in order to "live peacefully" one has to take some risks; the person who is predominantly motivated by the goal of avoiding punishment could never get to the point where we would have to take account of him in the study of managerial behavior. How this works is well illustrated in the career of Informant 485. This informant, a scientific research worker, stood out from the others because of his emphasis on the danger involved in various actions that other informants took rather as a matter of course. More than most he seemed fearful of taking risks. His testimony regarding his own career is as follows:

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In 1930 I was offered a job in the State Planning Commission. I refused because I was afraid, even though the job was a better one and I could have been a big shot. Once I had been in prison and a small error on my part would have been magnified. For refusing this job I was dismissed from my job in the institute. The person whose goals are dominated by the fear of taking risks voluntarily withdraws from the competition for managerial positions by a process something like the one described above, and he leaves the field clear for those better adapted to the demands of a managerial career in the Soviet firm. This last point illustrates what may be called the "principle of survival," with which we may summarize the relationship of premiums to other goals. As suggested at several points above, there is a process of social selection at work which favors the survival and advancement of those who are motivated primarily by the premium goal or who act as if they were motivated by this goal. A number of forces play a role in this process, such as the self-interest of one's colleagues and superiors and the phenomenon of the "avalanche effect," which will be discussed later. If the actions of a managerial official depart too far from those which are consistent with the premium goal, and therefore with "reported" plan fulfillment, he is likely to be forced out of his job by his colleagues and superiors, all of whom are dependent for their own careers upon such actions.* Insofar as the joint operation of goals other than premiums leads to actions which are not too far from premium-oriented actions, there is no problem. But if another goal dominates and leads to actions which are contrary to those which the premium-oriented manager would take, then the forces leading to the elimination of this manager begin to operate. If the other goal is advancement, and if his view of how to advance is such that he neglects the precautions and actions which the hard-headed premium-oriented manager has developed, then somewhere along the line he is likely to collide with colleagues and superiors who will seek to eliminate him. If the dominating goal is the manifestation of power, he may drive his subordinates so hard as to lead to underfulfillment and to dismissal. If his sense of craftsmanship is dominating to the point that he cannot bring himself to compromise with the quality of his output for the sake of plan fulfillment, he will also be 0 "The successful manager plays the game according to the rules which are actually — and not just legalistically — in force; those who do otherwise must soon disappear from the ranks of top management. Just as under the capitalist economic system, only realists can rise to the top and stay there." Granick, p. 129. Strictly speaking, it is not only realists who can get to the top and stay there There are some individuals with rather odd ideas who manage to get to the top and stay, but these must be considered the exception to the rule.

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forced out. If his political idealism causes him to disclose the unlawful actions of his premium-oriented superiors, or if he refuses to engage in such practices himself, he will either generate powerful antagonists or show a record of poor performance. And if he is dominated by the fear of taking risks, then no forces need gather to eliminate him because he eliminates himself. Like our timorous research worker quoted above, he shies away from threatening opportunities in economic life, corroborating the old adage that "them as can, does; them as cain't teaches." The principle of survival does not work with absolute certainty. There are certainly persons who throw to the winds the tested cautions of the premium-oriented manager and are able to thrust themselves into prominence nevertheless. Sometimes this is the result of unusual personal forcefulness, for there are people everywhere to whom the normal rules seem not to apply. Sometimes it is the result of the powerful patronage of a high Party official who can protect a manager from the forces that seek to oust him. No universal applicability need be claimed for this principle of survival, nor need it be denied that other goals always operate along with the premium goal. It is only necessary to point out that in the broad picture there are elements at work which tend to displace the manager who does not act as a premium-oriented manager should, and to replace him with candidates who are better adapted to managerial careers. To be sure, persons who are not premium oriented can survive and advance in the interstices of the system, like the Owenite entrepreneur in the capitalist system, but they do not swim in the main tide nor do they reflect the true temper of management.

P R O F I T AS A GOAL

V

Among the accounting categories of the Soviet firm is a magnitude known as "profit." It is in the case of such words that it is especially important to heed the caution of the late Professor Schumpeter that we must not define the economic system of communism in concepts which are the "denizens of the world of commercial society." While profit in an accounting sense may have a similar meaning in the two systems, in an economic sense they are quite different things. In Soviet terminology, the difference between total revenue and total costs of the enterprise is called "accumulation." Part of the accumulation is automatically appropriated by the state as a sales tax (turnover tax) on the goods sold. The magnitude of the sales tax is based upon a published list of rates which vary from commodity to commodity. The part of the accumulation remaining after the deduction of the sales tax is called profit. Planned profit is the difference between the planned revenues, net of sales tax, and the planned costs. The actual volume of profit at the end of an accounting period is the difference between the actual revenues, net of sales tax, and the actual outlays. The rate of profit is the ratio of total profit to total cost of production, not to invested capital as in western terminology. Soviet writers lay great stress upon the importance of profit as a goal of management. One reads that the enterprise has a "material interest" in profit, which motivates management to increase output and reduce costs, and which "creates the best conditions for the manifestation of managerial initiative." 1 The reason that management strives to fulfill the production plan is that "as a result of fulfillment of the plan profits are at the disposal of the enterprise which are used not only for payments into the budget but also for expanding the activity of the enterprise." 2 Profit is sometimes thought to have direct and immediate significance in determining the production choices of management: 3 The significant differences in the level of the rate of profit in the branches of heavy industry described above leads to a great interest in overfulfillment of the accumulation plan in the branches with a high rate of profit, and at the same time reduces the incentive for struggling

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for overfulfillment of the plan in the branches with a low rate of profit (iron and steel, cement, ore, construction materials) and in the branches which are still subsidized (coal, lignite, tin). With no other evidence to go by, the published sources are persuasive on the importance of profit. If one sought to explain the operations of the Soviet enterprise purely on the basis of this literature, he might well ascribe a central role to the profit motive. It is precisely in a case of this sort that a real live Russian would accost the western student with the devastating remark, "What you say is right; yet you are wrong." For it is the general opinion of the informants that profit plays a quite minor role in determining the behavior of the management. Typical of their attitude is the following statement of Informant 485:4 Profit never plays an important role. Only in production outside of the plan is profit important, when production is carried on at the initiative of the enterprise. But this is still nonplanned production, and he will not sacrifice the plan for this. The informants as a group clearly deny what the Soviet writers would have us believe. It is possible that we have here another case of the writings reflecting what ought to be and the informants describing what is. The matter requires looking into. PROFIT AND WORKING CAPITAL

One of the major reasons given by those who stress the importance of the profit motive is that "The chief source of supplements to the working capital owned by the enterprise is profit. This creates a direct interest by the enterprise in fulfilling and overfulfilling production plans, stimulates the struggle for lowering cost of production, and for the better utilization of fixed and working capital."8 The informants, however, did not think of profit as a source of working capital: Your task is that each month you must cover your costs. Working capital is used to cover your monthly deficit. If at the end of the year you have made a large supplementary profit, you do not keep it for the next year. The financial plan permits you to keep only a certain amount of working capital, which is necessary for the fulfillment of the plan . . . If the profit exceeds the legal amount of working capital, the excess is taken away the next year. (Informant 26.) As the enterprise turns its commodities into cash, it builds up its monetary working capital and reduces its stocks of real working capital. As it pays out wages and purchases materials, it reduces its monetary working capital and builds up its real working capital. But the total of the real and monetary working capital is not supposed to exceed the official maximum norm. An enterprise earning profit will find that

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its working capital increases over a period of time, since revenues exceed outlays. Soon the total working capital exceeds the planned norm. This excess working capital is held illegally by the enterprise and, as the informant stated, is simply taken away by the financial organs of the state. Thus, a Soviet economist writing on the analysis of income statements of enterprises describes a case in which an enterprise had accumulated a volume of working capital at the end of the year that was in excess of the normed volume, an excess formed as a result of overfulfillment of the profit plan. The writer, therefore, recommends that this excess be confiscated by the government: 6 Summarizing the foregoing, we come to the conclusion that the enterprises of the chief administration under examination had in their possession an excess of 14,618 thousand rubles in their working capital during this accounting period. This excess was formed as a result of the overfulfillment of the profit plan . . . On the basis of the above considerations, we may raise the question of confiscating in the immediate future the surplus of 14,618 thousand rubles from the working capital of the chief administration. The enterprise may seek to retain part of this excess working capital by having its norm of working capital raised. This can be done legally only by demonstrating a need for greater working capital, which is usually justified by an increase in the planned output. If a convincing case cannot be made, the enterprise may resort to padding its statements of need for working capital or to concealing the excess profit. But apart from such considerations, since an enterprise is not legally allowed to maintain an excess of working capital over the normed amount, what is the meaning of the official statements that profit is a source of working capital? The explanation is that in an accounting sense additions to working capital may be financed out of profit: 7 When a new enterprise is established, its working capital is formed by a grant from the state budget. Afterward, in proportion as the production of the enterprise grows, its requirements of inventories of commodities increases. The working capital necessary for the formation of these increased inventories is provided primarily out of the accumulation of the enterprise. If, however, the accumulation of the enterprise is not sufficient for supplementing its working capital, the funds required for this are provided by the state budget. In other words, after the production program for the next period is established, the required maximum volume of inventories, based upon certain approved norms, is determined. The excess of this allowed volume of inventories over the volume existing at the end of the current period must be financed somehow. The first source of financing it is the

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planned profit of the enterprise. If the volume of planned profit exceeds the amount required to finance the new working capital, then the remainder of the profit is taxed away into the state budget. 8 If the volume of planned profit is not sufficient to finance the new working capital, then the difference is made up by a subsidy from the state budget. 9 The existence of such a limit upon working capital is corroborated by the literature. The limit is calculated for each enterprise on the basis of a set of norms, confirmed by the organization superior to it. For each commodity used in production there is a norm establishing the amount of that commodity which the enterprise may keep on hand. Thus, there is a norm for the planned inventories of all basic raw materials, a norm for auxiliary material inventories, 10 for spare parts, for goods in process, for stocks of finished products, and so forth. The norms are determined by the conditions of plant operation, taking into account such factors as the frequency of deliveries, the distance from the nearest supplier, the amount of each material consumed per unit of output or per unit of time. The norms are changed only in response to changes in these conditions. Each of these norms is also expressed in value form, and their sum is the maximum amount of "normed" working capital that the enterprise is allowed to maintain. The financial plan of the enterprise contains a list of all the allowed sums of working capital. 11 It is the planned investment in working capital that determines the amount of profit which will be reinvested in the enterprise; it is not the amount of profit that determines how much investment the enterprise may undertake. Since profit is a source of working capital in this financial sense only, the enterprise is indifferent as to whether its legally authorized working capital comes out of its own profits or as a subsidy from the state budget. For even if the managers of the enterprise wanted to increase the working capital, they would be limited by the legal norms, and not by the volume of profit. It is, therefore, misleading to associate the desire for investment with "profit maximization." 12 But this is precisely the impression created by some writers. For example, one Soviet writer supports the statement that "enterprises are given the right to increase their own working capital out of profit" by pointing to the proportion of investment in new working capital financed out of profit. 13 He shows that in the period 1945 to 1949 an increasing proportion of new investment in working capital was financed out of profit. This, of course, does not at all demonstrate that the level of profit is a determinant of the volume of investment. And since it is not, the enterprise which seeks to increase its lawfully held working capital will not consider that making profit will aid it in this desire. The fact that an increase in working capital, once authorized, is

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financed out of profit, however, does make it necessary for the enterprise to earn at least the planned quantity of profits if the authorized increase is to materialize. Indeed, the tying of working capital to profit is intended to act as a control instrument over the enterprise. When the output plan is raised, a certain increase in working capital is necessary in order to fulfill the plan. If the enterprise fails to earn the planned profit necessary to finance this authorized increase, then the financial difficulties which ensue may lead to underfulfillment of plan and the loss of premiums. If this were actually how things worked, the role of profit as a goal of management would be considerably strengthened because plan fulfillment would be involved. In fact, however, there are certain forces at work which tend to limit the effectiveness of financial controls. As will be seen in Chapter XIV, what often happens in such a case is that the enterprise, threatened by underfulfillment of plan because of a shortage of funds, appeals to the ministry. The ministry, with its own plan fulfillment at stake, can ill afford to let the enterprise underfulfill its plan and may be forced to make up the shortage of funds. Thus, the ultimate availability of funds from the ministry reduces the importance of profit as a goal. THE USES OF W O R K I N G CAPITAL

To proceed from the fact that investment is financed out of profit to the view that profit creates the opportunity for investing is to confuse form and content. Such confusion is often found in writings on various aspects of the Soviet system. It occurs, for example, in statements by various Soviet writers that working capital "is put at the disposal" of enterprises for various uses. The enterprise, writes the author of a textbook on accounting, "is granted independence in the disposal of the working capital given to it, the right to maneuver freely with it in accordance with the tasks of the plan." 14 The key phrase is "in accordance with the tasks of the plan." This independence in disposal of working capital must not be likened to the freedom with which a market entrepreneur employs his funds in the ways he considers best. The freedom of maneuverability of the Soviet manager is strictly limited, officially at least, by the demands of plan fulfillment within the limits set by the various norms that circumscribe his activity. The working capital allotted to him is calculated on the basis of certain previously planned operations, and if the calculations have been correctly made, the enterprise should have just enough working capital to enable it to carry out the planned operations. This is identical with the way in which the retained profit of the enterprise is based upon the amount necessary to carry out the previously planned investment.

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The freedom of disposal consists, then, of the freedom to carry out the objectives indicated in the plan. It is rather like the epigram of Friedrich Engels that "freedom is the recognition of necessity." The plan consists of objectives, and to a certain extent, means. If production is considered an objective, then materials-purchasing operations and inventory management may be considered means to that end. The purpose of the working capital is to enable the firm to finance these purchasing and inventory operations. The most important of these operations are worked out in detail in the enterprise plan. For example, the hiring of labor and the purchase of all centrally distributed factors of productions are strictly limited by the plan, and the source of supply is usually designated for the enterprise from above. In this case disposal over working capital means only that the enterprise is free to pay, at fixed prices, for the materials, the quantity of which is already fixed by plan. Only for the relatively abundant decentralized materials are the quantities and sources of supply not given in detail in the plan, and there is less control over the quantities and sources which the enterprise selects. Even in the case of centralized materials, to be sure, the enterprise is allowed, and indeed required, to refuse shipments that do not correspond in quality or quantity to what had been ordered, which constitutes a limited sort of freedom.1® But the Soviet manager's independence in the disposal of the firm's working capital has little in common with the meaning of this independence in a market economy. By independence we usually mean the right of the manager to decide for himself how the available funds should be spent in order to achieve the given objective. Used in this sense, the degree of independence of the Soviet manager depends upon whether one is talking of the period before the plan is drafted or after the plan is officially approved. After the plan is approved, independence in the above sense no longer exists, for the most important decisions have already been incorporated in the plan and must only be carried out. But before the plan is approved the manager does have some power to exercise his discretion. This power exists to the extent that he can influence the plan in its drafting stage so as to incorporate in it the decisions which he thinks advantageous to his firm. It will be shown later that the director does have considerable latitude during the plan-drafting stage to influence the construction of his plan. But this meaning of independence is not the one implied in the alleged independence of management in the disposal of its working capital. For the working capital is disposed of only in the course of the execution of the approved plan, and in this stage the manager is required only to execute the plan as it stands. There is, however, a significant gap between the official or formal ideal of the use which the manager makes of his profit and his working

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capital, and the actual use to which it is put in the day-to-day reality of plant operation. Although working capital is supposed to be used only for planned purposes, unplanned needs arise constantly and the manager who has working capital at his disposal must make use of it to keep his plant operating. Suppose an enterprise has fallen into certain financial difficulties, as a result of which the inflow of receipts from sales does not keep pace with the outflow of production expenditures. For example, if the enterprise has used more materials or fuel per unit of output than planned, or if it has paid more wages than permitted by plan, then its planned receipts from sales will not cover its needs for more funds to maintain inventories or to pay wages. If the system of direct allocation and rationing of materials were total and fool-proof, then additional working capital would be of no conceivable help. For if 1,000 tons of steel had been allocated for the production of 100,000 feet of pipe, and if the enterprise proved unable to meet this quota so that it produced only 90,000 feet of pipe with all its allocated steel, then no amount of additional working capital would enable it to obtain the allocation order for the additional steel needed to make up the deficit in output-plan fulfillment. On the other hand, if the allocation system were flexible enough so that the firm could somehow still get more steel, then it would need the additional working capital. In fact, there is enough flexibility in the system so that the enterprise can often obtain the additional steel, either from the overplan production of a steel mill, or by some of the informal and unlawful methods to be discussed later. But in order to do so, more working capital is necessary. If the enterprise can pay for the steel, then at the end of the accounting period it will at least have succeeded in fulfilling its production program. True, it will have failed to meet its quota of steel consumption, and unless it can make an off-setting economy in some other factor of production, it will have failed to meet its profit target. But it will have fulfilled its production program and earned its premiums, and by the standards of the Soviet economy, this is what counts for most. It is in such cases that free working capital may tide the enterprise over its short-run financial difficulties. 16 The state frowns on this use of working capital to finance directly the overexpenditure of materials. One of the meanings of the oft quoted expression, "control by the ruble," is that, if the enterprise wanted to engage in some unplanned activity, the absence of any free rubles with which it might do so acts as a restraint upon it. The logical ideal of such control is a system in which the bank account of the enterpiise would contain at any time only enough funds to pay off obligations as they fall due, and never any excess over this. 17 Clearly, this ideal is not attainable, and the legal upper limit on working capital is the

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second-best practical measure. However, there are still various sources from which enterprises may obtain funds for unplanned purposes — unpaid accruals of wages due,18 social security deductions, and profit taxes provide temporary reservoirs of funds.19 Fines and penalties awarded to an enterprise as damages for a breach of contract also provide occasional bursts of extra monetary resources. When a fine is awarded to his enterprise, stated Informant 388, "then it all goes to profit, and the director's fund gets a certain percentage of it. If there is a big windfall then we may have a big banquet, and large premiums will be distributed and we might build several social objects, and so forth." Often, however, these damages only offset similar payments which the enterprise itself has had to make to other enterprises. Said the manager of an enterprise which had recently paid a large number of fines for breach of contract, "We have not suffered a loss . . . We ourselves received over two million rubles in fines from our own suppliers." 2 0 Forced credit from sellers, a euphemism for not paying bills, is another time-worn device whereby financially embarrassed enterprises "ameliorate their financial condition." 21 Ordinarily, such forced credit provides only temporary use of funds, for they must ultimately be repaid. However, there are certain legal requirements which creditors must meet, such as a statutory time limit in which action may be brought before the right to press claims is forfeited. In the following case we have an interesting illustration of how such minor regulations are seized upon by managers and turned to the private advantage of their own firms:22 Comrade Ptytsin, chief accountant of the Magnitogorsk Combine, presented an account from which it appeared that the profit plan for October had been overfulfilled by 417,000 rubles, and that a number of officials of the enterprise had an indisputable right to get premiums. We analyzed carefully the composition of the profit of the combine. It turned out that in the profit were 675,000 rubles of unpaid indebtedness to creditors, which had fallen into the profit account of the combine after the expiration of the period during which legal action could be brought. The value of this "achievement" is more than dubious. The practice of procrastinating on payments and trying to get out of them until the creditor has finally lost the right to bring a legal action must be rooted out most decisively. Management, then, is interested in its working capital and there is evidence that operating decisions are made with an eye to gaining access to funds. But this statement must be viewed in the larger context of what seems to be a relative underestimation of the importance of financial matters in general.23 Reading the industrial press one is struck

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by the evidence of "the indifferent attitude toward the finances of enterprises." 24 Firms which overproduce certain items which are more advantageous for their production records care little that they have to "sell many machines and parts at the price of scrap." 2 5 One manager justifies this practice by what seems to be a tongue-in-cheek argument for his patriotic motivation: "As for the losses which the plant incurs because it has to sell surplus output at a 40 per cent markdown; on an all-state scale this is not a loss at all; we lose, but the gain goes to the plant which buys from us cheap but perfectly good products." 2 6 The pressing of claims for payment is treated as a minor matter, and is handed over to second rate people, penalties are demanded after long delays or not at all. 27 Writes a correspondent of an industrial newspaper: 2 8 Is it not clear from the above facts how little the directors and financial officials of plants are occupied with the economics of production, how little they think about building up their working capital, about bringing some order into their financial situation? Apparently plant directors pay little attention to the income statements of enterprises and draw no conclusions from them. In summary, to the extent that financial needs occupy the attention of management, the availability of working capital is a source of some concern. If management does enjoy a degree of maneuverability in the use of its working capital, it is not because of the formal rights accorded to it but because of the informal and sometimes illegal uses to which working capital is often put. It is the available working capital which provides the wherewithal for carrying out the extensive informal procurement activities of enterprises and much of the unauthorized and unplanned investment. It is primarily on the plane of informal activities, therefore, that management has an interest in increasing working capital. PROFIT AND CAPITAL INVESTMENT

All that has been said about working capital applies equally to the use of profit for the financing of investment in fixed capital. Minister of Finance A. G. Zverev states that "a significant part of the profit of business organizations remains directly at the disposal of the enterprises and is used by them for capital expenditures [italics supplied], for increasing working capital, and for other purposes. Therefore individual enterprises are interested, along with the state, in the growth of profits." 29 In fact, fixed capital investment is only financed out of profit in the sense that after the amount of investment is decided upon, it is provided that the planned profit be deposited with the Industrial Bank and used as the source of funds for the investment. If the planned

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investment exceeds the planned profit, a state subsidy is authorized.30 But as for the actual volume or rate of profit determining the quantity of investment which the enterprise may undertake, this is denied both in the literature and the interviews. All Soviet economists are at pains to insist that "in deciding questions about the development and creation of enterprises and branches of industry the Soviet state is motivated by their importance to the building of socialism, regardless of their profitability." 31 Thus, while profit is a source of financing new capital investment, it is not taken into account in determining how much investment will be authorized and where. The director who wishes to expand his plant, either to satisfy his workmanship instinct or to enhance his status,32 will not find the earning of profit to be an effective argument for his case. Once the investment program of a firm has been approved, however, profit may be said to act as a stimulus in the negative sense that, if the firm fails to fulfill its profit plan, its investment program may not be carried out. But this use of profit puts the state in a curious position. The investment program is designed to further the objectives of the state, not the private objectives of the firm. Therefore in punishing the delinquent firm by depriving it of its planned investment, the state punishes itself as well. "The vulnerable place in this system of financing," writes the economist Loginov, "is the fact that the increase in fixed production capital depends upon the profits of individual enterprises." 33 Loginov illustrates his point by the case of the Chief Administration of Light Machinery Manufacturing, whose planned profit in 1938 was 34.4 million rubles. Of this, 22.1 million was to be used to finance the state's investment program in this highly important industry. In fact, the firms of the chief administration underfulfilled their profit plan that year and earned only 5.3 million rubles of profit. Consequently only 6.9 million rubles of investment were carried out, and even this was financed mostly out of working capital, for the earned profit was barely sufficient to pay the planned profit tax. Because the chief administration was unable to carry out its investment program, other branches of the economy suffered. Furthermore, under this system of financing, even if the planned investment program represents an optimal allocation of resources, the fact that investment actually carried out depends upon the degree to which individual enterprises fulfill their profit plans means that an unplanned element enters into the pattern of investment. Loginov suggests as a solution that all large-scale planned capital investment should be financed directly by the state budget, so that it is sure to be carried out whether or not individual enterprises earn their planned profit. If this proposal is adopted, however, profit will no longer

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be even a negative stimulus. For not only will the decision to invest continue to be made without regard to profit, but the planned investment will be financed anyhow, whether or not the firm successfully earns its planned profit. Profit would become completely irrelevant to investment. While the overwhelming proportion of capital investments are planned in the manner indicated, certain exceptions must be noted. If the firm should succeed in earning profit in excess of the planned amount, it is authorized to use a portion of it to finance certain types of small-scale investment. It may, for example, purchase equipment which does not cost more than 500 rubles per unit. 34 It may also build or remodel small structures if the cost does not exceed 5,000 rubles per year. If the sum of all these small expenditures does not exceed 100,000 rubles a year, they may be carried out by the director without the prior approval of the chief administration; if a larger sum is involved, such approval must be obtained. 35 Similar uses may be made of profits earned by an enterprise which finds ways of using wastes and scraps for the production of consumer goods. Finally, certain types of investment may be undertaken with money from the "enterprise fund," to be discussed presently. Unlike planned investment, here is a case in which investment is directly tied to the earning of profit. The importance of profit as a goal depends, in this case, on the strength of management's desire to undertake these small investments. Small production bottlenecks may sometimes be removed in this way, although the limitation of 500 rubles per unit of equipment, which is less than the average monthly wage of a worker, considerably restricts the range of possibilities. Not much construction of any importance can be undertaken when no unit may cost more than 5,000 rubles per year, less than the average annual wage of a worker. To the extent that such funds may be temporarily "borrowed" for other purposes, such as filling in an embarrassing shortage of working capital, they are certainly useful to have in the firm's possession. Thus, while it is clear that management can find convenient uses for these funds, the limitations on investment make it difficult to see how they can rank very high as a goal of management. THE ENTERPRISE FUND

Those who emphasize the importance of profit as a goal of management usually cite the "enterprise fund" (formerly called the "director's fund")3® as one of the reasons. The enterprise fund was first established in 1936 as part of the movement for strengthening the authority of the director. According to the first version of the law, 4 per cent of the planned profit and 50 per cent of the overplan profit could be retained by the firm and kept in this separate fund. In the postwar years the per-

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centages were changed and were made to vary from industry to industry; the rates are now from 1 to 6 per cent of planned profit and 20 to 50 per cent of overplan profit.37 The authorized uses of the enterprise fund are set forth in general terms in the statute. Fifty per cent must be used for introducing new techniques and modernizing equipment, for increasing production, and for building or repairing housing facilities owned by plants. The remainder must be used for improving living conditions of the workers and for providing premiums and other rewards to outstanding workers. What can be said about the effectiveness of the enterprise fund as an incentive for earning profit? As for the part that goes to the construction of workers' housing, although it is undoubtedly a benefit to the workers and to management, it would be wrong to consider a benefit to be a real stimulus merely because it is a benefit. To be a goal in the sense that we mean it, it must be something which is directly connected with particular operating decisions, and it must be at the forefront of the decisionmaking process. It is difficult to imagine a manager thinking of the housing which could be built if he increased his profit by producing an unplanned but highly profitable range of products, especially if he is an intermediate or lower level manager whose work affects only a small portion of all the work of the enterprise and contributes a small share to the over-all enterprise profit. With the director it might be different. The authority he gains in the eyes of the workers as a man who can earn profit and build housing may well be a more important incentive to him. But for the rest of management it is difficult to imagine that housing is connected closely enough to their own immediate benefits to play much of a role as an incentive. The same applies to the use of the enterprise fund for welfare and social expenditures and for technical innovation and modernization. The director who is able, by virtue of profit, to build a larger workers' club or an additional nursery for children of working mothers or make some improvements in the plant cafeteria, is likely to obtain the support of the workers and the rest of management, which is translated into his ability to get them to work harder under stress. It might aid him in a conflict with the trade union chairman or with the Party secretary. The meaning of "introducing new techniques and modernizing equipment" is not quite clear. If it is a form of small investment, for example, the purchase of some hand trucks for speeding the movement of goods from one shop to another, or the purchase of some small tools which might help the workers, this would undoubtedly be of interest and benefit to the shop personnel. Again, it is a benefit, but it does not appear to be a first-order incentive. The payment of premiums to the outstanding managerial personnel

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out of the enterprise fund is another matter. Here there is a very direct personal benefit to individuals.38 But even here there are indications that these premiums do not carry the same incentive force as the direct or specific premiums, those which are paid on the basis of a predetermined scale and a definite performance. Informant 316 explained why the premiums from the enterprise fund are not a major stimulus, at least for managerial personnel other than the top: Specific premiums are a real stimulus to plan fulfillment. The director's fund is also a stimulus to economies in production, but only the former was a very strong incentive. The director's fund was less of an incentive to the technical personnel because the distribution of the director's fund depended only on the director and you never knew who would get the benefits of it. In some enterprises people are paid directly if they suggest and make economies, but in our plant this was not done and the engineers were not especially interested. The accuracy of this view about the weakness of the fund as an incentive is attested to by the drive in recent years to tie the premiums from the enterprise fund to the specific performance of stated tasks.39 Thus even the premiums from the enterprise fund are being converted into specific premiums. Consideration of the actual size of enterprise-fund premiums strengthens the argument. In the case of the highly successful official Comrade Tolkachev referred to earlier, the premium from the enterprise fund was only 500 rubles, compared to 7,442 rubles for his basic and specific premiums. If this quantitative relationship is general, then it is difficult to offer premiums as an argument for the importance of the enterprise fund. Precise statistics on this matter are not available, but a rough approximation can be made on the basis of some scattered information for the year 1940. The total profit of industry in that year was 14 billion rubles,"40 out of which the enterprise funds of all firms were formed. Of the total amount in all enterprise funds, 1.5 billion rubles were paid out, and of this amount 125 million rubles were devoted to premiums.41 The total salaries of all "engineering-technical personnel" in 1940 may be estimated at around 25.4 billion rubles.42 If all of the enterprise-fund premiums went only to "engineering-technical personnel" they would still constitute less than 0.5 per cent of the total earnings of that group. In fact some of the premiums paid out of the enterprise fund went to workers and employees as well, and therefore the figure of 0.5 per cent is the upper limit of the proportion of enterprise-fund premiums in the salaries of engineering-technical personnel. Compared to the figure of 11 per cent, which was the proportion of all premiums in the payroll of engineering and technical personnel in 1940,43 the enterprise-fund premiums prove to be of minor importance.

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Finally, there is a stipulation in the statute which limits the size of the enterprise fund so that it may not exceed 5 per cent of the production worker payroll.44 This eliminates the possibility of an enormous amount of profit resulting in extraordinary premiums for the plant personnel. Theoretically, there is no limitation at all on the direct premiums paid for overfulfillment of the plan; actually, however, there is a self-imposed limit since management realizes that overfulfillment and excessive earning of premiums will mean that the plan will be raised in the next period to a level that may be difficult to attain. The importance of the enterprise fund as a device for concentrating managerial attention upon profit therefore appears to be different for different groups of managerial personnel. For the top managerial officials, primarily the director and his deputy, the chief engineer, the fact that they have the greatest hand in the disposition of the fund means that it is of considerable importance to them. They can use the enterprise fund for granting substantial premiums to those officials and workers whom they want to reward or to hold in line. It is of some importance to the strengthening of their authority to be able to say, as did Informant 384, "We would give this [successful] shop chief a little money secretly from the director's fund." They can compete more successfully in the labor market by building more workers' housing, they can engage in some small-scale investment, and they gain more financial maneuverability by the availability of these extra funds which, if necessary, may be misappropriated for essential though unlawful purposes. As for those managerial officials who are primarily on the receiving end, it is only those relatively few who can expect to earn substantial premiums from the fund who are directly interested in profit for this reason. They are the recognized outstanding officials, or those whose positions and personal relations bring them close to the senior management. But for the bulk of managerial officials, the enterprise-fund premiums are very small compared to those which are more readily obtained in other ways. PROFIT AS A CRITERION OF PERFORMANCE

Quite apart from its relationship to investment and to the enterprise fund, profit serves as a criterion of managerial performance. While productionplan fulfillment is the most important "quantitative index" of performance, taken by itself it may conceal some quite uneconomic activities. Production-plan fulfillment is compatible with an overexpenditure of the planned wage fund, with a wasteful use of materials and fuel, with a lack of concern for the marketability of output, or with financial mismanagement. In the absence of a single generalized criterion of performance in which all such activities would play their role, the performance of each of

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these activities is tested by a number of individual criteria called the "qualitative indices" of performance. Such indices are based upon planned targets such as productivity of labor, cost of production, utilization of equipment, and so forth. The indices are interdependent, and many of them represent different ways, often overlapping, of cutting the whole picture of managerial performance. Cost of production, for example, reflects the success of the enterprise in its management of labor as well as in its use of materials and equipment. Profit is the primus inter pares of the qualitative indices because it incorporates more facets of managerial performance than any other. The reasons the Soviets have been unwilling to rely on a single generalized criterion of performance have been ably discussed by Granick.45 In actuality, however, one of the various criteria has become dominant. There is a rather general consensus among the informants that production-plan fulfillment is more important as a test of performance than any of the qualitative indices. In terms of decision-making this means that in a mutually exclusive choice between fulfilling the production plan or fulfilling one of the qualitative indices, plan fulfillment always comes first. * The fact that qualitative indices, such as cost reduction and fulfillment of certain production-assortment requirements, have been made conditions that must be met before premiums may be paid has not affected the predominance of production-plan fulfillment. Socialist competitions may be won and premiums awarded even with poor qualitative indices.46 By concentrating on production-plan fulfillment, the premium-oriented manager acts in a way which generally leads to the best record of performance. But it is more difficult to assess the relative importance of the individual qualitative indices, for there is no official weighting system which may be used as a guide. If labor productivity and cost of production moved in opposite directions (as may happen when there are opportunities for substitution between labor and some other factors of production ), then the manager has to take many things into account, including political matters, in order to make the choice. Since profit constitutes the most generalized criterion of performance there is a tendency to consider it as more important than the others. The degree of success in meeting the qualitative indices is expressed, in percentage form, as the ratio of an achieved magnitude to the planned magnitude. If the planned profit is 10 and the achieved profit is 11, the * "Always" should always be interpreted as "almost always" in statements of this order It is possible to conceive of circumstances in which the statement would not be true. If a particularly severe campaign were raging on, say, the conservation of some critical factor of production, it might be expedient for the moment to underfulfill the plan if necessary, in order not to overconsume the planned input of that factor. Room must always be left for such exceptions.

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profit target has been overfulfilled by 10 per cent. Since it is the percentage fulfillment of the profit plan which is the measure of performance profit-wise, from this point of view it is a matter of indifference to management whether the planned volume of profit is high, low, or even negative. Indeed, a number of informants stressed the fact that the success of the enterprise and the earning of premiums is not at all related to the volume of profit. "The plant may operate at a loss," is a typical statement, "and yet the director may be awarded an honor. Or the plant may operate at a profit and the director may be reprimanded." * As a criterion of performance, what is important is the ratio of earned profit to planned profit. If an enterprise with a high rate of planned profit earns less than the planned amount, its performance is considered poorer than that of an enterprise with a low rate of planned profit which overfulfils its profit plan. To be sure, the enterprise with a high volume of planned profit will build up a larger enterprise fund than one with a low volume of planned profit, assuming that they both fulfill their profit plan. But even an enterprise which is planned to operate at a loss, and which succeeds in making a smaller loss than planned, is considered to have performed better than an enterprise which happened to have made a large volume of profit but nevertheless underfulfilled its profit target. Indeed, the former enterprise may build up a larger enterprise fund even though it operated at a loss.47 Consequently, it is to the interest of the enterprise to have a smaller profit plan rather than a larger one, for the smaller the planned volume of profit, the easier it will be to achieve; and for any achieved volume of profit, the smaller the plan, the larger the percentage fulfillment. Soviet economists have noted that this creates a strong disposition for managers deliberately to keep their planned profit target at a lower level than they know to be readily achievable. 48 Since the prices of products are fixed, there are only two ways in which the enterprise can overfulfill its profit plan, by cost reduction or by overplan output. If average cost of production is reduced, then at the planned value of output both the planned rate of profit and the planned volume of profit will be overfulfilled.49 If the output plan is overfulfilled and the position of the cost curve unchanged, however, the fulfillment of the profit plan will depend upon the average cost curve. If the average cost is falling, overfulfillment of the output plan will result in overfulfillment of both the planned rate of profit and the planned volume of profit. If the average cost is constant, the planned volume of profit will be overfulfilled and the planned rate of profit will be fulfilled 100 per cent. But if average 9 Informant 396 A similar statement by Informant 384 is, "Sometimes profit may be high and the premium may be low, or it may be the other way around. It is all done as a stimulus. A smaller profit may obviously be due to the fact that the plan was harder. Sometimes a premium is given where there is no profit, for encouragement."

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cost is rising, then overfulfillment of the output plan will result in underfulfillment of both the planned rate of profit and the planned volume of profit. Hence over-all cost reduction is important for all enterprises, but especially for those operating at increasing average cost. Since, however, profit depends in all cases upon cost of production and output, and since there are separate targets for each of these indices, it may be inquired why a profit target is needed at all as a criterion of performance. Is it not sufficient to have a cost target and an output target, for if these are fulfilled then the profit target is automatically fulfilled? In fact, there are two aspects of managerial activity which do affect the profit of the enterprise but are not measured by the cost plan and the production plan. First is the body of activities associated with the marketing of products. The enterprise may have fulfilled both its gross output plan and its market output plan, but if it has not been diligent in marketing its products, if it has produced commodities which are not demanded in the assortment or quality produced, if it has been lax in securing quick payment for its products from its customers, all these factors will reduce its earned profit without affecting its successful fulfillment of the production program. Hence profit serves the additional function of measuring the commercial success of the enterprise, which the production program alone does not. Regarding the cost reduction plan, the limitation of this target is that it is confined to that portion of the output of the enterprise which is referred to as "comparable" production. This includes all products which have been produced previously in the ministry. Products which are not included in the cost reduction plan are those which have been very recently put into production, in which the technical process is not yet finally fixed, and in which rapid changes in productivity are still to be expected. These products usually undergo rapid cost reduction which is to some extent unpredictable. They are, therefore, treated separately and are not included in the regular plan of cost reduction for "comparable" production. Hence an enterprise may meet its planned cost reduction for the comparable production, yet be extremely inefficient in its mastery of new products. This will be reflected in a fall in earned profit. Therefore, if the volume of new production is substantial, the profit target serves this extra function on the cost side of measuring the cost efficiency of the enterprise with regard to "non-comparable" production. In summary, most of the decisions made by managerial personnel may be explained by the desire for premiums. The most direct way of earning premiums is by fulfillment of the output plan. Since premiums for fulfillment of the output plan may be earned by a number of practices which are uneconomic and contrary to the wishes of the state, a series of indices of specific aspects of managerial activity have been established in order

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to discourage the use of such practices. The most important of these performance criteria is fulfillment of the planned profit target, and profit is therefore a goal of management. Interest in profit as a criterion of performance is supported by certain other benefits which come from the earnings of profit. Profit is the source of the enterprise fund which puts a certain amount of additional power in the hands of the top management. On the informal plane, profit may be put to certain unplanned or unlawful uses which are of importance to the successful operation of the enterprise, especially if the enterprise is in a difficult financial position. The reasons that premiums have been assigned the role of the major goal of management have been set forth earlier. These reasons will be illustrated further in succeeding chapters in which it will be shown that many of the typical practices of management flow from concern over premiums. In several cases, however, the motivating goal often appears to be profit. This is especially true with regard to the problem of determining the assortment of output. The relationship of premiums to profit as goals of management will be taken up again in the context of that operational problem. 50

THE S A F E T Y F A C T O R P R O D U C T I O N PLAN

AND

THE

VI

The connection between the goals and the actions of managers is not always easy to perceive. Managers do not usually refer back to their basic goals each time they meet one of the numerous problems constantly recurring in the course of the business month. Decisions are ordinarily based on a number of rules of thumb, or guiding principles of action, which have been found over the years to lead to the attainment of the desired ends. Through the rich variety of Soviet managerial activities run three leading principles of action. Many of the most widespread and persistent practices of managers are translations into action of one of those principles. That they are indeed general principles of managerial action is clear from the fact that they are not limited to a single sphere of managerial activity, but pervade all spheres — such as production, planning, materials purchasing, inventory policy, finance, labor organization, and so forth. Nor are they confined to senior management (the director and chief engineer) but they also appear in the practices of ministry officials as well as the lower level officials of the firm. Moreover, they are deeply rooted in the basic organization of Soviet industry, for they have existed throughout the time period with which this study deals. When details of industrial organization change, managers make new types of decisions, but the new decisions no less than the old reflect of the same abiding principles. The practices developed from the guiding principles consistently support the view that premiums are the dominant goal of managers. Through these principles it may be shown that there are systematic regularities in Soviet managerial behavior, and that these regularities flow logically from the pursuit of premiums in the context of the Soviet socioeconomic milieu. The present and next chapter discuss the group of practices associated with the first principle. THE SAFETY FACTOR

The first principle is related to managers' primary obligation to "fulfill and overfulfill the plan." Since rewards are based directly upon plan ful-

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fillment, there is in fact a general striving to fulfill the plan, in one way or another. But fulfillment of plan is intimately related to the magnitude of the planned targets. It is this fact which lies at the basis of that wide range of practices which the informants refer to as strakhovka.1 Literally, the word means "insurance," or "security." It conveys the idea of holding back a reserve, of preserving "slack" in the drafting and execution of plan targets, so that if anything goes wrong management will have untapped resources to fall back upon in order to meet its targets. The term "safety factor" probably comes closest to connoting the meaning of the Russian expression. A typical statement is that of Informant 26, a chief engineer: Sometimes directives have already been received before the first variant of the next year's plan is prepared. But very often they have not yet arrived. Usually we are simply instructed to use all our technical possibilities. Therefore the first variant is usually set up so that the plan could be easily fulfilled. Qualities and quantities are selected which can be fulfilled. Everybody tries to have reserves. This is done not by the planning section but by the chief engineer. For example, if something can be done in one hour, he would say that it takes an hour and a half. This gives him a reserve of 33 per cent. The technical director always tries to have reserves. He always plans on breakdowns, on receiving bad-quality equipment and materials, on insufficient materials and on lack of skilled labor. For all these reasons he is afraid of underfulfillment. You cannot always telephone and get what you need. The plan which is "too high" is frequently mentioned as one of the prime reasons for failure. "If the plan is fulfilled," said Informant 64, "then the director has good relations with his superior organization and is considered a good director. But if his plan is too high and he does not fulfill, then he is required to explain. In order to avoid this, everybody tries to lower his plan." This practice of "reduced planning" has been roundly condemned again and again in official pronouncements.2 The principal reason that managers strive for a safety factor in their production targets is the fact that the criterion of performance is not the absolute volume of production but the relative overfulfillment of the production target. Thus, if two enterprises both produce an output of 100, but the plan of the first is 95 and the plan of the second is 105, the former has overfulfilled its plan by 5 per cent but the latter has underfulfilled its plan by about 5 per cent. Hence, if an enterprise believes its capacity to be 100, it will seek to have its plan set below 100 in order to achieve a respectable percentage overfulfillment. "Often you know you can produce forty million," remarked Informant 384, a chief of a planning department, "but nevertheless you try to get a plan of thirty-eight million and then you can produce two million over the plan." Every per-

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centage increase in the size of the production plan reduces the degree of success represented by any given volume of actual production, and also increases the strain on men and machines.* Not only is it disadvantageous to the manager to have a higher rather than a lower plan, but there are few offsetting incentives which might nevertheless induce him to take on a larger plan. While a manager may reckon that from time to time it is desirable to manifest a dramatic socialist enthusiasm by loudly and voluntarily taking on a higher plan, it is clear that a succession of such actions would be disastrous unless a large safety factor were secretly tucked away. For in the normal case, the director "does not get a premium for taking on a higher plan. There is no sense in raising a plan." (Informant 26.) The second reason for seeking a low plan as a safety factor is to allow for various contingencies. The manager has ever before his eyes the numerous uncertainties of economic life, some of which have no officially recognized existence, but which are real enough so that he tries to be prepared for them. Perhaps the most universal source of uncertainty is that associated with materials procurement. The essence of the problem is contained in the remark quoted above, "you cannot always telephone and get what you need." The writer happened one day to be walking through the streets of Munich in the company of one of the informants when we passed a retail hardware store. The informant stopped, and we paused to look at the display of hand tools, electric motors, building materials, and all the small wares handled by a typical western hardware store. The informant remarked that of all the things to which he had become accustomed since having come to Germany, this had never ceased to amaze him. It was the idea that one could simply go into any hardware store and buy anything he needed that represented the most striking contrast between two economic systems. The fascination with the fact that in other countries one can simply "pick up the phone" and get anything from a repair job to a keg of nails is from time to time reflected even in Soviet writings. 3 Labor, too, is the source of considerable concern to managers at all levels. The plans are supposed to be based on the assumption that skilled labor is indeed skilled and reliable. But the experienced official knows that in certain crucial cases it is wiser not to expect too much of the available labor. Therefore, he strives to include in the plan a safety factor * "Most plans show a smaller capacity than they actually have. This is because the manager fears breakdown and wear, and does not want to be responsible for running the plant at full capacity. If questioned, he says that he is securing not the plan but the machines, which are socialist property. Reserves are quite easy to have." (Informant 610.) Notice the statement that the excuse to be given, if the manager is caught, must be expressed in terms of something socially acceptable, such as protecting socialist machines. See footnote on preceding page.

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allowing for the unreliability of labor. Thus, a shop chief demanded two hours' time in addition to the planned maximum allowed for the overhaul of a machine because "he was afraid that his electric welders would let him down, and he therefore decided to reinsure' himself with two extra hours." 4 It is frankly pointed out that "sometimes when a designer chooses a thicker steel for machine parts, he does so not because of his calculations but because of the low technical level of the producing plant." 5 In almost identical terms, Informant 320 explained why a safety factor is deliberately chosen in preference to a worse alternative: Often it is necessary to overspend materials in order to avoid charges of wrecking. Say I have a bridge to build, for which I have to construct large caissons. The plan is based upon certain specifications of strength. But because I know that the labor is not of very high quality, I build the caissons stronger than the specifications require, and therefore I overspend my materials fund. This is not as serious as being responsible for an actual breakdown due to poor workmanship. When I explain the overexpenditure I do not say that it is because Soviet labor is of poor quality. I say that it is necessary because of the technical conditions of the job, such as the nature of the sand and so forth.* A third reason why managers seek a safety factor in the production program is related to a certain universal planning practice. This practice operates like a ratchet in the planning mechanism, so that once a new high level of performance has been achieved, the next plan target may not be reduced below that level but must usually be raised above it. In setting production plans for their enterprises "chief administrations take as their point of departure primarily the level of production already achieved." f The ratchet principle applies not only to production targets, but to the planning of profit and cost targets as well. A Soviet economist describes the operation of the principle as follows: "In other words, if the calculations of cost of production lead to the possibility that the profit target may be increased, this increase must be carried out. On the other hand, if the cost calculations lead to the fact that the profit target cannot be achieved, then it is necessary to raise the target of cost reduction." " Notice the last two sentences of the above statement. To say officially that Soviet labor is of poor quality would be a politically unwise act. Similarly, one cannot explain a desire for a safety factor in any way which would derogate the Soviet system of industrial procurement. This is another example of the importance of knowing what kind of excuse is socially approved. f Stroitel'naia gazeta, July 27, 1955, p. 2. "Here is an example. The Kornevskii Silicate Brick Plant succeeded in 1954 in shortening the autoclave baking cycle to 9.8 hours, while the industry average was 12.4 hours. In 1955 they set its plan at 9.7 hours. Having run into trouble getting enough raw materials, the enterprise failed to fulfill its plan in the first quarter and fell among the lagging enterprises, even though it was producing more per unit of equipment than other silicate plants which had fulfilled their plans."

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Thus, once a given level of profit and cost have been achieved, one or both targets may be improved in drafting the next plan but neither may be set at a lower level. Sometimes an overdiligent ministry official carries this principle to extremes, and, each quarter, raises the target figure up to the very level achieved in the preceding quarter. 6 Failure to guard against the operation of the ratchet principle can put a successful enterprise into a dangerous situation. "But why," asks a Pravda correspondent, "has this factory, which two years ago was justly considered a leading one in Ivanovo Province, turned into a lagging enterprise?" Two sentences later he suggests the answer: "The ministry has increased the factory's output plan 60 per cent in the past two years." 7 Awareness of the ratchet principle affects the decisions of managers with regard to a safety factor in two ways. One effect is to induce management to maintain a safety factor in the form of "concealed reserves" of production capacity. "Heads of Soviet enterprises know perfectly well," stated Informant 90, "that the higher the percentage overfulfillment of the target, the higher the plan which will be given for the next production period . . . Therefore every enterprise strives to have a supply of equipment capacity and of technical resources for increasing productivity which are not known to the ministry." Contrary to all regulations, managers strive and often succeed in obtaining targets which are below actual achievement in the preceding period. For example, a petroleum firm obtained a labor productivity target for 1953 which was 48 per cent below the actual 1952 productivity; the 1954 target was 4 per cent below the actual 1953 productivity. 8 Ministries themselves are often accused of the same practice. 9 Another effect of management's awareness of the ratchet principle is a tendency to refrain from overfulfilling the plan by too large an amount; 10 for if the plan is overfulfilled by a wide margin through a maximal use of capacity, there would be no safety factor left for the next period: Actually plants try not to increase output. Therefore the government has to send out directives instructing enterprises to increase their plans. If you say that you cannot, they show that you overfulfilled the plan several months last year, without the aid of new capital investment. Therefore enterprises try to overfulfill their plans only by a very little bit. Otherwise the plan may be raised too high the following year. (Informant 26.) To be sure, it is not often that the manager is in the happy position of being able to produce more but refraining from doing so because of the ratchet principle. Nevertheless, this situation limits the extent to which one can generalize about the premium goal. It would be quite incorrect to speak in general of "premium maximization" as the goal of managers,

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for this would ignore the special case of the safety factor. However, it is appropriate in this case to point out that in the long run, more premiums would accrue to the manager who maintained due respect for the ratchet principle than to one who maximized his premium each month and thus forced his targets up to a level which he could no longer overfulfill. In this sense, the safety factor is not in conflict with the premium goal. A fourth reason for desiring a safety factor is that it permits management greater flexibility in a wide range of choices. For example, the existence of a safety factor gives management the opportunity to decide which of the secondary criteria of performance it will seek to fulfill. An enterprise with no leeway in the production process will concentrate on the volume of output to the exclusion, if necessary, of any other demands placed upon it. But if it has a safety factor, it can easily turn attention to some of the secondary indices. For instance, the Ordzhonikidze Plant and the Konstantinovskii Plant were both ordered to put into production certain new and technologically difficult products which had been priced so as to yield a relatively high rate of profit. The latter enterprise undertook the assignment, but the former plant shunned the lure of higher profit and concentrated on fulfillment of its production target. An official of the chief administration explained the different reaction of the two enterprises by reference to the personalities of the directors; one felt he was doing well enough and did not want to invite the headaches of new production, whereas the other was eager to take on responsibilities and win new honors. Granick attributes the difference in attitude to the different positions of the two enterprises with regard to plan fulfillment: 11 The Ordzhonikidze Plants management might have felt that accepting the more complfcated order would have meant failure to produce the planned quantities; Konstantinovskii's may have felt that it could fulfill the planned quantities even with these more difficult but profitable items. Thus the criterion of profit-earning would quite naturally have had a different value to the two directors. The difference between the two enterprises may be explained in terms of the safety factor. The reluctant enterprise may have had a relatively small factor of safety and therefore chose to concentrate on the principal criterion of performance, production-plan fulfillment; the other enterprise may have had sufficient slack so that it felt free to go beyond the immediate criterion of production-plan fulfillment and proceed to fulfill some of the other criteria of performance, in this case, profit and the introduction of new products. Thus, the presence of a safety factor may determine how widely management will explore the possibility of overfulfilling some of the secondary indices of performance. 12

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There is another way in which a safety factor opens up a wider range of choice. Managers sometimes appear to throw caution to the winds in order to announce publicly a bold plan or a promise to perform impressive feats of socialist achievement. John Scott, for example, describes how Director Zavenyagin of Magnitogorsk, the first quarter that his enterprise earned a profit, announced "with a quixotic gesture" that thenceforth he would get along entirely without a subsidy.13 Such actions may be motivated not only by the desire to manifest ideological conviction, but also by the wish to capture headlines as a step in furthering a career, or by personal whims such as the love of boasting or the grand gesture. Whatever the motivations, it does seem that such actions are conceived in a spirit which is the very opposite of the safety factor. And yet it is clear that such actions must be taken sparingly, else they can lead only to eventual failure. The more a manager overreaches himself for any of the above reasons, the more often he is likely to fail to fulfill his tasks, and he will soon be labeled as a "bag of wind" who cannot fulfill plans. "Managerial personnel can be found," stated the Pravda editorial writer, "who make widely advertised declarations and give broad assurances but fail to back up their words with practical action and frustrate plan fulfillment . . ." Such an unfortunate was Director Comrade Shipulin who, like Zavenyagin, gave public "assurance that the plant would not only write off all indebtedness but would meet the annual plan ahead of time." In fact he succeeded in doing neither, but instead appeared as an object of ridicule in Pravda.1* The manager who has a comfortable safety factor well concealed is in a safer position to assume bold public-spirited "obligations" than one who has been neglectful of the safety factor in the past. Thus we read of the managers of the Briansk and Kazan Refrigerator Plants who, "making use of reduced plans, assume obligations' which have already been fulfilled at the time the plan is being drawn up." 1 5 If norms and targets have been kept judiciously low, managers succeed in creating "the appearance of great overfulfillment' of norms." 16 The manager who stands out during a particular "campaign" as one of the most successful in meeting his objectives is often the one who has most carefully husbanded his reserves in anticipation of the campaign. 17 On the other hand, an enterprise which overemphasizes its production performance to the neglect of a safety factor may be rudely awakened by the imminence of a serious problem of plan fulfillment. 18 By the beginning of 1950 we had succeeded in doubling the volume of production with the same equipment in comparison with 1946. This was achieved largely by means of utilizing hidden production capacity and by carrying out a number of other measures.

82

Factory and Manager in the USSR Nevertheless we were unable to ensure the fulfillment of the augmented plan for 1950.

The safety factor is a principle of management, then, not because it is never ignored but because failure to take it into account is likely to get the enterprise into serious difficulties. PRESERVING A SAFETY FACTOR

Finding ways of keeping the plan targets low is apparently no great problem. Mention may be made of such practices as concealing some output and of not overfulfilling the plan beyond a certain point in order to maintain a reserve for the next planning period. Another technique is underreporting actual production capacity. This can be done in a variety of ways, the particular choice depending upon the nature of the productive process. The literature and the interviews provide a rich catalogue of techniques. A machine is declared to be more worn out than it actually is. "We may say that we have only three engineers instead of five." (Informant 403.) "If something can be done in an hour, we say that it takes an hour and a half." (Informant 26.) "Insufficient power, low-quality lubricants, insufficiently experienced labor." (Informant 610.) "Account was not taken of all the production equipment of enterprises." 19 The factor of safety which the enterprise has managed to accumulate is gradually exhausted in the course of successive overfulfillment of plans. New elements of slack are added as production techniques are improved and the full potential of these improvements is not reported — a practice which is harshly criticized as " 'agency-centered' tendencies . . . to work out reduced plans, not taking into account all the existing resources for the growth of production." 20 An interesting sidelight to the ceaseless search for new bits of slack is the use that managers make of all the new situations requiring a recomputation of production capacity. In the absence of changes, the ministry gradually increases its knowledge of the actual situation in its enterprises and it is more difficult for the enterprise to conceal resources. But when changes occur, the ministry is more dependent upon the information which the enterprises submit to it. Consequently enterprises make use of such changes in order to renew their gradually depleted safety factor. Such changes may arise from new national legislation," or from technological 9 For example, on June 27, 1940, there was a radical change in the length of the basic work week and work day, requiring a general recomputation of production potential and labor norms. This presented a golden opportunity for recomputing production capacity in such a way as to provide a safety factor on which the enterprise could draw for some time to come: "Unfortunately the very leaders of the trust, in particular the chief engineer, Comrade Samoilov, try in every way to understate the reserve capacity of the mine and to prove at all costs that the increased

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improvements made within the enterprise. 21 Even unfortunate accidents are utilized in order to catch up on a production lag and recoup a little bit of slack.22 It is important to keep in mind that the desire for a safety factor is not confined to one level of management but permeates the whole system. Within the enterprise each official seeks to maintain a little factor of safety unknown to his immediate superior. The consequence is a cumulative discrepancy between actual capacity and plan targets. The senior management, which negotiates with the officials of the ministry over the final plan, often does not know how large a safety factor actually exists in the enterprise as a whole: Q. What opportunities does the factory have for influencing its plan? A. When the shop engineer receives an order he begins to discuss it with the foreman, the dispatcher, and all the responsible people in the lower level. They all try to secure themselves. The foreman knows that the job will be done in the first machine row. He can compute the number of machine hours there, looking for reserves. If 2,000 machine hours are needed for the assembly, he will say 2,200 are needed. The planner thinks that perhaps the foreman did not allow enough, so he raises it to 2,400. Then the planning sector gets it and there it is discussed and allowance is made for breakdown, for overestimates, for lack of materials, quality of lubricants, etc. They allow for such things as an order from the chief electrical engineer of the district to economize on electricity. In this case all the electrical power may be cut off for two hours a day in all the factories in the district . . . In consequence of all these possibilities, the chief of the planning sector increases the number of required machine hours to 3,000, in order to secure himself. And even the resident ministry representative may add something besides, because he is responsible for the production program also, and he may add a few hours. (Informant 388.) "CLEARANCE" PLANNING

The danger of excessively high plans coming from above is only one of the pressures against which management seeks to protect itself by means of a safety factor. An equally serious threat is that of underfulfillment by the units below, which would result in underfulfillment of one's own plan. In order to provide a safety factor against this danger managers engage in a practice which may be termed "clearance planning": The plant tries to get the individual shops to produce more than is necessary, just as the ministry tries to get the enterprise to produce production program was 'unrealistic.' Thus for the Kaganovich mine, the technical department of the trust proposed an increase in production which was ten times less than could actually be mined." Ind., July 21, 1940, p. 2.

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more than is necessary. The ministry raises the plans of the individual enterprises above what is necessary, and the director raises the plans of the shops. Thus, the ministry can overfulfill its plans even though no individual enterprise has fulfilled its plan. This explains how all plants may be subjected to criticism for lagging behind fulfillment, yet at the end of the year the ministry plan is fulfilled. This is the clearance that exists between plans. ( Informant 25. ) By distributing its plan among its sub-units in such a way that the total of the plans of the sub-units exceeds its own plan, management at all levels "re-insure" themselves against their subordinate units. 23 Said Informant 609, "If one shop didn't fulfill its plan, another one did and so I was covered." Thus the safety factor enables management to protect itself both ways, from above by means of reduced planning, and from below by means of clearance planning. A well-developed safety factor combines both. 24 This same plant was supposed to produce 461 pumps, according to the final variant of the 1938 plan issued by the chief administration. The plant management changed this directive too, and required the shops to produce 166 pumps in the first quarter, i.e., 40 per cent of the annual plan. Having thus entered into the path of "operational planning," the plant leaders, seeking to re-insure themselves, sent a letter to the chief administration in which it was stated that in 1938 the plant could not possibly produce more than 80 pumps! The practice of clearance planning was publicly condemned in a decree of the Council of People's Commissars at the end of 1937.25 However, persistent reports of its existence26 indicated that managers resisted surrendering the right, and in the first postwar decree on planning the government apparently made its peace with the practice and legalized it, within limits. According to the Decree of the Council of Ministers of 29 August 1946, ministries are now permitted to "give to their enterprises monthly production targets the sum of which may exceed the state quarterly targets of the annual production plan by 10 per cent, but not more." 27 There are certain variations of the general practice of clearance planning. One is a form of self-deception, such as that involved in the effort to save painlessly by putting all one's spare change into the piggy-bank each night. Instead of dividing its annual production target by twelve, the administration divides it by eleven, and each eleventh is then taken to be the monthly plan. (Informant 25.) Another practice by the chief administration is to plan production so "that all products will be produced in at least two plants . . . if one plant underfulfills in one item, it may be overfulfilled in the other plant." (Informant 26.) This method of distributing output may be quite rational on grounds

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of cost considerations or nearness to markets, but when it is based primarily on the striving for a safety factor it may be done in the face of cost or marketing disadvantages. Looked at from the point of view of the system as a whole, reduced planning tends to lead to the under-utilization of resources, and clearance planning to excessive pressure for production. The two partly cancel each other out, although in general there is no reason to believe that the enterprises with the largest safety margins and those with the greatest clearance planning will exist within the same ministries. However, the awareness of both practices may also lead to a mutual reinforcement: "Each link knows that the plan of the lower link is too small, and raises it." (Informant 403.) Ministries, aware that enterprises have some slack that has not been reported, are more likely to increase the plans in order to provide a better clearance for themselves; and enterprises, aware that ministries tend to give plans that are higher than necessary, try harder to increase their safety factors in order to be prepared for such demands. The matter is ultimately decided in the negotiations between the enterprise and its higher organization. OTHER FORMS OF THE SAFETY FACTOR

Reduced planning is quantitative in nature, and may be measured by the difference between full capacity output and planned output. Similarly, clearance planning may be measured by the difference between the planned output of the ministry and the total of the planned outputs of the enterprises. Other forms of the safety factor in the production program are not quantitative, but are nevertheless efforts to make the plan easier to achieve. When the enterprise receives its directives for drawing up its plan, it starts by computing the machine capacity that has to be devoted to those centrally planned products that are listed in physical quantities in the directives. Ordinarily, some machine capacity is left over after these products have been allowed for. Since the total value of output target is usually greater than the value of the centrally planned products alone, the enterprise has to find other products which may be produced in order to bring the value of planned output up to the target given in the directives. The choice of other products is usually based upon a number of considerations, such as the portfolio of back orders, the five year plan, the need to keep stocks up to a pre-determined limit. Another use to which idle capacity may be put is the production of intermediate products needed by other enterprises. This is called "cooperation" by the Russians, but in fact is the familiar practice of subcontracting. A typical case is a machinery-manufacturing enterprise which, after its directive targets have all been allowed for, still has some

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steel-making capacity left. In such a case the enterprise is exhorted to seek out other enterprises that could make use of its idle capacity, and to arrange for the production of additional steel for them. There has been considerable resistance to subcontracting, for idle capacity represents a safety factor for the enterprise. If it is already bound by plan and contract to use its capacity for other enterprises, then it has only asked for trouble. Consequently, enterprises seek to conceal their idle capacity in order not to have to use it for subcontracting. This form of the safety factor is condemned in no uncertain terms: "It is time to end the antistate practice of many managers who try to conceal the capacity of their enterprises in order to avoid having to accept subcontracts from other enterprises." 2 8 Equally strong are the criticisms of enterprises for their efforts to avoid the production of new products and especially of "difficult" products.29 The motives of management are clear; the old products are familiar and the processes have been mastered, but new or difficult products may leave one without a safety factor. In the words of Informant 26, a former chief engineer: In preparing the plan they try to avoid products which are hard to produce and which have great demands, such as accuracy and so forth, or which need much labor. They try to avoid these. They show that they cannot produce this for a thousand reasons. Sometimes they must be compelled by Party discipline to produce these things. They also try to avoid new products. They present a whole new problem. Every new product involves a great waste of labor and money until you get used to producing it. Not only does the new product raise threatening problems, but the ratchet principle appears to work here too. "And frankly speaking," says a correspondent of Izvestiia, "there are managers who argue roughly like this: If we fulfill the task of mastering this new product, they will surely raise our plan for this product next year, yes, and even compel us to take on some other new product. There is no end of trouble . . 3 0 Various schemes have been tried, such as special premiums, to induce managers to speed up the introduction of new products. Price considerations also sometimes make it advantageous for the enterprise to undertake the difficulties. New products are often given a "temporary" price which is extremely favorable to the producer, and this price may be kept unchanged for an appreciable length of time. But in the absence of such offsetting considerations, enterprises consider it safer not to enter into the production of new products if they can possibly avoid it. In their concern over the lagging rate of growth of labor productivity the new leaders of the Soviet state have launched a vigorous campaign to extend the practice of subcontracting and to speed the introduction

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of modern technology. Premier Bulganin, in a major address in July 1955, explained the cause of past managerial resistance to these practices in terms virtually identical to those set forth above. 31 Among the measures he proposed for overcoming resistance are special premiums and the construction of specialized enterprises for producing semifabricates on a subcontract basis. These measures, combined with exhortation and Party pressure, may have some beneficial effect, but they fail to cope squarely with the deeply rooted causes of managerial resistance. For as long as plan targets are such that they may be easily upset by the troubles associated with new processes or new products, managers will tend to prefer the familiar process and product. And as long as inter-enterprise supply remains a major source of difficulty, managers will prefer to rely on their own efforts rather than to trust to the promised deliveries of other enterprises.

THE S A F E T Y F A C T O R A N D PROCUREMENT PLAN

THE

VII

The problems associated with materials procurement have been shown to lead managers to strive for a safety factor in the production program. But it is in the sphere of procurement itself that the desire for a safety factor manifests itself most widely. A key term in the testimony of the informants on the problems of materials procurement is the zaiavka, the statement of requirements. This is the name of the document, submitted by the enterprise to the higher organ, that lists the amounts of all the important materials, equipment, and supplies needed in the coming period in order to meet production commitments. The large number of references to the zaiavka suggests the crucial role of that document in the operations of management. The success of the enterprise in meeting its supply problems depends largely upon the zaiavka which it submits. Any attempt to depict the real Soviet enterprise must give prominent place to the role of the zaiavka. The formal function of the managerial official in submitting his statements of requirements is to keep at a minimum the quantities needed for meeting the established production targets. Considerations of the safety factor, however, cause management to demand somewhat larger quantities than they actually believe they need: This is done, first, by raising the needs in the plan. They always try to inflate their needs. If I need a million of something I would try to get one million one hundred thousand. If he gets more material than he needs he is supposed to refuse it, but instead he always accepts it. He cannot inflate his needs two or three times, but he can do it 20 or 30 per cent. (Informant 396.) This, of course, has a familiar ring to anyone acquainted with any form of bureaucratic organization, and is scarcely typically Soviet. It is as familiar to any army quartermaster as it is to the practices of laigescale pre-Soviet Russian industry. That it is not an exclusively Soviet phenomenon does not, however, make it less important for the understanding of the Soviet firm.

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The degree to which this form of the safety factor has developed as a principle of Soviet management is indicated by the persistence of official complaints about the practice throughout the recent Soviet period. In the late prewar years, writers on economic matters inveighed ceaselessly against "grabbing tendencies and the inflation of statements of requirements [which] take place in many consuming commissariats. Usually these tendencies are covered up at first glance by innocent 'lawful' requests for materials." 1 From time to time managers have been caught submitting inflated statements of requirements, and have been prosecuted for it. It is from the public denunciations of these persons and organizations that we learn of the widespread existence of the practice. In 1940 there appears to have been a concerted drive by the Commission of Soviet Control to tighten the regulations, and many cases were reported of such practices. Special decrees of the Council of People's Commissars were issued upholding punitive actions taken by the Commission against such offenders.2 Despite the continued illegality of the practice, in the postwar period complaints still appear in the literature indicating that the practice persists.3 Thus in 1950 some consumers presented to the planning organs statements of requirements for metal, equipment, automatic machines, lumber products, and other kinds of products which exceeded their actual consumption by 20 to 30 per cent . . . The striving by some managers and supply officials to receive excess materials and to "preserve" them is a manifestation of provincial narrow-minded bureaucratic and essentially antistate tendencies; it is a manifestation of the remnants of capitalism in the consciousness of people. Quantitative estimates of the extensiveness of the padding of estimates are, in the nature of the case, difficult to find. Obviously there are no regular statistics on this sort of activity. The newspaper and journal literature provides a mass of quantitative information on the magnitude of the practice in individual enterprises and ministries, but it is impossible to systematize these scattered figures. Moreover the examples selected for publication in the press undoubtedly represent the extremes. Nevertheless the sheer mass of such statements and the way in which they are presented create a strong impression of extensiveness. A typical description is the following:4 Thus in the Makeevskii Iron and Steel Plant at the beginning of 1940 there were 62 tons of calcined soda, while the annual consumption of the enterprise was 35 tons. Although the enterprise had a secure supply of soda for almost two years, the purchasing department presented a statement of requirements for 165 tons of soda, evidently seeking to insure the supply of the plant for six and a half years in advance. With an annual consumption of 30,000 pairs of gauntlets, this same enter-

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prise presented a statement of requirements for 90,000 pairs, and so forth. A furniture and box combinat of the Commissariat of Lumber (Stalingrad), which did not use any cloth at all, and which had 185 meters of cloth in its warehouse, submitted a statement of requirements for 2,500 meters more. From other quotations on the same subject which appear in this section one can find statements of individual cases in which estimates are inflated to the extent of 20 to 30 per cent, or 70 to 80 per cent, or 300 per cent. But unfortunately it is impossible to make any comprehensive quantitative statements. The case for the extensiveness of the practice must be based, therefore, upon the persistence of the official complaints about it, upon the testimony of the informants, and upon the logical consistency of the practice with the goal of premiums under conditions of perpetual commodity shortages. The major reason for padding estimates is the awareness by the enterprise that its legitimate needs for materials may be reduced by the ministry. The experienced official has learned that he must defend himself against the possibility of unreasonable cuts in his demands because of the inefficiency of the planning system or of the officials of the ministry. Every manager knows of some case similar to that of the Five Year Plan Factory which had its hands full trying to keep its machinery in working condition. "On top of all this, the chief engineer of the chief administration, Comrade Mogilevskii, for some unknown reason reduced the statement of requirements of spare parts submitted by the factory almost to a third." 5 Furthermore, quite apart from inefficiency, the ministry itself may be unable to obtain all the materials it needs for its plants, and the enterprise which has inflated its demands will suffer less from a cut-back than one which has not taken the precaution. There is, furthermore, the interplay of expectations — the enterprise expecting that its demands will be cut and the ministry expecting that the demands will be inflated. As Informant 311, a former accountant, put it in a rather pithy way, "We always submitted our statement of requirements with a little bit of 'fat' and the higher organ always returned it with the 'fat' cut off." The mutual awareness of the use of "fat" has created a continuing suspicion between enterprise and ministry which reinforces the tendency of the former to inflate demands and of the latter to cut them. This has been noticed and commented upon by a Soviet writer.6 Often the actual quantity of materials used, as shown in the statements of requirements, is exaggerated. In the quality of the statements of requirements can also be seen the low level of planning work in gome enterprises, and in some cases the actual dishonesty of supply

Safety Factor and the Production Plan

§1

officials . . . Although the purchasing organizations sometimes make attempts to check up on the statements of requirements presented to them, they have no data for this purpose, and therefore they simply adopt the method of indiscriminate cutting, which in turn causes some enterprises to present even more greatly inflated statements of requirements. Although this sort of game-playing is common to all bureaucratic organizations, there are several other reasons for padding estimates that are more interesting because they are perhaps more typically Soviet. The first reason is the manager's unwillingness to trust the fate of his enterprise to the workings of the inter-industry purchasing system. Under conditions of great uncertainty, little reliance can be placed upon procurement plans drawn up a year in advance. Who can foretell how many spare parts of a certain type will be needed during the next year? We are required to submit a requisition for all materials needed for repair in the forthcoming year. Who can foretell when there is going to be a breakdown? However, all these things must be listed . . . One is supposed to turn in requisitions for materials specified to the last detail, which no technician is able to do. Under normal conditions a technician would request the same material by a phone call and get it. Nobody would ask him why he did not requisition this material a year ago. The Soviet system expects a man to foresee all irregularities, which is impossible." (Informant 26.) Errors in planning are inevitable, perfect co-ordination of parts of the plan is not to be expected,7 and delays in the time scheduling of planning mean that enterprises must often submit official statements of requirements before they really know what materials they will need. 8 Delays in deliveries are an ever-threatening danger; "in machinery enterprises work stoppages due to late deliveries of materials amount to 30 per cent of all work stoppages." 9 Nor can the ministry be counted on to arrange without fail for the successful delivery of the urgently needed supplies.* There are too many links in the chain, too many places at which things are wont to go wrong. Prudence therefore requires the manager to anticipate interruptions in the flow of his supplies. "From the point of view of the security of production, the more of such supplies that a director can get, the better off he is. He therefore tries to build * "But the ministry and its chief administrations are required to show not only a formal approval of enterprise plan drafts, but also to give the enterprise realistic assurance that its funded supplies and orders will be taken care of. But no concern over this is shown by the Chief Administration of the Power Industry and the Chief Marketing Administration of the Power Industry and the Chief Marketing Administration of the Electrical Industry. And therefore up to now only two thirds of the quarterly production schedule [i.e., first quarter of 1953] of DC machines has been provided for with allocation orders for funded materials." This was written during the last weeks of 1952. Pravda, December 24, 1952, p. 2.

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them up. He does this by inflating his statements of requirements . . ." (Informant 26.) The second reason for padding estimates is independent of the desire for assurance of the flow of needed materials, but is based upon the particular way in which premiums are distributed — always according to the ratio of fulfillment to plan, whether the plan be output, supply, labor, or cost of production. Thus, there is little inducement to plan a higher output or a lower consumption of materials than is absolutely necessary. "If the director sees that he can make an economy of a certain material," remarked Informant 481, "he will not order less of it. He will rather wait until the economy is made and then he will be praised for it." And in the press we find the manager's viewpoint candidly stated: "For the higher the norm of fuel utilization, the easier to achieve it and even show an economy. And for an economy there is a premium." * As in the case of the production program, a safety factor provides a safe opportunity for assuming a bold obligation, like that of the manager of the Cheliabinsk Power Plant who "usually assumes obligations to reduce the consumption of fuel by the exact* amount by which they had just raised the norm." 10 Thus a major weakness of the practice of measuring performance by the difference between a planned target and actual performance is the encouragement of the tendency to hold the planned target below capacity, f While the desire for premiums motivates the manager to economize in the use of materials, the incentive is weakened by the application of the ratchet principle of planning. For the manager is well aware that if he should reduce the quantity of materials used in the current period, his plan target of materials consumption in the next period will be correspondingly adjusted. This attitude is reflected in the following remarks. * Pravda, August 31, 1954, p. 2. f That Soviet writers are aware of this is indicated by an interesting illustration given by E. G. Liberman. H e shows that if an enterprise knows that it can earn a larger volume of profit than has been set for it by the chief administration, it would suffer a large decrease in the size of the enterprise fund if it disclosed this knowledge to the chief administration. Liberman makes the interesting proposal that the deductions into the enterprise fund be based not on the final confirmed profit target of the enterprise, but upon the target originally given to it by the chief administration. Then the enterprise would not suffer a loss if it informed the chief administration that the probable profit is greater than the proposed target. T h e contradiction which the author tries to meet by this proposal is that the incentive system sometimes motivates management not only to deviate from the plan targets, but also to withhold or falsify the very information on the basis of which the plan target is determined. In this proposal he is groping toward a solution in which the accounts on the basis of which premiums are given are dissociated from the accounts of actual performance. Then there would be no motivation to lie to the statistical people, even though there would still be a motivation to he to the administrative people who determine the premiums which management will earn. Liberman, p. 62.

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and the Procurement

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A. They don't care about making a very great economy because this will also increase their plan next year. Q. Don't premiums induce directors to try to overfulfill and thus increase their plans? A. Premiums are relatively small for an economy. Also, in the following year you do not receive a premium for last year's economy. If you make a great economy one year it usually becomes part of your plan for the next year. Therefore it may be harder to fulfill your plan next year. Therefore they try to avoid large overfulfillment and they always seek to make a very small economy. (Informant 26.) A third reason for inflating materials requirements is that such exaggerated requests serve as a bargaining point in helping the firm avoid tasks which it would rather not take on. If the firm argues that a certain target cannot be achieved unless it receives certain new machinery or obtains large amounts of high-quality materials, or is allowed a long breaking-in period, the magnitude of its planned tasks may be reduced. Informant 90 refers to this as a "passive defense against excessively great tasks." When orders received from above are considered impossible to fulfill "they cannot say so directly, so what do they do? They start writing reports, they ask for more materials, they raise such demands as cannot be fulfilled by the higher organization. Very often the higher organizations reduce the plan. (Informant 26.) The success of this "bluffing" technique depends upon the ministry's ignorance of the detailed operations of the firm. Within the factory, for example, it is difficult to blame something on lack of machines or men if there is really no lack; but in the firm's relations with the ministry such reasons may be given with more assurance that the precise facts are not too well known. The production-planning department gets all the plans of the shops and begins to summarize them. Say the casting shop can produce 1,000, but the machine shop can produce 1,500. You must lower the plan of the machine shop or raise the plan of the casting shop . . . In the above example the chief of the production-planning department will try to get the chief of the casting shop to produce more. The latter asks for more machines and labor. The former says, "With so much labor and machines any fool can do it. It takes a real engineer to do it with our resources." . . . The director may fire the chief of the casting shop for saying that he can produce no more than X. But when the director goes to the ministry he may say the same things, "Give me more labor and machines and I can do it." (Informant 403.) A fourth reason for padding estimates is the difficulties associated with a full accounting of inventories. The estimation of materials requirements a year in advance is a difficult matter in any case, and since

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these estimates are not simply orientation figures but are binding upon the enterprise and limit its available resources for a whole year, the temptation to estimate liberally is quite strong. Furthermore, a wellfunctioning system of inventory accounting is expensive to maintain and requires a respectable level of trained bookkeeping personnel. There were many criticisms of the poor state of plant accounting in the prewar period, and the diligent manager who sought to keep his demands for materials down to the absolute minimum would have to devote a large part of his accounting personnel to the accounting of materials alone. Every time the plan was changed or a new order accepted, he would have to recompute his materials needs and check them against materials on hand. It is therefore not difficult to understand why, as Malenkov complained, "when new production tasks are received, the director submits demands for supplementary materials, machine tools, and equipment, including even imported items; while at the same time all these things are available in the enterprise in sufficient quantity." 11 A persistent theme of criticism in the press is directed against managers who, "instead of rolling up their sleeves and seeking out and mobilizing internal resources, . . . prefer to ask for supplementary funds and materials" while their warehouses are quite adequately stocked with the needed resources. 12 We often read of a manager who persisted in ordering new equipment even though his existing equipment was not used to capacity. 13 The significant fact about the liberality with which extra supplies are ordered is that cost considerations are not of decisive importance in motivating management to hold down its consumption of materials or labor. The cost of production to which the manager is held is determined by the planned cost of the "inputs" (materials, labor) to be used, and these inputs are determined on the basis of the planned production coefficients, or "utilization norms" (that is, so much steel per unit of output, or so much cotton per meter of cloth). If the manager is hard put to meet his cost reduction target, or if he is motivated by specific premiums to lower cost, then he will make the effort to order less if he can. But these cost considerations are apparently quite secondary to the desire for a safety factor. As long as the cost target based upon the utilization norms is higher than the minimum cost at which the product can be produced, the manager has no strong incentive to produce at minimum cost, for this would leave him no safety factor. Finally, the enterprise has to worry not only about the quantity of materials which are delivered, but also about the quality. Because of the sanctions against subquality production, "in order to secure themselves engineers are often over-exacting toward the materials which are delivered to them." (Informant 26.) It is better to demand higher

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grade materials than are needed in the hope that at least the needed grade will be delivered. "The enormous appetites of plant directors are whetted by the Chief Administration of the Urals Iron and Steel Industry and the office of the Chief Administration of Scrap Iron. Even in those cases in which enterprises produce ordinary steel, they categorically demand first and second grade scrap." 14 The safety factor applies not only to quantity but to quality as well. HOARDING

Just as there are norms which limit the quantities of materials an enterprise may purchase, so there are also norms to limit the stocks of materials an enterprise may keep in inventory. The function of the norms is to prevent the accumulation of stocks larger than are necessary to assure the uninterrupted operation of the plant. Accordingly the norms are set by taking account of the daily production needs of the plant, the distance from the supplier, the minimum economical size of shipments, and anticipated delays or errors in shipments.15 Any stocks held in excess of the norms constitute idle resources which might be profitably used by other enterprises. Proper materials management, in the eyes of the state, consists in keeping the stocks of materials within the limits set by the norms. The tendency of enterprises to exceed the normed quantities of stocks has been a persistent subject of criticism in Soviet literature. In the prewar period we used to read often of "provident" managers, like those of the Tashkent Agricultural Machinery Plant, whose norms provided for a sixty-day supply of metals, but who had accumulated "104 days' supply of quality steel, sheet metal for 154 days, and beams and girders for 175 days"; 16 and "in the Poltava Locomotive Repair Plant about a two-year supply of quality steel lay about idle. The plant was provided with about a year and a half's supply of boiler steel, and about a two-year supply of chrome-nickel iron." 17 Nowadays we continue to find reports of enterprises in whose warehouses and stockrooms "millions of rubles of commodities are frozen"; 18 and others in which the supply of thin-walled pipe is sufficient for seven and a half years in one case, and three years in another. 19 Continuous statistics on the magnitude of hoarding are not published, but occasional investigation, such as that conducted by the State Bank on July 1, 1940, give some basis for judgment. 20 This study showed that excesses of basic and auxiliary materials over the legal norms ranged from about 7 per cent to 22 per cent in the commissariats investigated. Although these commissariats were probably the chief offenders, the figures do not reveal the full extent of hoarding. The materials studied did not include those financed by bank credit. Of

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the materials which were not held in excess of the norms, it was estimated that about 10 per cent consisted of materials which were of no use to the plants but were held "just in case." Moreover, averages for all materials obscure the magnitude of hoarding of the really scarce items; a study of the stock of metals in 1939, for example, showed that excesses varied from 44 per cent to 600 per cent in ten machinery manufacturing chief administrations.21 Averages for all enterprises also fail to show the huge stocks held by the more successful hoarders. As for accuracy of reporting, all the bias must be expected to work in the direction of underreporting." Apart from the freezing of working capital and the under-utilization of materials and equipment due to this excessive stockpiling, the physical condition in which these idle resources are kept evokes much severe criticism. Many enterprises continue to accept and overstock materials and equipment without adequate warehouse space for storing them. "The equipment of the coal-dust plant, flotation machines and chemical water-cleaning apparatus lie out under the open sky. They cost a million and a half rubles, and the planned warehouse will cost in all 42,000 rubles." 2 2 The situation called forth the following sharp rebuke by Malenkov: 23 In many enterprises equipment, raw materials, processed materials, tools, things for which our industry has a desperate need, are piled up wherever they happen to fall, spoil, rust, become useless. Comrades, you can find facts to corroborate this in the enterprises of your own counties and cities. I can help the Comrades from Voronezh county myself in this matter. In Plant 61 in Lipetsk on January 14, 1941, 70 good machines were accidentally discovered lying in the snow under the open sky among the junk. But in the enterprise there is a director, there is a Party organization, and finally, in Lipetsk there is a City Party Committee. Just what are they doing? Where is the care for the preservation of equipment? The literature of the period is filled with descriptions of this extremely careless attitude toward equipment and structures, and some of the best known and newest enterprises came in for their share of criticism. In the great Cheliabinsk Tractor Plant, "in the filthy yards and under the open sky, three and a half million rubles worth of equipment have been standing for many years. Here you can find a sixteen-spindle vertical boring mill worth forty thousand rubles, a clinker-crusher . . . " 2 4 * "The chief of the supply department will tell the director that he has received six wagon loads of cement instead of four. The director might ask the president of the city council if he might ship the extra cement out to them in order to store it there in case of inspection by the ministry. Or he might send the excess to a neighboring factory. This was done in the line of mutual services." (Informant 3 8 4 . )

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Information on the postwar situation is much thinner, but reports of large-scale hoarding and the physical neglect of equipment continue to appear. In 1951 an article in Pravda berated the Stalino Iron and Steel Plant for having lost three million rubles worth of equipment through neglect in a brickyard, and the Briansk Locomotive Plant for leaving valuable materials out under the open sky.23 The tone and even the words are the same as in the prewar period. The basic reason for the effort to hoard is clear. The legal norms of inventory holdings represent a restriction upon the manager which, under conditions of uncertainty of supply, may lead to interruptions of production and the loss of premiums. The hoarded materials and equipment form the safety factor which shields the manager against the uncertainties and inefficiencies of the procurement system. We cannot convey this attitude of the Soviet manager any better than the portrayal of him in the Soviet press itself.26 Gogol's famous hero Plyushkin was distinguished by the fact that he dragged into the house everything he chanced to see . . The Plyushkins of our time are very different from their literary ancestor; they do not go about in greasy dressing gowns and do not wear socks, garters or belts in place of ties. However, the Plyushkin spirit lives in them under fashionable suits and ties the colors of a peacock's tail . . . Plyushkins from the Ministry of Electric Power Plants organized an equipment store in Zaporozhye. Gogol's hero did not even dream of the riches gathered there. Here were all kinds of pipes, iron products and other objects which at this very time would have been useful to other enterprises. They have not lain here a year or two, much of the equipment has been in the Plyushkin store for more than five years now. The Ministry of Electric Power Plants may ask: "Are we really the only ones? Look at the stores of other ministries." Let us take a look. Plyushkins from the Ministry of Agricultural Machine Building have also accumulated at Zaporozhye's Kommunar Factory such equipment as the factory does not require and will not require in the future. They keep it and glance around, hoping that no one will find out, take the equipment away and give it to their neighbors . . . This is how the present day Plyushkins live. It sometimes happens 9 Soviet writers delight in using the characters of Russian fiction to portray current social types. Another fictional character who is used to personify the safety factor is Chekhov's Belikov. "The hero of Chekhov's tale, A Man in a Case, Belikov, always wore his galoshes and carried an umbrella when he went out for a walk, even when the weather was good. 'Just so that nothing will happen,' he reasoned. Exactly like Belikov are those of our managers in whose warehouses large supplies of materials and equipment continue to lay, which are not needed by the enterprises." Mash., January 5, 1939, p. 2. See also an article entided "Plyushkins on Construction Projects" in Stroitel'naia gazeta, January 14, 1955, p. 2.

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that their unutilized wealth is discovered, and they are reproached for avarice. At such times they answer the reproach with the words of their literary ancestor: "And who is talkingl . . ." And a correspondence is launched. Explanatory reports and notes, acts, protocols are drawn up, all of them for a single purpose: not to surrender but to retain at all costs at least one lathe, at least one machine unneeded by oneself but very much needed by others. Gogol's Plyushkin brought harm only to himself through his avarice. The present-day Plyushkins bring great harm to the whole of society, to our country's national economy. This theme of the safety factor, of ordering larger quantities of materials than are actually needed, of holding on to supplies of all kinds because they might sometime, somewhere, be used in the future, and of the consequent piling up of useless masses of commodities in stockrooms and warehouses; this theme is one of the most striking to emerge from the study of the interview protocols. A typical statement is that of Informant 26. In planning you always try to order more than you need in case something happens. You often receive things you do not need. Every plant has some excessive materials which are not immediately necessary. They often lack things which other plants have in excess, but they do not know about the other plants. The other plants have no legal right to transfer these materials anyhow. They are useless reserves which exist while other firms have a great need for them. Therefore this is a great loss and a break on the turnover of goods. Great masses of goods lie in warehouses and spoil. Sometimes they may lie around for fifteen years. If I order nuts and bolts of a particular size, I am often sent the wrong size, and the things which are sent lie around and rust, maybe for fifteen years. The money involved is insignificant, but you simply can't buy the materials. But in terms of over-all waste of materials, millions of rubles are lost in this way. In any complex industrial system managerial officials are heavily dependent upon others, principally those to whom they sell and from whom they buy, for successful achievement of the ends they seek to attain. This is no less true in the Soviet economy. In fact, insofar as many economic operations are centralized in the Soviet system which in a free system are decentralized, the dependence of the Soviet manager is concentrated upon a smaller number of officials in the higher organization. The western manager in a more or less competitive market situation possesses a number of alternatives if his usual sources of supply fall down. The Soviet manager cannot change his chief administration if the latter happens to be inefficient or excessively diligent in resisting the demands of the enterprise. The possession of an ample

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supply of excess materials in such a situation gives the Soviet manager a measure of independence and maneuverability which he would not have if every demand for materials were crucial for the fulfillment of his plan. The possession of a safety factor in inventories will not necessarily deter the manager from continuing to inflate his statements of requirements, but he is in a much more favorable position in case his demands are reduced. The following case reflects the sense of independence in a official who knew that he could fulfill his plan regardless of how the chief administration reacted to his patently excessive demands. 27 The director of the Kuibyshev Nizhne-Tagil' Plant, Comrade Goncharenko, to whom the Chief Administration of the Urals Iron and Steel Industry had planned to ship 5,000 tons of scrap, wrote an official deposition in which he agreed to reduce his original statement of requirements by 75 per cent. In the first quarter he received no scrap at all (except an insignificant amount of sheet metal cuttings for the baling shop) but he overfulfilled his steel output plan. In February the plant used 622 kilograms of scrap to a ton of steel!" Where did they get the scrap? Perhaps the director of the plant at first had his sights set on eternal, in the literal sense of the word, supplies of scrap. For the plant had been in operation over 225 years. How much scrap has been piled up here! The old timers say that they themselves had even filled up old mine shafts which existed in the old days near the clinker dump, that they had unloaded scrap wherever it happened to fall, even at the bottom of the lake. Shop Chief Comrade Borodin, who had worked twenty-five years in the plant, once said to Comrade Zybkov, chief of the production department of the Sverdlovsk office of the Chief Administration of Ferrous Scrap Iron, "You may not give me any scrap for a whole year, and yet I'll find where to get it!" SOURCES OF HOARDED MATERIALS

Most of the hoards originate as the result of the successful padding of statements of requirements. 28 Sometimes the "fat" is cut off by the superior organization, but often it is not, and then the enterprise receives more than it needs for current production purposes. The contingencies for which the estimates were originally padded do not always materialize, and the stocks of inventories are increased by the amount of the unused excesses. A second source of supply of materials for enterprises to hoard is, curiously enough, pressure from the higher organization. Sometimes the enterprise is shipped material on order of the chief administration * The magnitude of the padding of requirements is astonishing. His original demand was so large that after it was cut 75 per cent, and of the remaining 25 per cent nothing was delivered, he still managed to fulfill his planl

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because of certain inefficiencies in the centralized system of supply. It is not uncommon to read of enterprises like the Liudinovskii Plant which assiduously set about "mobilizing internal resources," and managed to sell 110 valves which had lain unused in its parts storeroom. It must have been rather disheartening to the management when, on the same day that it sold the valves, it received "by a new distribution order of the chief administration, 190 valves of exactly the same kind." To the Beloretskii Iron and Steel Plant, which was quite well supplied with nails and hadn't asked for any more, the chief administration sent "120 kilograms of nails, and in fact sent them by airplane." 2 9 Confusion of this kind may be due to poor communication between enterprise and ministry officials, or to insufficient information by the latter of the real needs of the firm. Or it may be due to certain planning errors by the higher organization, in which the latter was stuck with supplies of material it did not need, and had to compel its enterprise to take these supplies off its hands. The Lutuginsk Plant was compelled to accept delivery of thousands of tons of scrap, over its many telegrams of protest, because the chief administration had already contracted with the railroad people for the freight cars, "and to refuse to accept them would involve the threat of a fine."30 That pressure to accept excess materials may come from above will seem odd only if it is not realized that the ministry has as great an interest in hoarding materials as the enterprise itself. * The difference is, of course, that the enterprise is concerned with its own safety factor alone, whereas the ministry is concerned with a safety factor for all the enterprises upon which it depends for the fulfillment of the plan. Therefore the ministry may gain possession of some materials which are of no use to any of the enterprises but which it desires to have stored by one of the enterprises for a possible emergency. The pressure may also come from a desire by the ministry or the chief purchasing administration to reduce its own holdings of stocks by transferring some of them to the enterprises. The reverse also takes place; that is, the surpluses may be removed in part from the enterprises and stored in the warehouses of the chief purchasing administration. This would be a wise thing to do during a campaign to "mobilize internal resources," giving the impression of considerable pressure upon the enterprise by the ministry. "Often the mobilization of internal resources 0 "By decision of the Party and the government the chief administration was granted an allocation of construction materials. Fully aware that there was no realistic possibility of using these materials in time, the managers of the Chief Administration of Scrap Iron nevertheless accepted the materials and simply preserved them. By an order of the chief administration to us in the Moscow Plant, 4 5 0 tons of cement and 463 cubic meters of lumber were delivered to us, materials we did not at all need." Ind., July 6, 1940, p. 3.

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amounted to nothing more than pumping the surpluses from the balance sheets of the enterprises to the balance sheets of the chief purchasing administrations, that is, to an illusion which is quite costly," reports a correspondent of an industrial newspaper. 31 Large hoards of materials occur sometimes because shippers will refuse to ship directly in quantities of less than a specified minimum known as a "transit norm." If an enterprise purchases a great deal of a commodity the transit norm causes no trouble since it is likely to be smaller than the quantities customarily ordered. But if the enterprise is a small purchaser, usually because it uses the commodity as an auxiliary material, then it will find it difficult to order a quantity as large as the transit norm. Rather than risk not being able to obtain a relatively minor and rarely used material when a critical need for it happens to arise, the manager will prefer to order it in the large amounts necessary to meet the transit norms. "Metallurgical enterprises, for understandable reasons, will not accept orders for the delivery of certain grades which are demanded in less than a carload," writes the economist N. Fedotov, "and therefore machinery-manufacturing enterprises are often compelled to order a year's supply of these materials." 32 The alternative is to try to obtain smaller quantities from the wholesale supply depots, which the enterprise will do if it has to. But this requires first that a depot be accessible, and second, that it be diligent in obtaining and stocking the materials which the firm needs. As between assured delivery of a carload or the possible delivery of a small order, the "bird in the hand" principle decides. "Enterprises are compelled to create for themselves huge stocks of non-funded and non-planned materials, since there are no depots from which they can buy things as the need arises. Sometimes they have to order whole carloads of materials such as polishing rags . . ." 3 3 This is one of the reasons that one reads occasionally of fantastically large hoards. "Of emery paper alone they have piled up a supply for 120 years! The plant warehouse looks like a department store." 34 Apparently there is no insuperable difficulty in financing such purchases, for the State Bank is required to provide credits for purchases which must be made in accordance with the transit norms.33 And the motivation to build up these stocks is enhanced by the fact that under the rubric of auxiliary materials are many products which are also consumer goods, such as paper, linoleum, work clothes, leather, etc., and which may be used for purposes somewhat other than planned. 36 A further source of hoarded materials springs from the failure of shippers to fulfill all the details of the planned deliveries. Materials might arrive too early because it happens to suit the convenience of the shipper, and the purchaser would not care to refuse the shipment

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for fear that it would not be delivered when it happened to be needed. "It sometimes happens that a cement factory will deliver a whole year's supply in one month," remarked Informant 202, a former civil engineer. "Then you are overloaded with cement and have no place to put it all." Or the shipment may exceed the quantity ordered, and then the purchaser has the easily made choice of accepting or refusing the excess. The materials may be of poorer, or in some cases superior quality to those which had been ordered. Or they may have simply appeared as part of that "parallelism and confusion [which] caused suppliers to send more than three hundred million rubles' worth of various unwanted equipment to enterprises." 37 In such cases the shipments are always accepted if they can be of any conceivable use at all, now or in the future. Often a project would get a delivery of cement which was of poorer quality than required. This was sometimes due to mistakes, and was sometimes due to deliberate simulation. In these cases the cement was used for auxiliary work, where very high quality was not required; or else it was kept on hand for trading with other organizations for more needed materials. If the cement was at all usable it was not returned to the supplier because cement was in short supply in any case. (Informant 320.) Finally, cancellations of orders and changes in technical specifications are also a source of hoarded materials. "The reason that enterprises often have materials lying around unused," stated Informant 316, a former chief of a planning department, "is that their output assortment plans may be changed in the course of the year, and the originally ordered materials are no longer usable. Officially, these materials are supposed to be returned to the Chief Metals Purchasing Administration, but people prefer to keep them on hand for future use, or for trading for other goods." In certain industries, changes in plans occur with considerable frequency1* and the indications are that even in the absence of a motivation to hoard materials, there are considerable " "The Stalingrad Tractor Plant serves as an example of how frequently production programs are sometimes changed. In the second quarter of 1940 its program was changed nine times, in the third quarter, seven times. Each such change in the program was accompanied by changes in the requirements of materials. The following examples show to what such changes can lead. In the Nevsku Machinery Plant 875,000 rubles worth of pipe stock which had been designated for the boiler of the Urals Plant are lying around. This boiler was put into the production program of the plant in the fourth quarter of 1938, later it was removed from the program and the question of its production is still being discussed. In the same plant are 1,759,000 rubles of imported electrical fittings, they had been purchased in order to fill the orders of the Kurakhovskii Hydroelectric Station. The plant has not begun to fill these orders." Sitnin, in Planovoe khoziaistvo, no. 12, 1940, pp. 42-43.

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difficulties in arranging changes in supply plans to correspond to changes in production plans. Just why this is so is a complex matter, 38 but that it is so can be understood only if full account is taken of the inefficiencies and rigidities in the system of inter-industry supply. Again, if another rather long quotation may be permitted, the "feel" for these rigidities can best be conveyed by the Soviet sources themselves: 39 It all started with a rumor among Yelets residents. A trainload of coal was about to arrive for the power station. There was nothing unusual in this rumor; our cities are growing, the needs of their power stations increase in proportion, and the government is always filled with concern for the needs of our people. Soon the coal train was forgotten. As a matter of fact it did not materialize. Probably another city was more in need of coal than Yelets. A few months later, on a warm spring day, Comrade Redkin, head of the city's economic administration, received a telephone call. He picked up the receiver and felt as though a blast of cold air had struck his ear. "You must unload the coal at once," the voice ordered. "What coal?" Comrade Redkin mumbled. There was no need for coal in the city. However, the man at the other end of the phone was becoming impatient. "Well," Comrade Redkin asked, "how much coal is there?" "Only twenty carloads. You'd better hurry up with the unloading or you'll have to pay demurrage." It was no use arguing with the railroad people. They were told to deliver coal and they were only following their instruction. At once letters and telegrams were sent from Yelets to Comrade Shcherbakov, Chairman of the Planning Commission and to Comrade Alexeyev, Vice-Chairman of the Orel Province Executive Committee. "Help us!" these messages said, "we did not order this coal, we do not need it and we have no money to pay for it!" The answer came very quickly. Comrade Zakgeim, Acting Chairman of the Province Planning Commission, politely informed them that Comrade Shcherbakov himself had left immediately for Moscow and that the matter of stopping the delivery of coal would be settled. The Yelets people were reassured, and for a time the city Soviet became an office trying to dispose of the coal. Heads of enterprises, school principals and even neighboring towns were asked to take some of the coal. Rut all efforts were in vain. Then an official note from the Province Planning Commission arrived in Yelets. Yelets was informed that it must receive 500 tons of coal in the third quarter and another 600 in the fourth quarter. The note was signed by Comrade Zakgeim. While the officials of the city Soviet were still recovering from the shock, they received a phone call from the railroad station: "The current trainload of coal has arrived!" Matters have been going on like that since. The Yelets officials write

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letters of protest to the planning commission in Orel, and as soon as the current protest is dispatched a new trainload of coal arrives at the local station. Complaints from Yelets were also sent to the Russian Republic State Planning Commission and to the Ministry of the Local Fuel Industry's Coal Marketing Administration. In response new trainloads of coal keep arriving. More than 1,000 tons of coal have been dumped by the railroad tracks, and in the meantime the discussions continue: "Have you received the coal?" "Yes." "Why are you waiting to pay for it?" "We have no funds available. Besides, we did not order any." Five months after the arrival of the first train the Russian Republic State Planning Commission became worried and wrote to Yelets: "What is the source of this coal?" Yelets officials sent the information requested and, taught by bitter experience, began feverishly to look for a place to dump the next trainload of coal. In evaluating this article, one must not be too hard on the feuilleton writer. Criticizing people as a full-time occupation is probably not a most gratifying job, and he must be forgiven if he enjoyed too much the writing of this "Sorcerer's Apprentice" bit. But when names are named and important organizations indicated, the basic authenticity of the incident cannot be doubted. Nor is there any doubt that the case is an extreme one. What is important, however, is how such incidents affect the Soviet manager's conception of the system in which he must function. The informants report that responsible officials read the press closely, which they must do to catch the political straws in the wind. They read of such incidents, and of many less extreme ones. They talk with colleagues in other organizations, and they have their own experiences from which to judge. It all adds up to a system of enormous uncertainty, in which hoarding is the only rational principle of survival. The vicissitudes of the people of Yelets must strike him as much less unrealistic than the "formal" descriptions of the economic milieu which he also finds in the press. Indeed, hoarding would appear to be quite irrational in an economy in which the following typical "official" picture corresponded with the managers' own picture:40 The socialist economic system has created all the conditions for a system of supplying materials and equipment to industry that is new in principle and that is incomparably more rational and economical than under capitalism . . . The concentration of all supplies, according to plan, in the hands of the Soviet state, the state regulation of the supply of materials, assures the possibility of the most complete and rational utilization of material

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resources and the furnishing of enterprises with all the required means of production correctly and at the right time . . . The planned socialist economic system gives, in the first place, an exceptional degree of reliability to the system of supplying materials to industry, and in the second place, it predetermines the most expedient geographical dispersion of the sources of supply, and in the third place it creates the conditions for evenness, regularity, and completeness of deliveries. DISHOARDING

Various pressures may compel an enterprise to dislodge its surplus materials and equipment. Financial difficulties, for example, may force it to "mobilize internal resources," that is, to sell some of its surpluses in order to obtain badly needed cash.41 Or certain enterprises in a ministry may face serious production difficulties because of materials shortages. In this event the ministry may exert great efforts to uncover idle stocks of materials in its other enterprises. Sometimes our enterprise stopped work for lack of supplies. Then we undertook a mobilization of internal resources. This meant that the ministry would send a commission out to all the factories looking for hoarded materials. These factories would be required to ship their excesses to others by special distribution orders. Thus all supplies were equalized. (Informant 384.) Enterprises are also likely to dishoard when special attention is brought to this problem by a public campaign meant to emphasize the risks of hoarding.42 Campaigns are convenient occasions on which to unload clearly useless accumulated stocks, which the firm would like to dispose of anyway. Another period in which special attention is turned to the release of surplus machines is when the plant has undergone an extensive reconstruction or remodeling.43 In this case a certain quantity of equipment is replaced by new, and it is difficult to conceal the existence of the superfluous old equipment. A more constant motivation to dishoard has been the introduction in recent years of a system of giving premiums to purchasing department officials in proportion to their success in uncovering excess or illiquid stocks and the sale of these excesses for cash.44 While these various pressures do operate, they appear not to be as effective as the state would wish. Financial pressures in particular are not a strong motivating factor in Soviet industry. There are no strong cost deterrents, such as an interest charge, to the holding of idle materials and equipment. "Today the only interest of an enterprise in selling unnecessary equipment," writes the eminent economist A. Arakelian,45 "consists of the fact that the transfer of unnecessary resources frees a certain

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amount of floor spacel" ° Nor is a depreciation charge made on stored or dissembled equipment. If purchases of excess supplies have raised financial problems, the important thing is to muddle through somehow until the next planning period when a new allocation of funds may be forthcoming with perhaps no more than a reprimand for poor financial management. 46 They [managers] are in no hurry to turn up and sell their excess supplies. There is no money in the bank accounts. There are no funds due from customers and time is fleeing. Then the first quarter of 1939 arrives. The construction projects are given new financial allocations. But the state loses a large amount if the managers of construction projects forget once more about their excess supplies because, as they say, it is more peaceful with excesses. On the other hand, to sell some materials or equipment which may some day be vitally needed is a more serious matter; who will make the decision to sell for the sake of financial expediency something which may later cause production to be stopped? "You tell me what to sell," a chief of a finance department is quoted in the press as saying, "for if I sell some equipment which is needed later, then I shall have to answer for it." t Indeed, several of the informants indicated that they could successfully resist an order from above to release equipment or materials by the threat that this might cause subsequent underfulfillment. The following statement by Informant 524, a plant director, refers to an order to release a worker, but the situation applies equally to materials or equipment: I remember one interesting case. I was once asked to release to another job a worker who was making anti-mine instruments. The director of this other enterprise finally went to the county Party committee. The industrial secretary of the county Party committee asked me to release the worker. I said I would do it only if I received written permission from him. "Because," I said, "if I do not fulfill my plan later, no matter for what reason, I could show this paper. The county Party committee," I could say, "is disrupting my cadres." So he was afraid to give me this note; I would have a weapon against him. Finally the " Compare the remarks of Informant 388, "A machine might stand idle for five years and then we would write to the Machinery Rebuilding Trust and ask if they would take it. This is because we have to oil and grease it, and the maintenance of it took time even when it was idle, and the machine took up space, and so forth." The only cost here was maintenance and space. f Mash., January 5, 1939, p. 2. The context is the following: "Then they agreed that now something must be sold. But what? Perhaps sell the wheel-lathes? There is over a million rubles worth of them Spindle lathes — about 220,000 rubles worth. Boring mills — about 139,000 rubles. But what if this is suddenly needed'' Better let the Chief Administration of Transportation Machinery be responsible. And on the fifteenth of December a telegraphic request is sent out to the chief administration. The chief administration remains silent . . ."

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secretary of the county Party committee told the director to come to me and try to work out an arrangement with me. Actually, I gave him the worker. Dishoarding is further discouraged by the slowness and red tape involved in going through official channels for selling excesses. In the past, enterprises were legally required to obtain official permission from the ministry before selling off any of their property, and in the case of important materials and equipment, either the original seller or the proper marketing organizations had to be given the first option to buy them. The latest decree on the subject (May 14, 1955) retains the requirement that the ministry's marketing organization be given first option to buy the enterprise's surpluses; those not bought by the marketing organization may be resold by the enterprise. 47 Though it is too early to tell, the new decree appears to simplify the process of legal resale of surpluses. Yet one must remember that in the past actual difficulties went far beyond what one might have imagined from merely examining the official decree. We read of enterprises requesting permission to sell off millions of rubles worth of excesses, and nine months later receiving permission to sell only a few hundred thousand rubles worth. 48 Many of the offices responsible for the sale of excess supplies were extremely small and excessively numerous, and were unable to handle the volume of business properly. 49 In seeking to sell off excess equipment, enterprises sometimes collided with the private interests of the Machinery Rebuilding Trust, the state organization authorized to purchase and resell used equipment. "But the Machinery Rebuilding Trust for some reason will sell only equipment on which a large outlay for reconditioning is not needed and which is not very obsolete. The trust refuses to bother with the sale of any other equipment, and large quantities of machine tools and machinery pile up in the enterprises." 50 And in the postwar period we read of marketing organizations refusing to accept surplus materials offered to them by enterprises and of chief administrations denying permission to their enterprises to sell excess supplies. 51 EXCHANGE OF COMMODITIES

In the face of the obstacles to dishoarding raised by the legal restrictions and the inefficiencies of the formal channels, managers have developed their own informal system of dishoarding through the illegal or quasi-legal exchange and resale of commodities. The exchange of commodities puts back into production commodities which otherwise would remain idle in the warehouses of enterprises and purchasing agencies, and in this sense contributes to the reduction of the volume of hoards.

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However, the free exchange of commodities diverts resources from planned into unplanned uses, since in general it is the low-priority enterprises which cannot obtain them in sufficient supply through the regular channels of centralized allocation. Therefore, despite the desirability of the dislodging of hoards, the exchange of commodities is sharply opposed by the state. The condition that makes exchange a mutually advantageous transaction is that two enterprises often possess excesses of materials or equipment which are not immediately needed by themselves but which are needed desperately by the other. That this is indeed a typical situation is indicated by the similarity of the following two statements, the first by the former Minister of Domestic Trade 5 2 and the second by Informant 320: There are cases of this kind: on one construction project a large amount of cement is lying around because there is not enough iron. On another construction project, in the same city, some iron is lying idle because there is no cement, and therefore work is held up in both places. All that is needed is that the cement and iron be transferred between the construction projects, and both would continue working. But since they are different construction projects, different commissariats, the materials are frozen. This leads to the fact that we hold keenly needed materials in idleness, instead of using them up as rapidly as possible if they are very scarce materials, and not letting them lie idle to no good end. Say it is a big machinery-manufacturing enterprise which always uses great quantities of metal, and has a constant supply of that basic material. But it does not have a constant source of cement, because it uses cement only occasionally, and each time it has to find a supplier for it. Then this enterprise will contact some construction job which always has a supply of cement available, and will offer to trade some of these metal materials for a small supply of cement. These operations do not go through the State Bank. Each enterprise merely says that it used the material on the job. As indicated by the informant, the reason this situation often occurs is that the deliveries of materials which an enterprise purchases regularly and in large quantities are more dependable than the deliveries of materials which are not too important in production and which are ordered from time to time in small quantities. "The basic materials usually come to you in a regular and constant flow," said Informant 26. "The big trouble is with the auxiliary materials . . . It is in the case of these things that directors always order more than they need because in the future they may not be able to obtain them." But it is usually the basic or principal materials in which the excesses occur, and since the principal

Safety Factor and the Procurement Plan

109

materials of one enterprise may be the secondary or auxiliary materials of another enterprise, both benefit by the exchange. Formally, each enterprise should report its excess to the chief administration and apply for a supplementary allocation of the materials it needs. But it may not be entitled to a supplementary allocation because it has consumed more than its norm; or even if it were entitled to more, one could never tell when it would arrive. In the reality of Soviet plant management a ton in the warehouse is worth ten tons on paper. The surest way of securing the supply needs of the enterprise is through direct negotiations, and thus the exchange of materials became an institutionalized way of meeting supply problems in the prewar period. The very fact of the widespread acceptance of trading as a way of doing things encouraged enterprises to hoard even materials which they did not need, since they could be used for trading in exchange for needed commodities. It increased the benefit to the enterprise of accepting shipments it did not need, and keeping possession of materials the need for which had passed due to a change in plans: Suppose you received a certain quantity of cement in order to build a shop. Then the plan is changed but you still have your allotment of cement. Now you need lumber. You find an enterprise which has an excess of other things. The supply chiefs simply exchange the goods and so they get around the bureaucratism. A clever supply agent always finds a way out. (Informant 396.) Exchanges led to other abuses in the form of personal benefits to individuals : by exchanging materials people engaged in personal collusion. For example, it was often done for personal gain. Under the appearance of an exchange of commodities they often included output. This was not done as an official sale but as direct bribery. Say a shoe factory needs some small parts. They would merely exchange some shoes in order to get them. (Informant 26.) Both objectives, the desire to have easily exchangeable commodities and the desire for personal benefit, motivate enterprises to order large quantities of consumer goods for "technical purposes," goods which should have found their way not into industry but into the retail trade network. On January 1, 1940, almost two billion rubles worth of paper, textiles, leather, linoleum, and so forth were held in the warehouses of industrial purchasing organizations. 53 In the prewar period consumer goods appear to have played the role of a universal medium of exchange. An official of a chief purchasing administration complained in the press: 54 Everybody took work clothes, to excess. Right here, around my desk, stcod the supply agents and they asked for everything that fell under

110

Factory and Manager in the USSR

their hands. And once they left the office and got into the street, they exchanged gloves for iron, bedding for paints. Among industrial commodities, the scarcest materials were in great demand not only for direct use but for exchanging. "Because of its scarcity, metal has a high 'exchange' value," we read in an industrial newspaper. "Consumers, hoping for an advantageous exchange, try in truthful and untruthful ways to .obtain as much metal as possible." 5 5 The qualified right of enterprises to sell directly those of their excess materials and equipment not wanted by the chief administration, and the implied right of other enterprises to buy them, led to a lively amount of decentralized selling and buying. "Provident supply agents obtain hold of everything that falls into their hands, apparently in the hope that an exchange operation can be worked out 'later, with someone or o t h e r . ' " 5 6 In the process, the requirement that centralized commodities must b e sold through proper channels, and other restrictions, were increasingly neglected as people tried "to live peacefully and help each other." Many enterprises maintained "accredited agents," about whom more will be said later, whom they sent out on the road looking for supplies which the enterprise could use. A vast informal system of inter-enterprise procurement developed, which operated side by side with the formal system. Malenkov related the following amusing incident in his speech to the Eighteenth Party Conference: 5 7 T h e Central Urals Copper Refining Plant in Sverdlovsk County in 1940 sold off some pipe fittings to the office of the Chief Non-ferrous Metals Purchasing Administration for 100,000 rubles. And then a curious thing happened. At the same time as the director sold these fittings, the so-called accredited agent of this same plant was out looking for all kinds of materials and equipment for the enterprise. In the course of his searching he came to the warehouse of the Chief Non-ferrous Metals Purchasing Administration and saw there some fittings which seemed good to him. Not knowing that these fittings had just been sold by his own plant, the accredited agent bought them and brought them home to the plant, having paid 111,000 rubles [laughter]. Can you imagine, Comrades, what kind of order exists in this enterprise? In reality, in the case of such "operations," pardon the expression, the director should be put out of business: but since in our commissariats it is accepted that all such stupidities are carried out at the state's expense, the director feels perfectly at ease. I suppose the director even received a premium for a shrewd sale and the accredited agent received a premium for a shrewd purchase [general laughter]. The mounting volume of exchanges and illegal purchasing of materials and equipment finally led to direct action by the government. On February 10, 1941, the Presidium of the Supreme Soviet issued a famous decree which denounced the practice: 5 8

Safety Factor and the Production Plan

111

in many enterprises of industry and transportation there has occurred a squandering of equipment and material through sale and exchange with other enterprises. While the state provides equipment and materials to enterprises for definite purposes the managers of enterprises arbitrarily and illegally dispose of them by sale, by exchange, and by releasing them to other institutions . . . the sale, exchange, or release to other institutions of equipment and materials which are in excess and not being used, and also the illegal procurement of them, constitute a crime equivalent to the plundering of state property; in view of this, people guilty of these crimes must be brought to court and, if found guilty, sentenced to imprisonment for a period of from two to five years. A second decree was later published clarifying the formal procedures for redistributing excess materials and equipment. It contained a list of materials which could be redistributed only according to state plan, and it established a procedure whereby other materials could be distributed within the ministry. The illegality of exchanging materials was made plain to industrial managers by the frequent publication in the succeeding few months of reports about managers who had been sentenced to prison terms under this law.59 Undoubtedly the law had a considerable effect, especially in the period immediately following its passage. The spirit of those few months may be judged from accounts such as the following in the press: 60 The little letter was startling with its unusualness. The Bogdanovich Mining Administration of the Chief Administration of Refractories refused thirty complete cotton suits which had been allocated to it, and twenty pairs of leather boots, "since," wrote the supply agent, "we have no need for them." The officials of the Sverdlovsk office of the Chief Iron and Steel Purchasing Administration are used to finding in the morning mail letters and telegrams full of the most insistent demands for all sorts of things, but that someone might refuse, especially work clothing, this was unheard of. And letters with a similar content came frequently. But there are definite limits to the deterrent power of a law when the needs of plan fulfillment constantly conflict with it. Even before the passage of the law of February 10, 1941, officials guilty of exchanging materials could be brought to trial, but the practice nevertheless continued and increased. 61 Most of the exchange and resale operations were carried out under fictitious conditions designed to make them appear legal, such as falsely declaring a batch of production to be rejects, or selling materials to other enterprises under the guise of providing them with "technical aid." 62 The laws against the sale of equipment were evaded by devices such as "leasing" the equipment to other enterprises

112

Factory and Manager in the USSR

under a long-term lease," or giving them out to another enterprise "to be repaired." These evasions continued even after the passage of the severe law of February 10, 1941. During the war there was a considerable decentralization of the system of redistributing excesses. Commissariats were given the right to redistribute all material resources belonging to their enterprises, including fixed capital, 63 and enterprises were given the right to sell excess materials through the marketing organizations without the permission of the commissariats.64 In the postwar period the official drive against hoarding was resumed and given a great impetus by an unusually vigorous nationwide campaign to "speed up the turnover of working capital," which was launched in 1948. The campaign, by focusing the attention of Party and controlling organizations on the problem of reducing inventories, undoubtedly restrained the hoarding activities of management. In the press many enterprises were lauded for having unearthed and sold large quantities of illiquid and excess materials and equipment. It would seem, however, that the enterprises which had been the most successful hoarders in the past were able to achieve notable records in this matter, by contrast to enterprises which had not been hoarders in the past and therefore were unable to uncover enormous stocks and achieve fame. Although state pressure against hoarding increased after the law of 1941, the inefficiency which characterized the centralized system of redistributing reserves before the war continued to cause people to seek the less troublesome informal channels. The following is the picture drawn by a young engineer of the problems involved in obtaining a motor. He worked in industry in 1944—45, during the wartime period when centralized controls were relatively relaxed: Say I have a big motor in my shop for which I have no use. I need small motors instead. These motors exist at some other plant and are not needed there. At this other plant they need big motors. Now I know the shop chief and we could exchange these motors very easily. I go to the chief engineer and propose to arrange such an exchange. He agrees with me and we both go to the director. He wants to do it but he is afraid because if the Party secretary hears about it he may report it and say that something unlawful has been done. The law says that all machines or all equipment in general must be turned over to the Machinery Rebuilding Trust. The Machinery Rebuilding Trust 0 "It may be thought that such a law [the Law of February 10, 1941], would put an end to the civil law problems involved in the transfer of superfluous equipment and materials. Perhaps the framers of the law had such a thought. If so, they were soon to be disillusioned. The major question which now confronted Gosarbitrazh [the State Arbitration Commission] was whether the lease of superfluous equipment and materials fell within the prohibition to sell, exchange, or release." Several cases are then given of the leasing of equipment presumably in order to evade the law against resale. Harold J. Berman, Justice in Russia (Cambridge, Mass , 1 9 5 0 ) , pp. 6 8 - 7 0 .

Safety Factor and the Procurement

Plan

113

reports to the State Planning Commission and the State Planning Commission redistributes the equipment. But this process might take two years. But the director is afraid to give his permission to our proposal. If the Party secretary hears about it there will be a scandal and the director will go to court for an unlawful action. Therefore he will not allow us to do it. (Informant 16.) The conditions of operation, the slowness of the bureaucratic process, still impelled the engineer to evade the prescribed formal procedure, but he is deterred by the fear of the law. One of the things which comes with experience in the Soviet system is a shrewdness in circumventing the law. A little later on in the interview the same informant stated: When this case which I have just described happened to me I was still inexperienced. Later I would not have proceeded in the same way. I would have arranged with the chief engineer to send this motor to the other enterprise officially, for repairs. We would have said that we had only sent it for repairs. Nobody would have noticed anything. Q. But wouldn't they have noticed it at a later date? A. Yes, of course, but this would have occurred a year or two later and the chances are that no one would have noticed it. On May 13, 1955, the government decreed the abrogation of the 1941 law. Persons still in prison for convictions under that law were to be freed, and the records of conviction to be expunged. 65 Unauthorized exchange or resale is now punishable only by administrative and not criminal sanctions. If the new law of May 14, 1955, on redistributing surpluses does succeed in simplifying the procedure, then the motivations for unauthorized exchange and resale will be weakened. There is no reason to expect, however, that the volume of hoarding or of lawful resale and exchange will be reduced, for the causes of these practices, primarily the unreliability of the procurement system, remain untouched by the new legislation.

T H E A S S O R T M E N T OF

PRODUCTION

VIII

The second principle of management encompasses another group of practices associated with plan fulfillment. Every Soviet manager wishes to fulfill his plan if he can. But in a system characterized by high targets and uncertain sources of supply he is constantly confronted with the threat of failure. The thoroughly scrupulous man would try his best in these circumstances and if he failed would eventually be replaced by a more promising candidate. Most managers, however, are unwilling to admit defeat so easily. Those who mean to remain managers and succeed in doing so have developed a formula which the Russians call ochkovtiratel'stvo. Literally, the term refers to cheating at card-playing by altering the character of a card. In economic activity it signifies the simulation of successful performance by some deceptive manipulation. Simulation is a normal recourse of a manager in the normal situation of impending underfulfillment. The term punctuates the testimonies of our informants in their discussions of managerial activity. The methods of simulation are among the most common and enduring subjects of official castigation. Like the safety factor, simulation is a general principle of management. The enterprise production plan contains, in addition to a target figure for total value of output, a number of subtargets for individual products. The principal products are usually specified in considerable detail, with quantities expressed in physical units as well as in ruble values; less important products are listed by groups, such as "metal products" or "consumer goods," and expressed only in ruble values. Size or grade specifications are included for the principal products but omitted for the less important ones. The list of specific product targets in the production plan is known as the assortment plan; a typical one is shown in Table 2. One of the most prevalent forms of simulation is "violation of the assortment plan," that is, overfulfillment of the targets for some products while the targets for other products are underfulfilled. To the reader of Soviet economic literature, statements such as the following are a familiar theme: 1

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116

Factory and Manager in the USSR

The violation of the planned tasks of assortment of production is frequently the result of narrow-minded departmentalistic and provincial tendencies among some managers, who try to make their work easier and produce those products which require the least effort and care. This practice results in direct damage to the interests of the state, causes unnecessary expenditure of labor and materials, and may lead to the development of disproportions in this or other branches of the economy. The unconditional fulfillment of the production plan by every enterprise in the established range and assortment of products must be the immutable law for all enterprises and all branches of industry . . . Often enterprises which do not fulfill their assortment plans overfulfill their planned tasks for the over-all volume of gross output. This vicious practice is a gross violation of state planning discipline. Overfulfillment of the plan of gross value of output while the plans for the most important types of production are underfulfilled signifies that such an enterprise has permitted the overplan output of less important products, and in many cases of products the full demand for which could be met merely by a 100 per cent fulfillment of the plan. The seriousness with which the state views this form of simulation is indicated by the strong terms in which it denounces it, by the frequency with which such criticisms appear in the press, and by the persistence of these criticisms over the years. It was one of the major problems singled out for castigation by Malenkov in his report to the Eighteenth Party Conference in 1941. Eleven years later, in almost the same words, he condemned the practice again in his report to the Nineteenth Party Congress. Unfortunately, there are no continuous statistics to which we may turn for a more definite assessment of the extensiveness of the practice. Such figures as can be found are widely scattered and usually deal with individual enterprises and ministries. The figures given, moreover, are undoubtedly selected for publication because they are extreme. For example, the enterprises of the Chief Administration of Construction Machinery fulfilled their individual product targets in 1939 as follows: for eleven products less than 50 per cent, for ten products from 50 to 75 per cent, for fifteen products from 75 to 100 per cent, and for seventeen products over 100 per cent.2 Occasional figures for the postwar period confirm the persistence of the practice but provide no better basis for a quantitative judgment.8 Finally, the practice is frequently reported in the testimony of our informants. Informant 405, an official of a statistical agency, whose work depended upon the accuracy of the reports submitted by enterprises, had this to say: This was a constant comedy in the planning department of the territorial council. Either the firms produced unplanned items, or overpro-

The Assortment of

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117

duced planned items which were easy to produce and beneficial to them. They also exaggerated the volume of goods in process. As a result the monetary aspect of the plan is fulfilled, but the content is not there. Yet the plan is considered fulfilled. This was done often in manufacturing industry. Q. How would this affect the reported output of, say, coal? A. There too there is simulation [ochkavtiratel'stvo]. Instead of five million tons, they report six million tons. They do it every year. REASONS FOR VIOLATION OF T H E ASSORTMENT PLAN

At the beginning of each month the enterprise starts out on a production schedule designed to produce at least the planned quantities of each of the products in its assortment plan. As the end of the month draws near, management takes stock of the course of production, and may conclude that to continue striving to fulfill the targets of all products would result in too low a total value of output. It is in such a situation that the decision is taken to revise the production schedule in favor of certain products at the expense of others: 4 Now they are earnestly setting about to begin "storming" the combine and harvester shops. The first sign of the gathering storm is the transfer of the seeder shop to a starvation diet. The supply of forgings and castings to that shop is reduced, although its production plan for the next quarter has not been reduced below that of the first quarter. The second sign is the concentration of labor power in the combine and harvester shops, to the detriment of all other production sectors of the enterprise. The condition that makes violation of the planned assortment an expedient form of simulation involves the cost-price ratios of the different products. These ratios are generally such that it is possible to obtain a larger value of total output by concentrating on certain products rather than others. The most general statement of this discrepancy in cost-price ratios is that certain products are more "advantageous" than others; this is how it is often expressed in the interviews and in the literature. Said Informant 316, who had been a chief of a production planning department: The calculation of percentage fulfillment is all done in money terms. Some jobs are more advantageous than others. If at the end of the month the plan is going badly, I would tell the chief engineer and he would order the plant to concentrate upon the more advantageous products. Say the planned average unit cost of production of products A and B is 10 rubles, but the sale price of A is 12 rubles and the sale price of B is 15 rubles. This is typical of the data confronting the enterprise. The plan

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Factory and Manager in the USSR

provides for the production of 1,000 units each of A and B, at a total output value of 27,000 rubles and a total production cost of 20,000 rubles. Now suppose the enterprise finds that its average cost of production of both commodities proves to be 10.2 rubles, so that it cannot meet the planned average unit cost of 10 rubles. It may nevertheless be possible to meet the total cost target and the total value of output target. Suppose both products are produced near the minimum points of their average cost curves, so that for small variations in output marginal costs are approximately equal to average costs.* Then every 10.2 rubles worth of resources withdrawn from the production of product A causes a loss of output value of 12 rubles, and every 10.2 rubles worth of resources put back into the production of B increases the total output value by 15 rubles. Thus, the transfer of 10.2 rubles worth of resources from the production of A to that of B increases the value of output by 3 rubles. If the enterprise divides its funds of 20,000 rubles equally between A and B, it can produce only 980 units of each, at a total value of 26,460 rubles, and will underfulfill its output plan by 540 rubles. But by shifting its resources so as to produce 180 units less of A (decreasing output by 2,160 rubles) and 180 units more of B (increasing output by 2,700 rubles), the total output can be increased by 540 rubles. Both the output target of 27,000 rubles and the cost target of 20,000 rubles are fulfilled. Plan fulfillment is simulated and premiums earned by the production of an unplanned assortment. Of course, Soviet managers do not see their alternatives in quite this general form. This description is the rationale behind the observed actions and is synthesized from a number of partial statements. It is common, for example, to find the choice expressed in price terms alone. "If you cannot fulfill all your products, you will concentrate upon the highest priced ones," stated Informant 26. And the following typical quotation from the press:5 Items which the shops consider "disadvantageous" for themselves are often not produced. They fulfill the plan by means of the higher priced items. For example, the universal shop, which did not fulfill its plan for micrometers, compensated for this by the production of the more expensive indicator instruments. Plant director Comrade Zhil'tsov knows full well about this "practice" but he has taken no steps to stop it . . . " The point to be made does not depend on this simplifying assumption. All that is necessary is that the "marginal profit" be different for the two commodities, as it will be in the general case. Then the total value of output can always be increased by shifting resources into the production of the commodity with the greater "marginal profit." With steeply sloped marginal cost curves, however, circumstances can be imagined in which the shifting of resources will not succeed in achieving the total value of output target and/or the total cost of production target.

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In the plant they are so accustomed to underfulfill the assortment plan that most of the shops and sections (the third section of the universal shop, the tool shop, etc.) write into the obligations they assume: "to fulfill the assortment plan 85-90 per cent!" And all this is done right under the nose of the Chief Instrument Administration. Clearly, the relative prices of the products are but part of the picture. For if the higher priced product requires a more than proportionate consumption of materials or labor, the total value of output is not increased but decreased by the shift of resources to that product. These statements are reasonable only under the assumption that the unit-cost ratio of the marginal outputs of the two products is less than their price ratio. If, for example, the price of A is 20, the price of B is 10 and the cost of producing one more unit of A is 10, then it would be advantageous to shift production from B to A only if the cost of producing one more unit of B is greater than 5. While partial statements such as these emphasize the price side of the argument, others confine their explanation to the cost side: Q. Suppose it develops that the plan may be underfulfilled. On what products would the director choose to concentrate his production? A. He will take the easier ones. Say there are not enough materials according to the plan. He cannot fulfill the assortment. Or second, he must lower the cost of production. He would try to take the easier product, therefore, the one which requires the least labor. Or he might produce more trousers than jackets. In heavy industry he will take the easier products. (Informant 396.) This too is only part of the argument. Obviously if the price-to-cost ratio of the high-cost product is greater than the corresponding ratio for the low-cost product, then factors will be shifted into the production of the high-cost product. In the terms of the equilibrium theory, familiar to western economists, the deviation from the planned assortment proceeds in the direction of the greater marginal value product. Sometimes the informants come close to a complete description of the general problem in terms of both cost and price: They concentrate upon those products which are easier to produce because of the higher productivity of labor. With the same number of workers they can produce more in money terms. (Informant 405.) Say a certain product is very highly priced, but it requires very much labor. Then you will prefer a lower priced product which takes less labor. In the same way you try to economize on materials. Thus you do not always emphasize the highly priced product. (Informant 26.)

120

Factory and Manager in the USSR SPECIAL CASES

In any economic system the operation of a general principle is often obscured because of certain rigidities or limitational factors. In the case of the Soviet firm, one such special case, which in fact is a fairly common case, is the shortage of one or more factors of production. The supply of materials and labor to the enterprise is limited in the first place by the system of planned allocation; and in the second place, even when informal techniques may be used to circumvent the restrictions of the plan, by the real scarcity of resources in the economy. Therefore the manager thinks not in terms of shifting a rubles worth of resources from one product to another, but in terms of the benefit to be gained by shifting a unit of the factor of production which is scarcest to him and which constitutes the bottleneck in his production. It may be a material: "They might produce a larger assortment of smaller size suits, and thus save on materials." (Informant 396.) Or it may be labor: "Since premiums are paid in this enterprise for plan fulfillment without considering assortment, the shop chiefs, in the drive for tonnage ahead of everything else, intensify their efforts to produce ordinary wire which is less labor-consuming." 8 Thus, it is the scarcest factor of production which determines the direction in which production will be shifted. However, if the scarcest factor is highly specific (that is, if it can be used for the production of only one of the products) or if it is subject to such tight control that it would be too dangerous to employ it for a purpose other than planned, then something else may be shifted. Often the assortment actually produced is determined by the materials which happen to be available among the carefully husbanded hoards in the warehouse. Another special case arises when there are discontinuities in the cost function, that is, when costs rise sharply at some point. Precise fulfillment of the planned assortment often requires a certain amount of retooling, which involves a cost in labor and machine time. It is not merely a matter of shifting factors of production smoothly from one product to another, with a loss in one case compensated by a greater gain in another. The very act of shifting involves a certain loss. Enterprises usually overproduce output which has already been tooled-up. Usually plan fulfillment is based upon production which is already tooled-up, and underfulfillment is due to products for which the enterprise is not yet tooled-up. Therefore the director tries to fulfill his summary plan on the basis of the products already tooled-up. (Informant 485.) A number of special considerations are lumped together in the reported preference for the "easiest" product. "Say it is near the end of the month

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and he cannot fulfill the whole plan. Then he takes the easiest order. It may happen to be some order which was supposed to be filled next month, but he fills part of it now." * The meaning of the "easiest" product varies from industry to industry. It may be defined by the rate of spoilage: "Shirt cloth was more difficult than bandage cloth. We would always have more spoilage." (Informant 384.) In a complex technology such as machinery manufacturing, the easier product is commonly defined as that whose production process has already been mastered. New and untried products are a hazard, and the learning process is costly. In reply to his own rhetorical question as to why managers insist in producing obsolete models, Bulganin answers, "apparently because it is easier and simpler to produce obsolete models. Switching to the organization and production of new goods calls for hard work and the overcoming of difficulties. One can run into trouble if he is not careful." 7 The soundness of Bulganin's explanation can be seen in bits such as the following:8 Under various pretexts, however, the "Hammer" Plant has put off the production of "RP." The basic reason is that for the introduction of this new machine they will have to eradicate a number of difficulties, first among which is their technical backwardness and a handicraft way of doing things. For the "RP" you need a very specific steel, cast iron of a definite hardness, the polishing machine has to be used; there is truly a lot of trouble involved in this machine. The plant management decided to put off the production of "RP." A month passed, two, three. Comrade Koshel', the plant director, and Comrade Rysikov, the chief engineer, said, "Let us fulfill the program for 'Iskra,' then we will produce 'RP.'" The annual production program of the enterprise was fulfilled on time, but "RP" has still not been produced. This is all the more intolerable, since machine "RP" is to be the basic output of the enterprise for 1940. Deviation from the planned assortment applies not only to discrete products but also to different size groups of the same product. Informant 90 described the case of a shoe factory in which the materials used for producing large-size boys' shoes were the same as those used for smallsize men's shoes. But the planned cost target of the latter was twice as high as that of the former. "Naturally," said the informant, "the factory underfulfilled its production tasks for boys' shoes. Therefore in the Soviet Union it was difficult to find shoes for boys with large feet." The assortment problem among sizes is analogous to that among products, for there are advantages to be gained by producing one set of sizes over another. "Informant 610. Mash. (July 21, 1939, p. 1) reports that "production personnel try to 'put pressure' on those pieces which are easier to produce, thus driving up the percentage fulfillment in monetary terms."

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Given unequal cost-price ratios, violation of the assortment plan is the logical consequence of the premium motivation. With this formulation a large body of typical economic behavior may be said to be explained. A complex and many-sided economic system, however, will not submit so easily to description by so simple a formula. For there are other apparently systematic forms of behavior involving violation of the assortment plan which are not explained by this formulation. If there is a more general explanation which will encompass all the evidence, it is not readily apparent. There is first the question of the unit of measure by which plan fulfillment is determined. It was shown earlier (in Chapter III) that in the prewar period managers made different decisions according to whether plan fulfillment and premiums were determined by gross output or market output. In the postwar period it seems that the state definitely decided upon market output as the basic measure of plan fulfillment. The premium law of 1946 clearly requires that premiums be paid according to the percentage fulfillment of the market output target. "The enterprise is judged and bears responsibility before everything else for the fulfillment of the plan of market output . . ." states the Encyclopedia of Machinery. 9 If our formulation of the relationship between premiums and violation of the assortment plan is correct, one would expect factors of production to be shifted in the direction which increases the value of market output. However, the evidence indicates that this is not always the case. Attention is called to "the continued vicious practice of a race by managers of enterprises to fulfill the plan of gross output by means of products of secondary importance, to the detriment of plan fulfillment of the assortment plan of basic products." 10 Socialist competitions are won by enterprises which "fulfill the plan for gross output alone, forgetting about qualitative indices." 11 If premiums are paid on the basis of market output, the apparent continued importance of the gross output target contradicts the assumption that premiums are the dominant goal of management, and casts doubt on our formulation of the relationship between premiums and the assortment problem. Several possible explanations may be offered. First, while market output may be the basic criterion of performance of the firm, the more general measure of gross output may be the criterion of performance of the ministry. Economists who look at the whole economy and not primarily at the firm seem to adopt this view: "By gross output, along with indices of production in physical terms, we judge the fulfillment of the plan for the enterprise, for the branch of industry, for the ministry, for industry as a whole." 12 If this is so, plant management

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will take account of the ministry's primary interest in gross output. They will combine in some way their striving for gross output to satisfy the ministry which distributes premiums, and for market output on the basis of which premiums are distributed. Second, the critics may be in error in interpreting as the objectives of management gross output rather than market output. Or, third, the relationship of current prices (at which market output is measured) to constant prices (at which gross output is measured) may be such that the best decision in terms of current prices happens also to be the best decision in terms of constant prices; in this case, market and gross output come to essentially the same thing except for the net change in goods in process. For the period before 1949, when gross output was valued at the so-called "constant prices of 1926-27," the latter explanation is highly unlikely. No consistent relationship was to be expected between the current and constant prices of products. There were some products, the constant prices of which had been established back in the 1920s, but since then the technological process had improved so much that the current prices, even under conditions of rising costs, were less than the constant prices.® There are other products whose prices had been affected by rising costs so that their current prices were well above their constant prices. And even among these products there was no reason to expect any systematic distribution of the differences between current and constant prices, that is, the rank order of products by constant price did not in general correspond to the rank order by current price. Therefore there was no reason to believe that the enterprise that wished to increase market output would make the same decision as it would have made had it desired to increase gross output. None of these explanations of the persistent emphasis upon gross output is fully satisfactory. Since 1949, however, the problem has no longer been crucial. In 1949 it was announced that the old constant prices of 1926-27 were no longer to be used for the computation of gross output. During the Fifth Five Year Plan (1951-1955) the prices of January 1, 1952, were established as the official constant prices for the valuation of gross output. During the Sixth Five Year Plan (1956-1960) the prices of * "May we accept the constant price of standard bricks in the enterprises of the South and the Urals at 38 rubles a ton, when the price of bucket bricks is 130 rubles? The price of bucket bricks was set back in the days when they were made by a process of hand forming. Now they are made in mechanical presses, and the production outlays have fallen considerably. Consequently the constant price of bucket bricks must be brought into closer correspondence with the price of standard bricks, or the enterprises which manufacture both kinds will always strive to produce more bucket bricks at the expense of standard bricks. This is advantageous for them because, even if they do not fulfill their plans in real terms, they will nevertheless be considered as having overfulfilled their production programs." Cher, met., November 19, 1940, p. 2.

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13

July 1, 1955, are to be used. Under these conditions large variations between current and constant prices are no longer to be expected. Except for changes in the value of goods in process, any deviation from the planned assortment which increases market output will also increase gross output. PROFIT AS AN EXCEPTION

The second body of evidence which is not fully accommodated by our explanation of the assortment problem in terms of the premium motivation is that which ascribes the crucial role to profit considerations. It is in the context of the assortment problem that the strongest case can be made for the importance of profit as a goal of management. The evidence consists of statements of the following kind: 14 In 1948 the garment factories of the Ministry of Light Industry earned a large profit on their wool dresses and at the same time suffered a loss on children's suits and other children's items. As a result of this the output plan of wool dresses was greatly overfulfilled despite the absence of a large demand for them, while the output of children's items lagged behind the plan, although there was a large demand for these goods. Some statistical data have been advanced to support this view. Turetskii,* for example, states that in the textile and iron and steel industries in the first quarter of 1938 the highest percentage overfulfillment of plan was achieved for those products for which the rate of profit was highest. The rates of profit on lining and toweling production, for instance, were 7.5 per cent and 7.7 per cent; the production plans for these products were fulfilled 135.5 per cent and 106.8 per cent. The profit rate on satin was only 0.4 per cent, and the production plan for satin was fulfilled only 81.1 per cent. The production of calico involved a loss of 0.9 per cent, and the production plan for calico was fulfilled only 82.2 per cent. Such data support the view that profit is a major consideration in production decisions. This view is in marked contradiction to the large body of evidence which stresses the dominant role of the premiums as the basis of decisionmaking. The area of disagreement may be narrowed somewhat by introducing certain qualifications into our original formulation. First, probably few would deny that if the relevant cost-price ratios happened to be such that either the output plan or the profit plan could be overfulfilled but not both, the choice would be made in favor of the output plan. That this choice is not always made can be explained by a number of con" Sh. Turetsku, "Voprosy tsenoobrazovanna" Planovoe khoziaistvo, no. 6, 1938, p. 72.

(Problems of Price

Formation),

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siderations.15 Undoubtedly much of the actual violation of the assortment plan is the consequence not of a deliberate decision by management but of certain deficiencies in planning, production, or procurement which make it physically impossible to fulfill the plans of some of the products. Suppose cost-price ratios were such that the value of output could be increased by shifting resources into overfulfillment of the output plan of product A. Suppose further that certain materials which were necessary for the production of A were not available. A would then no longer be a feasible product and some other products would be emphasized. To the outside analyst who had at his disposal only the cost-price ratios but not the information on the unavailability of materials, this decision would appear to contradict the view of the dominance of value of output, and therefore of premiums. But in choosing among the various feasible products, management may nevertheless have favored those which count for most in fulfillment of value of output. Second, the choice is not always in terms of the mutual exclusion of profit or plan fulfillment; sometimes both may be fulfilled by a deviation from planned assortment, but the choice involves how much of each. If the safety factor is sufficient to permit a large overfulfillment of the production program, the enterprise will still hesitate to overfulfill it too much for fear of causing the plan to be raised too high in the next period. Consequently attention can then be turned to some of the other indicators of performance, among which profit ranks high. Third, special circumstances may heighten the importance of profit to the enterprise. Informant 26, who had been quite emphatic about the primary importance of gross output as the basis of decision-making in the assortment problem, noted the following exception: "But sometimes the financial position of the enterprise was so bad that it had to concentrate on the production of the type of product whose planned price would give the most profit. Therefore it may be that the need for profit will cause the plan to be underfulfilled in certain items." A fourth complication is introduced by the fact that sometimes specific premiums are provided for certain groups of officials for the fulfillment of the profit target. To the extent that these officials can impose their will in production decisions they may, if these specific premiums are large enough, favor profit over plan fulfillment in some instances. But this may also result in a collision with the interests of other groups in the enterprise. For example, according to the premium statute of June 2, 1940, the director and the chief engineer of an iron and steel plant received specific premiums in proportion to the percentage overfulfillment of the profit target. The shop officials, however, received their specific premiums for overfulfillment of the cost reduction target. Within their own bailiwick the shop officials were able to discriminate against certain planned

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products which threatened the fulfillment of their cost reduction target. If the products discriminated against had happened to be the more profitable, the shop chiefs' decisions would have reduced the premiums of the senior management. 16 Other cases are reported in which shop officials, pursuing their own advantage, disrupted the production schedules of the shops which they serviced or provided with semi-fabricates. Such conflicts of interest within groups of management, which are complicated by differing systems of specific premiums, make it difficult to disentangle the various motivations at work. Fifth, the violation of the assortment plan is determined not only by the motivations of managerial officials but also by the opportunities available for the achievement of their objectives. "Enterprises which produce a broad assortment of products are always in a better situation than those which have only a small range of products." Appreciation of this fact leads management deliberately to extend the range of its production beyond what may be economically expedient, for the greater maneuverability afforded by a large assortment constitutes a safety factor. 17 Cases also occur in which the relevant cost-price ratios are such that even though management prefers premiums to profit, advantage can be taken only of those cost-price ratios which increase profit. Suppose, for example, that cost-price ratios expressed in constant prices were such that a large deviation from planned assortment would be necessary in order to yield a small increase in percentage fulfillment; whereas costprice ratios expressed in current prices were such that a small deviation from the assortment plan would yield a large increase in profit. This enterprise would look to some other form of simulation in order to fulfill its production plan, but it would be strongly tempted to deviate slightly from the assortment plan for the sake of the secondary criterion of profit. Violation of the assortment plan is only one of the wide variety of forms of simulation available to the enterprise, and will be used only if the particular combination of circumstances makes it expedient. Of these circumstances the most typical, but not the only one, is that associated with differences in cost-price ratios. Thus, if a group of managers were asked to name the considerations involved in decisions governing assortment, they would list different items, reflecting the special conditions in each enterprise; but the consideration which is likely to be named most often is that certain products do more to build up the value of output. The following excerpt from the interview with Informant 388 illustrates this kind of reply: Q. Suppose the plan is fulfilled five days before the end of the month. What would you produce in those five days? A. You can decide what you will produce. You will push those products which are the most advantageous to you. First, you will

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usually prefer the order of that firm which also happens to supply you. Second, you will prefer the orders which are planned for the following month but which are difficult to fulfill. You will try to get a head start on them. Third, you try to take those products which are most expensive, and which do the most to inflate your output. PRIORITY AS AN EXCEPTION

The third set of data which constitute exceptions to our simple formulation of the assortment problem involves whole classes of commodities. On the one hand is military production, which enterprises always strive to fulfill regardless of cost-price considerations. On the other hand are several groups of commodities which are systematically underfulfilled for reasons other than cost-price considerations. The larger proportion of all industrial production, to which the cost-price formulation of the assortment problem does apply, falls between these classes. The key to the regular fulfillment of military production is the priority concept (see Chapter X I ) . In the absence of priority considerations the assortment plan as confirmed by the ministry is supposed to be the unequivocal guide to production decisions. Ideally, the assortment plan of the enterprise is the reflection of the state's "scale of preferences," in the economic jargon. T o produce less of one product and more of another than planned is to produce a combination of products whose combined value to the state is less than the value of the combination as originally planned. T h e most commonly used measure of fulfillment of the assortment plan expresses this in a formula in which the assortment plan is underfulfilled if a single planned product is underfulfilled; no amount of overfulfillment of some products can offset the underfulfillment of even one of the products. 18 While the assortment plan may be a satisfactory translation of the state's scale of preferences into the targets of the enterprises, there are potent reasons that the state cannot rely solely upon this device. For one thing, the assortment plan is an ambiguous guide to certain production decisions. It serves as a guide only up to the point at which each of the planned products is fulfilled in the minimum quantity; beyond this it offers no basis of choice as to which products the enterprise should overfulfill. If it appears likely that all the products in the planned assortment cannot be fulfilled in the minimum quantities, it does not tell the managers on which of these products to concentrate. And finally, if some enterprises have begun to lag in their plan fulfillment, the assortment plans of other enterprises may cease to reflect the preferences of the state. To meet such problems the state requires managers to be attuned to the relative priority of the various products included in its assortment plan; then, when elements of ambiguity arise with respect to the assortment

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plan, the managers can determine which are to be produced first by reference to the relative priorities. The system of priorities thus sets limits to the manager's willingness to follow pure cost-price considerations in determining his assortment. While he cannot always be sure that he has judged relative priorities correctly, in the more important instances he can usually gauge the limits properly. 18 Thus it is safe to say that the state can assure the first-order production of those products which it deems of overriding importance to itself. In the case of military output, for example, the supreme priority position of this production is sufficiently ingrained in the awareness of management that it is never likely to be discriminated against for economic reasons. Special jobs upon which the Party or prominent officials are currently focusing attention are also likely to be executed immediately. But a whole economy cannot be operated in this "shock work" fashion. When the lines of priority become blurred, economic considerations come to the fore and deviation from the assortment plan becomes a normal pursuit of the manager. When the press inveighs against managers who, in the pursuit of premiums, produce items of secondary importance at the expense of items of greater importance to the state, it may be assumed that the extremes of the priority scale are not involved. The commodities which are systematically underfulfilled for reasons other than cost-price considerations are spare parts, subcontracted output, and consumer goods produced in small quantities by producer goods enterprises. The undervaluation of spare parts production may be illustrated by the "vile practice" of "borrowing" from the warehouse parts which are to be shipped to customers but which the enterprise subsequently finds to be required for its own basic production: 20 Thus, for example, on July 2 a total of twenty-five rear drums were produced and recorded as spare parts; but of this group fifteen drums were later removed by order of Production Chief Comrade Pashin, to be used in assembly. On July 1 Pashin ordered that thirty latches be taken from the spare-parts warehouse. The matter has come to the point where pieces are taken away even after they have been loaded for shipment. This happened on the first of the month, on the second shift, when by order of the plant management the workers on the chief conveyer took one hundred rear drums from the freight car which was going to Rostov, to an automotive assembly plant. It is to be noted that the enterprise had indeed sought to fulfill its spareparts plan, but when spare parts conflicted with basic production the decision was clearly made in favor of the latter. While in this case the choice was based on something other than cost-price ratios, it is interesting that in decisions governing the assortment of spare-parts production, the cost-price principle does emerge. We read of the "insufferable prac-

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tice which has sprung up in the Stalingrad Plant and to some extent in the Kharkov Tractor Plant of first manufacturing an enormous quantity, perhaps a two or three months' supply, of those simple parts which are easy to produce . . . The managers of these plants evidently want to dress up their output of spare parts in monetary form." 21 Subcontracted output is also considered a stepchild of the enterprise. If the output is designated for enterprises outside of the ministry of the producing enterprise, the reason is not difficult to see: failure to deliver will not harm the plan fulfillment of the ministry and therefore will not be treated too harshly. If the subcontracted output is destined for another enterprise in the same ministry, then the enterprise is less likely to neglect it; but in a choice between its own output or the subcontracted output, the former will clearly be preferred. For "subcontracted orders are not considered one of the indices of plan fulfillment. This determines the attitude toward them in enterprises. It is characteristic that not one commissariat has correct information on the fulfillment of subcontracted orders for 1939." 22 A substantial proportion of all consumer goods is manufactured by producer-goods enterprises which are authorized to maintain special shops for the production of an auxiliary line of consumer goods. Metalworking enterprises, for example, are an important producer of iron beds These enterprises, however, have always considered consumer-goods production as a matter of secondary importance. Prices of consumer goods have been set so as to encourage their production, and the fact that enterprises have nevertheless persisted in neglecting them is an indication of the relative unimportance of profit compared with premiums. "If you overfulfill your plan of basic production," stated Informant 25, "you get progressive increases in premiums. If you overfulfill the plan for consumer goods, the rates of premiums are less. This discourages the tendency to overfulfill the consumer-goods plans." That undervaluation of consumer-goods production is a matter of conscious choice can be seen from the criticism of managers who "use the consumer-goods shops as a reserve for the production of basic output." 23 When a shortage of factors of production begins to loom, workers are transferred 24 from the consumer-goods shops to the loading and unloading of freight cars, to the overhauling of furnaces and to other work in the plant. Comrade Loktionov, director of the Nytvensk Plant, gave the consumer-goods shop in the third quarter only one half of the workers they needed, motivated, as he said, by the fact that the chief administration had given very tight limits of labor to the enterprise and there was enough only for the basic shops. In the prewar period, when the premium systems were established by individual commissariats, the neglect of spare parts, subcontracted output

ISO

Factory and Manager in the USSR

and consumer goods could be largely explained by the fact that these items were often not included in the computation of production-plan fulfillment. As long as the commissariats merely exhorted enterprises to fulfill the plans of these items but did not provide premiums for them, they tended to be neglected. The failure of the commissariats to provide premiums for these products may perhaps be explained by several factors; they simply may not have got around to revising their premium systems soon enough; or they may not have appreciated the influence of the premium system upon the enterprise's output decisions; or, since the commissariats themselves were judged primarily on basic production, this being the most important output and also the easiest to measure, they wanted their enterprises to assure the production of basic output before that of the less important products. The centralized premium law of the postwar period, however, requires that premiums be paid in proportion to the market output, which includes marketed spare parts and subcontracted output as well as consumer goods. The continued neglect of these products in the assortment of the enterprise's output cannot now be explained primarily on the basis of the premium system, unless it can be shown that costs and prices are such that these products continue to be disadvantageous from the point of view of plan fulfillment. The postwar data are too sparse to judge. It may still be true, however, that the ministry desires first of all to report the successful fulfillment of the major products, and communicates the priority of these products to the enterprise through such devices as the award of premiums. S A N C T I O N S A G A I N S T DEVIATION FROM PLANNED ASSORTMENT

When a manager deviates from the planned assortment for the sake of his own plan fulfillment, someone who was supposed to receive certain commodities will have to do without them. And other commodities are produced in greater quantities than had been planned. Can the manager go blithely about his own business without regard for the market for his products? In the case of the highest priority customers such as the military, customer reaction is clearly taken into account. But the reaction of lower priority customers is less a source of concern. At the worst, the planned purchaser may bring suit for breach of contract and be awarded damages. Although there is evidence from the literature that the amount of litigation and damages awarded for breach of contract is rather large, there is also evidence that in many cases customers fail to press their legitimate claims. This is especially true when the producer is a large and important firm, and it would be an unwise move by the customer to antagonize its managers by legal proceedings. But more important is the fact that financial losses are secondary to the considerations of plan ful-

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fillment and premiums. If there is a clear choice between no fines and underfulfillment on the one hand, and fines plus overfulfillment on the other, there is little doubt that the latter alternative is preferred. Of the many indications of this preference in the interviews and the literature, we may present the case of a firm which was in a dilemma because of the late arrival of customer orders. Orders generally did not arrive until February or March, and the firm had to find some way of building up a backlog of unfilled orders from one year in order to schedule its production for the first few months of the next year. It decided to enter into contracts for a larger volume of output than it could possibly produce during the year: 25 But deliberately to enter into contracts for the delivery of a greater amount of output than it can produce in one year means, first, that they deceive the purchasers, and second, that they intentionally expect to pay fines and penalties for breach of contract. Choosing the lesser of two evils the plant management selected the second alternative, since it is better to pay out 200,000 rubles in fines than to stand idle for a whole quarter. The manager who deviates from the assortment plan must also reckon with the possibility that an irate customer against whom he discriminates may go outside of legal channels and invoke strong Party or government support. Then it is no longer a case of ordinary customer pressure but of politics or priority. It may well be that if the producer underestimates the political importance of a customer he may have to pay for his poor judgment with his job. Undoubtedly many a manager has made a production decision discriminating against one customer in order to fulfill his plan, quite confident that nothing much would come of it; and later found to his amazement that a hornet's nest had been stirred up, with Party and government inspectors descending upon the enterprise in great numbers, and most unexpected consequences following. The successful manager is the one who makes this mistake least often, whose "nose" is better trained to guide him through the uncertainties of politics and priority. More interesting than customer reaction to underfulfillment of planned products is customer reaction to overfulfilled products. We read a good deal in the press about unsold goods piled up in warehouses because managers found these commodities to be "advantageous" for their own production plans. The fact is that in general managers are not seriously concerned with the problem of marketing goods. The system of industrial procurement, as it works in practice, is such that there are no real obstacles to purchasers buying products that were not included in their plans. If the producer overproduces commodities for which there is a general demand, he usually expects to be able to market them. The com-

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bination of high production targets, shortages of commodities, and the general preoccupation with a safety factor virtually assures the producer a market for his products. The sense of the system is that purchasing and production alone are important, and marketing will take care of itself. When this judgment proves wrong in some cases and output remains unsold, the manager faces temporary financial difficulties. But when a choice must be made, it is better to pile up the warehouse with temporarily unsalable goods than to underfulfill the production plan. Of first importance, argues the manager, is plan fulfillment. This is what the ministry looks for first, this is what the minister and the director wish to report to their Party peers and administrative superiors, this is what is published in the quarterly reports of the State Planning Committee, and this is what premiums are paid for, legally or illegally. If some of the products are not marketed immediately, this rarely becomes serious. While in general marketing poses no great problems, actual practice varies with the type of production. At the one extreme is production to special order, in which overproduction is clearly ruled out. It would be difficult to find a buyer for an extra steel-rolling mill. Next to special-order production is job-lot production, in which products are produced in small quantities, also often to special order. Here too, if the output is highly specialized, the manager cannot, in general, be as callous as his colleagues to problems of marketing. But it is revealing that even with this type of production managers sometimes find it expedient to overfulfill some output, apparently not bothered by marketing problems. Retooling costs are often given as the explanation in these cases; once a job is tooled-up it is easy to produce a few extra items to build up the value of output before turning to the next job. The tendency of managers to deviate from their assortment plans even in job-lot production has led the economist Liberman to offer an interesting proposal. In order to discourage overfulfillment of planned targets of products for which there is limited demand, particularly in special machinery production, he proposes a change in the premium system so that premiums will not, in these cases, be granted on the basis of percentage overfulfillment of the output plan. Fulfillment of the output plan should be a necessary condition before premiums may be paid, but the actual amount of premiums should vary with the percentage reduction of cost of production. This proposal recognizes the direct relationship between the premium system and deviation from the assortment plan. 26 In large job-lot production the manager deals with products the demand for which is so general that he need have no concern over marketing at all. And in mass production or production to stock, marketing considerations disappear completely. This type of production applies to the basic industrial materials and to most consumer goods. It is in such

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types of production that concern for customer reaction is at its lowest. In the field of consumer goods the feeling that everything can be sold is especially strong and especially well justified. "This is why there suddenly appears on the market large quantities of some consumer goods," stated Informant 485. "They are not interested in consumer demand, only in getting the stuff produced." If financial losses and customer reaction fail to arrest the tendency toward deviation from the assortment plan, there remain direct sanctions. The offending manager leaves himself open to the whole gamut of sanctions, from a reprimand to dismissal, depending upon the magnitude of the offense and the importance of the products or firms discriminated against. The sanctions are serious enough that managers do not decide to deviate from planned assortment without taking them into account. Undoubtedly if the assortment plan can be fulfilled and the desired total value of output still achieved, an effort will be made to do both. At least at the beginning of the month, when it may still be thought possible to meet all the indicators of the monthly plan, an effort will be made to try to get the difficult production, the "disadvantageous" production, out of the way first, before turning to the easier products with which the plan can be overfulfilled. One of the great advantages of a safety factor in the production program is that a strong effort can safely be made to fulfill the assortment program. But the problem usually does not arise in the simple form of whether or not to meet the assortment plan. More commonly the choice involves fulfilling the assortment plan at the expense of some other facet of the enterprise plan. It is a matter of the conscious weighing of alternative sanctions, and in the interviews we find many expressions of this deliberate decision-making. In a group discussion an informant described the following incident (as recorded during the discussion): Informant 403 related several cases from his experience in production. He once came as an inspector to a plant. This plant was supposed to have delivered jacks a long time ago but did not. When he arrived at the plant, he saw that all the yards and warehouses were full of jacks, you couldn't really move; but they were all of the wrong sizes. He asked the director what it meant. The director told him that in producing jacks of the wrong size he could economize and thus his plant would benefit financially. It is true that no one had any use for this size, but this did not interest the director. Now why did he do this? The plan [the informant continued] consists of several parts, and the punishment is not the same for underfulfilling these various parts. Thus, punishment is great for underfulfillment of quantity, as well as for failure to meet technical specifications, but very small with respect to assortment. Thus, in

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producing jacks of the wrong kind the director incurred only a small risk. That assortment usually loses out in this kind of choice is indicated by the judgment of most of the informants that the sanctions against deviation from the planned assortment are relatively slight. "For failure to meet the assortment requirement the director will simply be bawled out," is a typical remark (Informant 396). "Those items which count for most are concentrated upon. Later they look for some excuse to give," stated Informant 311. Rarely is any punishment more serious than dismissal indicated. One case is especially interesting because the informant named the enterprise in which he had worked, and his statement could be compared with some interesting published information about the same enterprise. The informant, a senior managerial official, stated: In our plant, assortment was not a serious problem because all our production was to special order. The question of assortment is more important in factories which engage in job-lot production, for example, machine tools, the automotive industry. In such industries assortment plays an important role. Many people lost their jobs for nonfulfillment of the assortment. However, at the same time that this informant was working in the enterprise an article appeared in a Soviet journal criticizing the same enterprise severely for its failure to fulfill the assortment plan. In one of the years in which the informant occupied a high position in management the enterprise fulfilled its plan for some products 135 per cent but for others only 5.2 per cent. It overfulfilled its total plan for that year, made an economy from cost reduction, and systematically built up its working capital by accumulating inventories in excess of the norms. This enterprise is one of the best and most famous in the Soviet Union. It is entirely possible that the informant had forgotten this year if it was an unusual one, but he was sufficiently high in the plant administration to be expected to have known the broad picture of the plant's performance. It is revealing that he did not consider assortment an important problem in his enterprise, but the outside observer, who wrote the article, did. It may be that the enterprise goes its own way unscathed by these public criticisms until some serious failure causes these old minor deficiencies to be raked over. Since the sanctions can be fairly serious, managers' small regard for them suggests that there is something in the way the sanctions are administered that reduces their effectiveness. This will be discussed later in the chapters dealing with controls over management. All that need be stated here is that the attitude of the ministry is crucial to the manager's decisions. When asked the basis upon which production

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decisions were made, Informant 388 replied, "It all depends upon the ministry. If we know that the ministry considers value of output important, then all the shops will try to fulfill the plan in money terms." However abundant the evidence on the importance of deviation from the assortment plan to the interests of the firm, the prevalence of the practice over long years would not be fully explained without a full accounting of the attitude of the ministry.

THE

QUALITY

OF

PRODUCTION

IX

It would seem, on first thought, that a harrow is a harrow and a seeder is a seeder, and the manager must choose between them in deciding upon the assortment of his production. In fact, however, the range of choice is much broader, for two machines may diifer substantially even though they bear the same model number. The harrow may have depth gauges or it may not, it may have heavy or light parts, it may be finished carefully or hastily. The manager under pressure to fulfill his plan does not need, then, to shift his resources from harrows to seeders. In various ways he can spread his limited resources so as to overfulfill his output of products which will pass as harrows. Formally, the assortment plan is fulfilled, but analytically the maneuver comes to the same thing as the violation of the assortment plan. It need only be recognized that a subquality product is virtually a different product, and the maneuver then appears simply as the shifting of resources from the "less advantageous" standard product to the "more advantageous" subquality product. Deliberate deterioration of quality is a classic form of simulation. There is little need to dwell upon the extensiveness of the problem of subquality production in the Soviet economy. The prewar published sources are filled with condemnations of managers who "have proceeded in the direction of an indiscriminate pursuit after fulfillment of the quantitative indicators of the production plan [that is, output-plan fulfillment], paying no attention to the quality of production." 1 Criticism persists in the postwar period and is couched in virtually the same language. A prominent place is given in newspapers to complaints by private persons about the quality of consumer goods, and the pages of popular and humorous magazines such as Krokodil often contain critical and satirical references to the quality of production. The problem is no less serious in producer-goods production and construction. The reader of the two speeches by Malenkov in 1941 and in 1952 cannot help but feel that no basic change has occurred over this period. "Many business managers," he reported to the Eighteenth Party Conference in 1941, "maintain a criminally light-hearted attitude toward facts of poor-

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quality production, toward facts of the spoilage of large quantities of material values by these producers of rejects." At the Nineteenth Party Congress in 1952 he again pointed to "cases of consumers being provided with inferior-quality articles and goods which fail to meet established standards and technical specification." 2 The presumption is strong that this persistent problem points to something fundamental in the situation confronting management. UNINTENDED DETERIORATION OF QUALITY

It was pointed out that managers often produce an unplanned assortment not because they wish to but because shortages of critical factors of production make it impossible to fulfill the assortment plan. It is also true that a substantial proportion of subquality production is not the result of a deliberate decision by management. Take, for example, the matter of rejects. With certain exceptions to be noted later, the production of rejects is of no benefit to management, and can scarcely be interpreted as deliberate. Yet the volume of rejects is large. Spoilage in the machinery-manufacturing industry during the prewar years averaged half a billion rubles a year and in cotton textiles about fifty million rubles a year. 3 Malenkov reported that spoilage in enterprises of all-union jurisdiction came to a total of three billion rubles in 1951.4 The Chairman of the State Planning Commission quoted six billion rubles as the loss due to nonproductive outlays and production spoilage in 1955.5 A certain quantity of spoilage is expected in any production operation. Figures such as those quoted, however, are given by Soviet writers as evidence that the volume of spoilage is far in excess of what may be normally anticipated. It is those causes of spoilage which are peculiar to Soviet conditions which are of interest here. There is a close relationship between the rate of production and the rate of spoilage. At low rates of production, losses from spoilage increase at a slower rate than the gains in increased output. At extremely high rates of production it is likely that the losses from spoilage exceed the gains in increased output. Somewhere between these ranges there is probably some optimum rate of production at which the acceptable output is at its maximum. But the doctrine of ever-increasing production takes no account of such an optimum. If the pace of technical innovation and improvement in labor skill keeps up with the demand for increased output, the optimum rate of production will not necessarily be exceeded. But since there is no automatic check on the demanded increase in the rate of production, but, on the contrary, there is an automatic requirement that the rate of production in any period must exceed that of the past period, the tendency is to exceed the optimum rate.

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Associated with the increase in spoilage due to the high tempo of production are some of the most common features of the operations of the Soviet enterprise. For example, a normal production schedule takes full account of the need to carry out routine maintenance and periodic overhauls. Under the pressure of a high pace of production, however, it is often considered impossible to spare the machine time and labor needed for maintenance. Even among repair personnel the pressure for production manifests itself in the form of premiums for making repairs in record time and for lengthening the interval between successive repairs. Speedup and postponement of maintenance results in reduced accuracy of machines and the consequent increase in spoilage. A second aspect of plant operation which is associated with the high tempo of production work is shturmovshchina, or storming. The quantity of spoilage increases considerably during this rush at the end of the month. Under the best of conditions, the high tempo of plant and machine operation would lead to a large amount of spoilage. Under Soviet conditions the impact is strengthened by one further feature which looms large in the pattern of economic development; this is the country's rapid emergence out of a state of economic backwardness. An economic process which almost quadruples industrial production in ten years and more than doubles the size of its nonagricultural labor force in the same period 6 must be expected to pay a toll in many forms, and one of the forms is spoilage. People will continue to argue for many years whether this rapid pace of forced industrialization justified itself even in strictly material terms. The human and material losses were such, some say, that a more moderate pace would have yielded the same or better results in the end. A firm answer to this question can never be given, for it would require the comparison of what might have been with what actually was. For our purpose, however, it is only important to note that the decision was not taken without anticipation of the huge costs. In 1934 Stalin made the following revealing remarks:7 W e were confronted by a dilemma: either to begin with the instruction of people in technical grammar schools and to postpone for ten years the production and mass utilization of machines, until technically trained people are turned out by the schools; or to proceed directly to the building of machines and to develop a mass utilization of machines in the national economy so that in the very process of building and utilizing machines people would be taught technique and trained cadres would be turned out. W e chose the second alternative. W e proceeded openly and consciously to the inevitable outlays and overexpenditures associated with the shortage

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of sufficiently trained people who know how to handle machines. True, we destroyed many machines at the same time. But at the same time we won the most important thing — time — and we created the most precious thing in the economy — cadres. If we may take Stalin at his word, learning by spoiling was the deliberate policy of the regime. Millions of peasants who had scarcely seen a machine tool in their lives flooded into the old and new cities, built their own factories and were turned loose on the new and often complex machinery. The situation was most extreme during the first two Five Year Plans 1928-1937, after which the rate of absorption of peasants into industry began to slow down. But up to the outbreak of the war the proportion of nonagricultural labor with industrial experience and technical education was extremely small. The sources of the period contain many complaints by managers about the inadequacy of skilled people to operate the plants with which they were entrusted. More than half of the heads of coking ovens were neither engineers nor technicians in 1941. In the technical department of the Chief Administration of Scrap Iron only two out of the staff of eleven were metallurgical engineers, and one was a locomotive construction engineer.8 The inadequate training of the engineering and labor force was perhaps the basic cause of the large volume of subquality production. Another contributing factor was the set of attitudes which emerged from the hectic rate of change in the life and work situations of millions of people. This is reflected in the attitude toward the introduction of modern control and measuring instruments in technical processes. There are repeated complaints that even the older and more experienced workers and foremen insisted on controlling production in the ways they had been taught, "by eye," rather than by reliance on the newfangled gadgets. There are reports of widespread resistance to the introduction of these devices, and of panel boards with most of the gauges broken or removed.9 Many other problems associated with the labor force contributed to the large quantity of spoilage. The phenomenon of "flitting," of rapid labor turnover, hampered the training of the labor force, and statistics are available to show that the average rate of spoilage produced by the newly hired workers was greater than the average for the shop as a whole.10 Most important, perhaps, was the drive for increased productivity per man as manifested in the Stakhanovite movement. Spurred on by the propaganda of Party and government, advanced workers were encouraged to increase their output and to exceed the existing norms. Since many workers could not meet these demands placed upon them, the effort to meet them resulted in an increase in spoilage. As originally

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conceived, the Stakhanovite movement was an effort to increase productivity by an improved organization of the production process. But when it was converted into a mass movement after 1938, less resourceful enterprises and workers were forced to try to raise productivity by speeding up the pace of the work. The increase in average productivity was accompanied by an increase in the quantity of spoilage. 11 Perhaps the best indication of the lag of attitudes behind the level of technology is the incredibly filthy condition in which some of the newest and best plants in the nation were maintained. Conditions were such that high-quality production was difficult to achieve. Periodic cleaning-up operations in plants, usually undertaken after a harsh denunciation by a prominent official or a newspaper account, resulted in the removal of thousands of tons and hundreds of carloads of accumulated trash. "Under the rubbish, in the place where they had intended to lay a new road, was discovered — a perfectly good road!" 1 2 In his report to the Eighteenth Party Conference, Malenkov devoted a substantial portion of his time to an acid attack upon the filthy condition of enterprises, to which he ascribed much of the spoilage and poor-quality production: 13 Here is an example for you. There is the Magnitogorsk Plant, famous throughout the country. In what a filthy condition the shops of this enterprise are kept! Especially the open-hearth shops and the rolling mills. They say that in open-hearth shop no. 12 there is a pile of all kinds of rubbish so high that many carloads would be needed to haul it away. In the aisle between the first and second open-hearth shops there is a so-called "disputed territory," that is, neither shop recognizes this territory as its own. How is this dispute settled at Magnitogorsk? Apparently it is settled "satisfactorily" for both shops. Both shops dump all their refuse into this territory and neither of them cleans it up. Clearly, we will have to settle this dispute between the two shops for our Magnitogorsk comrades right here, at this conference, because the city Party Committee had not found time to work this matter out before the conference. It is said that the leading officials of the Magnitogorsk Party Committee did visit the shops, and, as it were, they had to expend no small amount of energy in merely making their way through the shop, since they had to climb over mountains of slag and stumble over all kinds of rubbish and refuse. Does it benefit the Magnitogorians to consider this dirt and filth a necessary companion to such a superbly equipped enterprise as Magnitogorsk? ° * The editors of Cher, met., in the issue of March 25, 1941, published two "before and after" pictures of the aisle referred to by Malenkov in the above quotation, along with several other photographs of the filthy conditions of enterprises. Following this speech there were many articles of criticism and self-criticism in the press on this matter. Undoubtedly a great clean-up campaign got under way. Although there are

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That the forced industrialization of Russia bears many startling parallels to the industrial revolution in England has been noted by some observers. This can perhaps be seen best, ironically enough, through the eyes of no less an authority than Karl Marx. It was the sordid conditions of human labor that fired Marx in his critique of capitalism, whereas Malenkov's solicitude is reserved for the conditions of machines in Magnitogorsk. But the labor practices of early industrial England upon which Marx chose to dwell are strikingly similar to those which characterize the Soviet industrial revolution. We can do no better than parade a number of quotations from the famous chapter on "Machinery and Modern Industry" in the first volume of Capital:1* [On spoilage] One of the most important problems, therefore, which the owner of a factory has to solve is to find the maximum speed at which he can run, with a due regard to the above conditions. It frequently happens that he finds he has gone too fast, that breakages and bad work more than counterbalance the increased speed, and that he is obliged to slacken his pace. [On labor discipline] The main difficulty [in the automatic factory] . . . lay . . . above all in training human beings to renounce their desultory habits of work, and to identify themselves with the unvarying regularity of the complex automaton. To devise and administer a successful code of factory discipline, suited to the necessities of factory diligence, was the Herculean enterprise, the noble achievement of Arkwright! [On coming late to work] All punishments naturally resolve themselves into fines and deductions from wages, and the law-giving talent of the factory Lycurgus so arranges matters that a violation of laws is, if possible, more profitable to him than the keeping of them . . . master Harrup indulged in the agreeable habit of making deductions from their wages for being late in the morning; 6d. for 2 minutes; Is. for 3 minutes; and Is. 6d. for ten minutes. This is at the rate of 9s. per hour, and £ 4 10s. Od. per diem; while the wages of the weavers on the average of a year, never exceed 10s. to 12s. weekly. [On "flitting"] In consequence of a quarrel with his employer he [a worker] left the works, and declared that under no circumstances would he work for that master any more. He was prosecuted for breach of contract, and condemned to 2 months' imprisonment. [On "storming"] Work toward the end of the week being generally much increased in duration in consequence of the habit of the men of idling on Monday and occasionally during a part or the whole of still reports of filthy conditions in large enterprises (Pravda, May 25, 1953, p. 2, Trud, January 11, 1956, p. 1), it is perhaps significant that this is one matter to which Malenkov did not refer in his report to the Nineteenth Party Congress in 1952. The Soviet economy is growing up.

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Tuesday also . . . They lose two or three days, and then work all night to make it up." [On evasion] . . . first, the constantly recurring experience that capital, so soon as it finds itself subject to legal control at one point, compensates itself all the more recklessly at other points . . . [On piece-rates] Given piece-wage, it is naturally the personal interest of the laborer to strain his labor-power as intensely as possible; this enables the capitalist to raise more easily the normal degree of intensity of labor . . . it follows that piece-wage is the form of wages most in harmony with the capitalist mode of production . . . In the stormy youth of Modern Industry, especially from 1797 to 1815, it served as a lever for the lengthening of the working day. [On "Stakhanovism"] Instead of as formerly one person with two helps tenting two looms, one person now tents three looms without helps, and it is no uncommon thing for one person to tent four. [And on record-breaking Stakhanovites] . . . in the Engineering Trade of London, a customary trick is "the selecting of a man who possesses superior physical strength and quickness, as the principal of several workmen, and paying him an additional rate, by a quarter or otherwise, with the understanding that he is to exert himself to the utmost to induce the others, who are only paid the ordinary wage, to keep up with him . . . this method is recommended to the farmers as an approved one!" The social and technical conditions of rapid industrialization are sufficient to explain the serious problem of quality of production in Soviet industry. But these conditions are of a transitory nature. The Soviet labor force grows more skilled and experienced each year. The flow of peasants into industry no longer assumes flood-like proportions, and those farm boys who do come to the city are acquainted with tractors and machinery. Technical education has improved, and the discipline of industrial factory life is more familiar. Attitudes inherited from the past do indeed survive the conditions which generate them, but they diminish in potency and vanish entirely with time. Thus, if the conditions associated with rapid industrialization were the only cause of low-quality production, we should expect that problem to disappear eventually. DELIBERATE DETERIORATION OF QUALITY

There is another cause of low-quality production, however, which is independent of the level of industrial maturity and which is rooted in the more permanent character of Soviet industrial organization. This cause is the need for simulation occasioned by the high pressure for production. In the testimony of the informants, deliberate reduction of quality is usually associated with "an order to raise the output norms

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by 5 per cent," or "to lower costs of production by 10 per cent." Said Informant 396, "the technical engineers, economists, and members of the planning unit are fully aware that the goal cannot be achieved with the existing wage rates, materials, and costs. This can be done only by lowering the quality of the product . . ." In all cases of simulation, the particular technique chosen depends upon the range of practical alternatives open to management. What is possible in one plant is not in another. The technique of quality deterioration is likely to be found where a slight and not easily detectable change in the character of the product will yield large results in output or savings on materials. Informant 185 reports: Say there is an order from the trust to raise the norms 5 per cent. The plant has not even been fulfilling its old norms. The order is met by some form of simulation. It may be done either by combining two processes, which reduces the quality, or by omitting one process, which has the same effect. For example, suppose it is a canning factory in which there are two steps to cleaning bottles, the preliminary rough wash and the final clean wash. The plant may combine both washes into one operation, which lowers the cost of the final washed bottle. The elimination of one stage in the production process is an especially well-conceived form of simulation because there is no apparent change in the character of the product itself. Only an investigator quite familiar with the industry and the particular plant could detect that form of quality reduction if he took the trouble. This is not to say that such actions are not found out, for there are ample reports in the literature of precisely this kind of simulation. "For example," writes the economist V. Bunimovich, "in the footwear industry an economy of wages was related to a shortage of labor, and to the elimination of a number of operations which should have been performed in the process of production. This had a bad effect upon quality." 15 The fact that even this safest form of simulation may be found out does not deter hardpressed managers from employing it. Most forms of quality deterioration, however, are not confined to the elimination of a stage in a process, but involve a change in the physical character of the product. In such cases an effort is made to change the product in such ways as are least apparent to the consumer. "For example, in order to effect an economy they may decide to use only five screws where seven had been used before" is a typical statement by an informant (190). In another case, the customary ingredients were replaced by ingredients of a "different and poorer kind that can barely be noticed," writes a Soviet critic. "These Tbarelys' begin very unobtrusively. They creep forward like cracks and they lower quality." 1 6

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Informant 450, who had been a civil engineer, related that in laying the bed of a railroad, we were supposed to lay the ballast thirty-five centimeters deep. Actually we dug fifteen centimeters in some places, thirty in other places, and the average along the line was about twenty-five centimeters. It is impossible to control things like this. As a result the line might last eight years instead of ten years and then it would have to go into capital repair. But we have benefited from it. Between the perfect product and the useless product is a broad latitude within which changes of various kinds may be made. The difference is usually not between a product which will work and one which will not, but rather between one which will work better and one which will work worse. In mining and metallurgy it is often merely a matter of the quality of the ores. "In the drive after tonnage the managers of the mines forget about the quality of the ores and send to the plant dead rock along with the ore." 1 7 In another case it was discovered that "when the miners find that the percentage of thirdgrade ores has risen (and this lowers their performance index) they change the sieve with which they sort the ores, and the agglomeration plant receives extremely small particles of ore which do not fit in with our technical specifications." 1 8 Usually the consequence is only that the consuming enterprise has to devote unplanned labor to remedying the trouble. Less often there is a more serious consequence such as stoppage or breakdown. In machinery manufacturing, deterioration of quality commonly takes the form of shipping products with certain nonessential parts missing. A curious variation is the practice known as "undressing" finished machines. "When there is a shortage of some parts needed for completing a machine tool or some other product, these parts are taken from the completed products already passed on by the department of quality control and awaiting acceptance by the buyer. This undressing' was a common phenomenon." (Informant 90.) It is difficult to say whether the utilization of materials known to be inferior constitutes deliberate or unintended deterioration of quality. It is unintended in the sense that the managers would certainly prefer to use better materials if they were available; and it is deliberate in the sense that the poor-quality materials are used with the full knowledge that the product will be inferior. A decision of this kind is not taken without conflicts within the enterprise: 19 The chief of the steel casting shop, Comrade Chusak, asked the acting chief metallurgist, Comrade Farushov, "May I use in production this low-grade cast iron which we have received?" "I cannot give permission for that," he said. "This means that it is forbidden?" No, I cannot forbid it either. Do whatever you think . . ."

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Certain people, such as the officials in charge of quality control, are in a much more vulnerable position than others and will resist the pressures of those who are oriented more toward plan fulfillment. People vary in their general willingness to take chances, in their appraisal of the possibility of getting caught and in their sensitivity to the direction a particular campaign happens to be taking. But in general the demands of plan fulfillment are overriding, and the deterioration of quality in one enterprise spreads to others in a cumulative way: Quality was often reduced in order to fulfill the plan. For example, in the production of bricks they might not dry the bricks as long as they should be dried, or they may include a smaller proportion of some scarce material. Therefore the bricks may be weak, or not correspond to the required size. Nevertheless the construction job must use them. At the same time the construction job is under pressure to work faster. Bricklayers are required to lay more bricks per hour than they can do carefully. The bricklayer loses his sense of professional pride and craftsmanship. Quality therefore suffers further. (Informant 320.) Although fulfillment of plan by quality deterioration is clearly and unequivocally denounced as an antistate practice and punishable by law, there is one minor theme in the official instructions to managers which lends encouragement to the practice. That theme is the official exhortation to reduce costs in every way, principally by an economy of materials. In machinery manufacturing, for example, the construction of machines must be constantly reviewed with a critical eye, looking for possibilities of reducing the weight of parts and using substitute materials.20 The line of demarcation between a machine whose weight has been reduced in order to economize materials and one in which the reduction of weight has been the result of deliberate simulation of quality is often a narrow one to draw. The deterioration of quality, especially for a manager who consistently fulfills his plans, is more likely (it may be hoped) to be construed as overenthusiasm for economizing rather than deliberate reduction of quality. While unintended spoilage as a consequence of excessive pressure for production is not properly to be classified as simulation, such spoilage does raise problems which may be solved by simulation. If the spoilage threatens to lead to underfulfillment of the production plan, managers may be strongly tempted to label some of it as acceptable in order to report plan fulfillment, and they may succumb to the temptation unless the danger of disclosure is great, as in the case of high-priority production.21 In the report of plan fulfillment, they include as completed and acceptable production, ready for approval by the department of techni-

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cal control or by the ministry inspectorate, products which in fact are not separated into different standards, or which have remediable although not yet remedied defects, or which are poor-quality goods, or even rejects . . . In iron and steel enterprises thousands of tons of below-standard untreated rolled products, and rejected metals are piled up and counted as acceptable in the reports. In fact this takes place in all iron and steel plants without exception, but the press draws attention only to some of these. (Informant 90.) Spoilage does not always constitute a total loss. "Small buyers who are not included in the plan would come and buy our spoilage," said Informant 609. "We would sell it and get money for it." Such low-priority customers are quite happy to purchase spoiled wares, the alternative being none at all. On balance, however, one would guess that management would have preferred that the spoilage not be produced. It is therefore interesting to note that under certain circumstances there is a curious motivation to exaggerate, rather than understate, the reported volume of spoilage. Since these circumstances reflect a rather general problem of control in the Soviet economy, and perhaps in any bureaucratic system, they are worth a few words. The problem springs from the fact that however much the state frowns upon spoilage, it must recognize that some spoilage is an inevitable part of the production process, for which management should not be penalized. Accordingly the practice has arisen of establishing a "norm of spoilage," which is the upper limit to the amount of spoilage which may be considered admissible." If the norm is 8 per cent, managers are still exhorted to keep their spoilage rate well below that percentage, but will not be penalized if they produce no more spoilage than the 8 per cent. In the eyes of the managers, however, the existence of this upper limit takes on a different significance. It provides a new source of a safety factor: Say the enterprise produces crankshafts. Say that 7 per cent of the materials are actually waste but we are really allowed 8 per cent. We have made a 1 per cent economy of metal. We always say that there is an 8 per cent wastage but we know that there is only 7 peí cent. Here is a reserve which must be hidden. This is one way. Another way is to make some shafts and call them spoiled. Next month we find some good products among the "spoiled" goods and * The wisdom and even the lawfulness of the use of such norms is occasionally challenged. In Mash. (June 16, 1939, p. 2 ) , it is referred to critically as "planning for spoilage." One of our informants, who often slipped back into his former role as a professor of production methods, got quite excited about it and insisted that such norms were inadmissible. However, authoritative textbooks such as Kontorovich (p. 1 4 7 ) and others continue to advocate the use of such norms. See V. Kontorovich, Tekhpromfinplan promyshlennogo predpriiatiia (The Technical-Industrial-Financial Plan of the Industrial Enterprise), second edition (Gospolitizdat, 1 9 5 3 ) .

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we show them as part of the production plan of that month. We do the same thing with supplies. Everybody knows about it and everybody knows why it is done. (Informant 485.) Management still tries to keep actual spoilage as low as possible, but finds it advantageous to report spoilage up to the maximum admissible by the norm. The falsely reported spoilage is looked upon as a "reserve." Stated Informant 609, "If our production capacity was a million, they would allow me 8 per cent spoilage. If in fact the whole million is of good quality, I have an 8 per cent reserve in whatever is left over." This reserve may be used for concealing good output, to be "discovered" and reported in some future month when production did not go as well. It may be used for providing favored customers with perfectly good output falsely labeled as spoiled. The chief of the purchasing department, ever in need of cash for expediting procurement activities, treats it as his "secret sources of income. He can sell anything under the guise of spoilage." (Informant 396.) The norm legitimizes a certain percentage of spoilage, and when less is produced, management treats the difference as its legitimate property. Instead of functioning as the upper limit of spoilage, the norm becomes in effect the lower limit to the reported amount of spoilage. The same principle holds true with respect to other attempts to limit the volume of losses by means of such norms. In wineries, for example, there is a norm of loss due to evaporation. Informant 396, who had been a rather prominent official, stated that the director of the winery "often sent me a few cases of wine. He always sent some to his friends when they went on vacation. He simply called this loss due to evaporation." In grain storage there is a norm of loss due to rodents. Commenting on the problem of theft on collective farms, an informant remarked that "the rats always fulfilled their plan." In such industries as textiles or metals, in which grade of output is important, an equivalent problem is the false upgrading of quality.* "Lower-grade goods are considered as higher grade and are considered to have the higher price." (Informant 26.) In fact, lower-grade output ° Inefficiencies in the price-fixing apparatus sometimes make it expedient deliberately to produce more lower-grade output at the expense of higher grade: "In very rare cases an enterprise, in order to fulfill its gross output plan in monetary terms, is induced to have a higher percentage of rejected production. This is linked to the paradox of the price system in the Soviet Union. Thus, for example, first-quality rails for the railroads were priced during the thirties two to three times cheaper than ra.ls rejected by the Commissariat of Transportation but usable for trolley lines or mines. During the forties rejected bridge-construction sheet metal was delivered to the cooperatives as "scrap," at a price two to three times higher than the list price. Bicycle parts which were declared rejected for assembly in new bicycles were delivered at a much higher price to the retail trade network for sale as spare parts for repair." (Informant 90.)

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is often the consequence not of deliberate simulation but of failure to meet the technical specifications for the higher grade. Simulation is involved in the decision to pass the lower-grade output as higher grade. * When a size distribution is included in the assortment plan, overfulfillment of the targets of smaller-size products may be the consequence of an attempt to rectify faulty cutting of materials. But there is another kind of spoilage, the so-called conditional spoilage. Say you have to produce 100 pairs of shoes of size 41 [Russian shoe sizes are expressed in centimeters], 100 pair size 39, 100 pair of children's shoes of size, oh I don't know, say size 18, and so forth. This is the plan. What do the planning specialists do? Say there is spoilage. They ruined a lot of leather in cutting for size 41 and there is no size 41. Then they take it and they 'depersonalize' the spoilage. Do you understand? They say, "Here are 300 pairs, please take them, inspector, 300 pairs of shoes." Are they good?" "Perfect!" They do not say which are the children's shoes. Out of the poorly cut men's shoes have emerged excellent children's shoes. This is called conditional spoilage, that is, it is covered up. And this is one of the methods of covering it up. (Informant 610.) The motivation to upgrade output is greater in the case of actual spoilage than in the case of low-grade output, for the penalty in the former case is greater. "It must be pointed out that although enterprises did pay attention to rejects because rejects worsened the indices of production-program fulfillment, the matter of the grade of output caused little worry. Second-grade output was included with good production and computed as part of gross output at the same prices as first-grade output." 2 2 The practice of false grading is sufficiently widespread to cause Soviet observers to express doubt about the usefulness of reported statistics. "It must be observed," states the economist Vilenskii, "that in many branches of light industry, and also in food industry, the border line between losses from spoilage and losses from low-grade production is very hazy, since the transfer from grade to grade in many cases only veils the losses from spoilage incurred by the industry." 2 3 Judging from the pages of the satirical magazine Krokodil, this statement belabors what is only too obvious to the Soviet consumer. * "In the wiredrawing shop the following picture can often be seen, a special purpose wire has been put into production. The wire is drawing well, everyone is pleased, but suddenly it does not come out with the correct mechanical specifications. Spoilage? Nothing of the kind. The special purpose wire is simply counted as ordinary wire. The wire that is needed is not there, but there is no spoilage. No one pays any attention to this and the struggle against the causes is not carried on. It is strange, no one considers the reclassified wire as spoilage, even if it can be corrected." Cher, met., March 22, 1941, p. 3.

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WEAKNESS OF CUSTOMER RESISTANCE

As for customer reaction to subquality production, it is necessary to amplify a point made in connection with the assortment problem. Commissar Tevosian of the iron and steel industry once put his finger squarely upon the sore spot. Imagine that the molten steel is ready to be taken out but the test shows the carbon content to be below the specification. "What should they do in such a case?" asked the Commissar. "They should add pig iron. But some foremen figure it this way: 'why fool around with it? Let it go through. A buyer will be found for it anyway.'" 24 Since a buyer can always be found, he cannot be choosy about the quality of the product. And indeed the literature is replete with illustrations of the high-handed manner in which dependent customers are treated. The Iaroslavl Rubber Plant had the temerity to refuse a shipment of subquality neozone from the Rubezhansk Plant. "In reply to this, Comrade Gusenko, chief engineer of the plant, sent the following threatening letter: 'Regarding your refusal to accept neozone according to the technical specifications of 1939 . . . we are stopping shipments.' " 25 Such a threat, if carried out, may well paralyze the operations of the customer's plant, and both parties are aware of it. There is the ever present "fear that Comrade Solov'ev [chief engineer of the seller's plant] will give the products to other organizations . . ." 2 6 The Stankolit Plant made particularly good use of this overriding fear. "Why do enterprises accept the spoiled castings? Because the Stankolit Plant in general does not fulfill its orders and keeps its customers on a starvation diet." 27 Often the willingness of customers to accept shipments in any condition makes it unnecessary to resort to such threats.* Less tractable customers may be maneuvered into positions in which they are forced to accept substandard products:28 Judging by report statistics, a significant improvement has recently been achieved in the production coefficients for automotive-tractor parts which are produced on blooming mills. In January, for example, * " F o r a long time they have talked in the plant about organizing some kind of decent methods of shipping electrodes. Nevertheless the electrodes are shipped out without packaging and got ruined en route. The purchasers aren't the least bit disturbed. On the contrary, on the 8th of June the chief of the Kiev office of the Chief Metals Marketing Administration, Comrade Romankevich, wrote a letter to the Petrovskii Plant asking us 'to ship the electrodes without packaging.' The deputy manager of the Leningrad office of the Chief Metals Marketing Administration writes in a letter of June 10, ' W e agree to accept electrodes without packaging in boxes and paper.' When the chief of the department of quality control protested to the plant director about this arrangement, the following resolution resulted, 'If the purchaser agrees to accept electrodes which do not meet the Ail-Union Standard, we have to do i t . ' " Ind., July 17, 1940, p. 2.

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according to the statistical data, the coefficient of expenditure of this metal was 3 per cent below plan. But if one gets interested in the secret of this success, a rather unattractive picture appears. The rolled metal lay a long time without being trimmed. When the consumer asked that the order be fulfilled, the marketing department of the enterprise informed them that the metal had already been rolled, but, he said, there was no time to trim it. "If you want, take it untrimmed and we'll pay the expenses," said the marketing officials to the consumers. The first person to swallow this bait was the deputy director of the "Red Etna" Plant, Comrade Kirsanov. He agreed to accept shipment of the untrimmed metal. Now this has become part of the system. The Makeev people ship out all their automotive-tractor metal to the "Red Etna" Plant without finishing and trimming, and this is how the fine production coefficient is "achieved." This is not to say that customers do not try, when they are in a favorable position, to protest against defective shipments and to make use of their right to bring legal action against sellers. "If we received poor-quality materials," said Informant 384, "we would not accept them. We would send in an official protest." Undoubtedly many a seller has misjudged the willingness and ability of a customer to bring the matter into the open and suffered the financial or legal consequences. This, however, is a normal risk of the game, and one of the differences between the successful and unsuccessful manager is precisely this ability to judge correctly when to take the chance. But there are many ways in which the producer can make it difficult for the customer to protest. There are cases on record in which sellers forced their customers into a formal agreement to accept subquality output. 29 The Dneprovsk Electrode Plant makes carbon sectors for the furnace "Mito." More than half of its shipments to the ferroally plant is plain spoilage. The electrode plant itself does not quarrel with this fact, but there is an interesting contract clause with which the plant covers itself for the sale of spoilage. "We are sending you rejects at a 15 per cent discount. If you want it, take it, if you don't want it, don't take it. But if you accept rejected output then give us an official statement agreeing to take it." The Zaporozh'e Ferroally Plant took the rejects, partly out of liberalism and partly because at the time it had no other way out — and they only stipulated that they reserved the right to bring suit for the recovery of losses incurred because of the delivery of rejected production. It is also very characteristic that when the ferroally people tried to press their suit against the electrode plant through the arbitration commission, the latter, basing its decision on the agreement to accept rejects, refused to satisfy the claim.

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In other cases, customers themselves lose the opportunity to bring suit because they are unable to examine the shipment before the contracted period of protest has elapsed. 30 Very often complaints are not made out because the acceptance of the delivery is delayed and the time period for submitting complaints has elapsed. On March 21 the Combine received a carload of synthetic rubber from plant "SK-2." As of April 2 the car has not yet been unloaded, although the contract date for the submission of complaints was 10 days . . . There are many such cases. The intolerable procrastination in the acceptance of materials and the formulation of complaints deprives the Combine of its principal weapons in the fight against subquality raw materials, that is, influencing the seller by the ruble. The Combine, like a "good uncle," suffers huge losses, and the sellers make good use of this "great-heartedness." The alternatives of a plant faced with the delivery of poor-quality materials are clearly posed: "The tire plant is compelled either to stop operation or to make tires out of clearly subquality cord. Neither the former nor the latter is admissible." 31 But the greater pressure is usually for the latter. The management of a consuming enterprise cannot easily or quickly change its supplier nor can it hope to obtain better-quality materials from another producer, especially if it is a low-priority enterprise." Moreover, faulty materials can often be used in production, on some less important jobs if possible, and on more important parts if necessary. "As with all materials, if a supply of bad bricks is received, we try to use them on less important jobs. But where the quality is such that it is simply not usable, then we might begin proceedings against the supplier." (Informant 320.) For the enterprise which stands in the weak position of purchaser in one relationship stands later in the strong position of seller in another relationship. If the prevailing seller's market forces him to accept subquality materials and therefore causes his own production to suffer in quality, he can later hope to dispose of his poor-quality output because of his strong position as a seller. The general awareness that "a customer will be found" motivates the enterprise as producer to reduce the quality of its output and weakens its resistance as customer to purchasing the subquality output of other enterprises. It is in the sphere of consumer-goods production that buyer resistance appears to be weakest. Although trade officials frequently complain * "Second-quality goods may not be acceptable to military industry, but they may be accepted by another factory which ord narily would have gotten nothing at all that month. Therefore he is willing to accept it in order to get it sooner. In this case the military factory cannot complain, because you can simply say we have no firstquality goods for you." (Informant 26 )

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in the press that large quantities of consumer goods remain unsold because of their shoddiness, 32 the population has become attuned to low-grade merchandise. The interviews echo the theme that "the consumer doesn't care about spoilage" (Informant 384), and the literature testifies to the "existing view about consumers who, as it were, 'will take anything.' Comrade Kostin, the chief engineer, confidently states, 'Consumers are not proud people.'" 3 3 Although irked consumers let off steam in letters to the press concerning the unavailability and low quality of consumer goods, unless one is prepared to spend an inordinate amount of time waiting and shopping it is better to take the low-quality goods than go without them. It is difficult for the trade network to make its complaints effective. In view of the numerous transshipments of goods before they finally arrive at the retail store, it is often impossible to determine the original producer. The attempt to establish a system of trade marks whereby the producer could be easily identified met with something less than enthusiasm on the part of producers. 34 But the basic problem for the retail store is the same as that of the industrial purchaser: the store has its own sales plan to meet, and knowing that most of the faulty merchandise can be sold anyhow, it is better to concentrate on marketing it than to refuse it and perhaps underfulfill its own plan. At the other extreme is military production. The informants were almost unanimous in asserting that the enterprise producing military output or parts for military objects would never consider seriously the deliberate reduction of quality or the attempt to pass defective output off as merchandise of good quality. For one thing, military customers maintained their own quality inspectors on the premises of the producing enterprises. "The director can influence his own department of quality control . . . but he certainly cannot influence the inspector of another ministry," stated Informant 485. Furthermore, military production went through a number of later inspections before it was finally accepted. 35 Several informants reported that enterprises engaged in military production operated under the best of conditions, with an ample supply of all the needed materials and a moderate tempo of production. Therefore some of the objective conditions leading to the deterioration of quality were absent. As for the broad range of products between military and consumer goods, it is difficult to make a general statement about the quality of production. Informant 384, who had worked in the textile industry, reported that textile firms could quarrel with the dyers about the quality of gray goods delivered for dyeing, "but the Ministry of Foreign Trade could not be fooled in this way. They simply labeled the stuff spoilage and that was all." This is quite understandable, because behind

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the export market lies the competitive world market, and Soviet exports must meet the quality standards of that market. Informant 316, who worked in the aircraft servicing industry, alluded to the high quality of work in his industry, which is what one might expect because of the disastrous results of quality deterioration there. But there appears to be no unique relationship between quality and priority, for both the interviews and the literature point to serious problems of quality in such high-priority sectors as the iron and steel industry, coal mining, tractors, electrical equipment, and so forth. Since these industries may maintain their own quality inspectors in the producing enterprises, 36 they probably have a somewhat better control over the quality of output produced for them, but this does not prevent the sale of subquality output to the lower-priority purchasers. It is therefore likely that lowerpriority enterprises are more often compelled to accept subquality output than higher-priority enterprises. On December 8, 1933, a decree was issued by the Council of People's Commissars providing for a minimum sentence of five years' deprivation of freedom for administrators of trusts, directors of enterprises, and other administrative and technical personnel guilty of producing subquality output and shipping incomplete products. 37 The legislation was in effect for most of the prewar period. That it was far from successful in its objective is indicated by the continued official threats and criticisms of enterprises and ministries for producing and selling subquality output. The climax of the state's effort was the issuance of the Edict of July 10, 1940, by the Supreme Soviet of the USSR, which declared the production of subquality output to be an antistate criminal action, punishable by deprivation of freedom for a period of five to eight years. 38 The provisions of the edict do not differ substantially from the decree of 1933, the principal formal distinction being that the latter was issued from a lower governmental body than the 1940 edict. The real significance of the 1940 edict is that it was accompanied by a rash of publicity and spearheaded by a campaign to uncover the producers of subquality output and to bring them to justice. For several months the industrial and national press regularly reported decisions of the judiciary sentencing people convicted of subquality output to periods of imprisonment up to eight years.39 There is no doubt that the immediate effect of the edict and the accompanying campaign was to shake industrial managers out of many of their former practices. Output fell in many enterprises as managers became more cautious, and the reported labor expenditure per unit of output rose because operations were repeated on jobs in which the quality was in doubt. 40 In some cases the reported volume of rejected articles actually rose. "The plant managers explain this by the fact that

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the department of quality control began to control production more strictly. A poor explanation! It really says that before the publication of the edict part of the spoilage in these enterprises was included in good production." 4 1 The volume of rejects in the warehouses of enterprises mounted rapidly, because "before the edict on quality of production the plant managed to 'come to agreement' with the consumers, selling them the spoiled output," but now both feared to take the chance. 42 Many enterprises, while fearing to go as far as the sale of subquality production, nevertheless "have piled up, and continue to pile up substandard output under the guise of 'goods in process,'" 4 3 thus simulating fulfillment of the gross-output target. Yet the press continued to report instances of subquality production for which, apparently, no criminal action was taken. Some managers were convicted of having accepted subquality production, and yet other managers complained in the press that they had received subquality materials, apparently without fear that they would be prosecuted for having accepted it. Evidently the magnitude of the problem was so great that not every offender could be prosecuted. It was amply clear that criminal prosecution was in the nature of a "show trial," in which certain unfortunates were singled out as lessons to others. Under such circumstances any manager could still hope, especially after the campaign eventually quieted down, that if he were shrewd and careful enough he could avoid detection, and what successful managerial official does not consider himself shrewd enough to "stay ahead of the game?" Something like this must have been at work, for the reported production of subquality output remained high. It is difficult to generalize about the effectiveness of these legal sanctions. Although the evidence indicates that the production and sale of subquality output persists to this very day, it is difficult to believe that the harsh legal sanctions do not play a deterring role. Although there has been nothing approximating the campaign of 1940, the threat of five to eight years remains as one of the most severe penalties for any economic crime. An explanation which might be offered is that managers are highly selective in the cases in which they are willing to risk selling subquality output. Many factors are taken into account in deciding whether the chance is worth taking: the opportunities for concealment, the past record of performance of the enterprise, the pressure to meet the output plan, the resistance likely to be encountered from customers, the priority of the customers, and the relative severity of the sanctions for other courses of action. As in the case of the assortment problem one gets the impression that managers balance quite consciously the probable results of various courses of

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action and select the one that combines the least harm with the greatest advantage. This may be seen in the testimony of Informant 403: As inspector I once arrived at a plant which was supposed to have delivered mining machines, but did not do it. When I entered the plant premises, I saw that the machines were piled up all over the place, but they were all unfinished. I asked what was going on. The director gave evasive answers. Finally, when the big crowd surrounding us had disappeared, he called me to his office. "Now we can talk," he said. "Well," I said, "why don't you ship the machines? We are waiting for them." "Here is the story," he said. "According to the technical specifications the machines must be painted with red oil-resistant varnish. However, I have only red varnish which is not oil-resistant and green varnish which is oil-resistant. Therefore I cannot complete them. You see, if I send the machines with the wrong kind of varnish I shall not have fulfilled the technical requirements, and for that I shall get eight years in prison. But if I don't ship them this will come under the charge of failure to arrange for transportation. And what will they do with me then? At worst, they will expel me from the Party. Well, the hell with my Party card. So what do you want me to do?" "But listen," I replied, "the mines cannot work, they are waiting for the machines and you are holding them up because you don't have the right kind of paint." "But I don't want to get eight years. Give me a written note with your signature and I shall have the machines ready in nothing flat." "Well, I don't want to get eight years either. So what do I do? I cable the ministry and ask for permission to use the green varnish. I should have received an answer at once. But it took unusually long. Apparently they did not want to take any chances at the ministry either, and they wanted to cover themselves. Finally I received permission. I put this cablegram from the ministry in my pocket and kept it for the rest of my life, and signed the note allowing the use of green paint, referring to the cablegram. In a short time the machines began to roll from the plant." Of the various courses of action open to the manager for simulating plan fulfillment, quality deterioration is fraught with the greatest danger. It is certainly not resorted to lightly, nor without considerable assurance that it can be gotten away with. When the decision to reduce quality is taken deliberately the manager has full control over the process and can select those techniques which are least likely to be detected. When quality deterioration is the unintended consequence of the pressure to meet the plan, the defects may be more apparent, but the

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manager, to report plan fulfillment, must nevertheless include spoiled output in his production. But defective output cannot be permitted to pile up indefinitely, much as the manager would prefer not to take the risk of selling it. Ultimately the producers will have to "get it off their hands," 44 both for financial reasons and because failure to sell it would inevitably bring its poor quality to light.* It is in the effort to pass on subquality output to purchasers that the danger of discovery is greatest, for "most of the spoilage is discovered outside of the walls of the plant." 45 Therefore subquality output is produced and sold only as a last resort in simulating plan fulfillment. As the Russians say, "It smells of the MVD." That subquality output continues to be a serious problem in the eyes of the Soviet state is a reflection of the pressure under which management operates and the need to take chances if one is to "sleep peacefully." TECHNICAL STANDARDS AND QUALITY CONTROL

In order to provide a basis for measuring the quality of production the Soviet government has fostered a system of technical standards. In 1925 the All-Union Committee on Standards was established under the Council of Labor and Defense. In 1936 the Committee was dissolved and the task of establishing standards was taken up by the commissariats. In 1940 a new All-Union Committee on Standards was established; it functions today under the name of the Administration of Standards of the Council of Ministers of the USSR. 46 The 1940 reorganization of the Committee on Standards was a reaction to the slowness with which the individual commissariats were carrying out the job given to them in 1936 of developing standards for the full range of their production. At the end of 1940, although the Soviet Union claimed to have over 12,000 technicals standards, more than any other country in the world,47 the situation was considered to be far from satisfactory.48 Many industries, such as the coal industry, had no standards at all, and in machinery manufacturing and iron and steel there were relatively few. In the newer mass production industries with complex technologies, the development of standards had lagged far behind, which made the problem of subcontracting and interchangeability of parts a serious one. Moreover a large proportion of 9 "Having permitted noneconomic expenditures at the same time as the profit plan has been underfulfilled or the working capital consumed (if output is sold at a loss because of high production costs), the leaders of enterprises, forgetting about the state's interests, try to transfer the consequences of their poor management on to other enterprises by delaying the payment of bills to sellers and shipping incomplete and subquality output to buyers " V. D'iachenko, "Khozraschet kak sotsialisticheskii metod khoziaistvovanna" (Business Accounting as the Socialist Method of Management), Vcprosy ekonomiki, no. 2, 1951, p. 15.

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the existing standards lagged many years behind contemporary technology.49 Apparently the commissariats were not willing to spare the time and engineering talent necessary to keep a vast system of standards thoroughly up to date. That enterprises had grown accustomed to simply ignoring, in large measure, the system of standards may be inferred from the profound shaking-up which occurred when the harsh edict on the quality of production was passed on July 10, 1940. One of the provisions of the edict was that output had to meet the existing standards, and when, in the heat of the campaign, enterprises took a second look at the old standards, some astonishing production decisions were made. In some cases the standards provided for a quality of product lower than had been achieved since the standard was introduced. Rather than risk producing a "nonstandard" product, some enterprises deliberately reduced the quality of production. 50 In other cases, rather than reduce quality in the midst of the campaign, enterprises simply halted all production until the standards could be revised. In the production of pipe, for example, the old standard had established both an upper and a lower durability limit for most types. Technical progress had resulted in a considerable increase in the durability of pipe and enterprises found that they had been shipping pipe the durability of which had exceeded the upper limit. It was therefore held to be of "nonstandard" quality, and shipment was held up until the newly organized All-Union Committee on Standards got around to approving the removal of the upper limit of durability. In some cases the old standards on tolerance were unrealistically rigorous and enterprises had gotten into the habit of shipping products which were below the standard but of quite reasonable quality. When the edict on quality was announced, these enterprises feared to continue shipping those products in the height of the campaign. The fish-packing industry, for example, was unable to produce tins which met the size specifications of the old standards, and the packing of fish was stopped until the All-Union Committee on Standards was able to approve a more realistic standard for tins. 61 The great disturbance caused by the edict suggests that previously some sort of equilibrium had been established between standards and reality. Where possible, existing standards were adhered to; where it was inexpedient, either because the standards were truly unrealistic or because it was to management's interest to violate them, they were neglected. As long as nothing upset this adjustment, it was a viable situation. That an adjustment of somewhat similar nature has been restored since the war is indicated by recent reports. It is officially stated that there were 8,600 standards in existence on January 1, 1952,

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and for certain important industries such as iron and steel and petroleum there are standards for almost the entire range of output. 52 Although an "especially large" number of standards are more than ten years old, it is nevertheless likely that they are more satisfactory than the prewar standards. But in the criticisms leveled at the present system of standards one catches glimpses of the same old factors which must have lain at the basis of the adjustment before the 1940 upset. The safety factor manifests itself in the list of proposed standards, based upon "reduced" norms, which the ministries submit to the Administration on Standards. Simulation manifests itself in the use of "departmental technical specifications." These specifications, which are approved not by the Administration on Standards but by the producing ministry itself, are much less demanding on quality than the All-Union standards. They are used for a wide range of products for which no standards are as yet established. When the All-Union standards of a product are excessively demanding, some ministries cease to produce that product but introduce instead a "new" product which is substantially the same as the old one except that its quality is set not by the All-Union standard but by the easier "technical specifications." And finally, it is reported that many enterprises still fail to produce output which meets the standards. At least qualitatively, there does not appear to have been a substantial change in the effectiveness of standards in the present day as compared to the prewar situation. 53 Technical standards are only instruments of quality control, and their effectiveness depends upon the use made of them by those responsible for quality. Primary responsibility for adherence to standards is lodged in the department of quality control. The principal function of the department is to assure that subquality output is detected immediately, that steps are taken to remedy the fault, and that none of the faulty output is shipped to purchasers. The actual work of control is performed by quality inspectors located at various strategic points along the production line within the shops. Each large shop has a bureau of quality control to check on the quality of its own production, and it sometimes maintains inspectors in the shops which feed it with semi-fabricates. The job of the inspector is to reject all production which does not correspond to the standards. Full control by the quality inspectors has two facets. The motivational facet, the extent to which the quality-control officials are willing to execute the functions with which they are charged, will be discussed in a later chapter. As for the second facet, technical competence, in the prewar period there were repeated criticisms of the low level of training of the quality-control officials. In the Petrovskii Iron and Steel Plant, for example, of the one-hundred-forty-three people in the department, only

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Production 54

three had a higher education and eighteen a high school education. In the Freser Plant "about 50 per cent of the personnel of the department of quality control have worked there less than a year, and among them are many juveniles." 55 In the Magnitogorsk Plant they took people who "couldn't even answer the question, what is the department of quality control, or what is an All-Union Standard?" 56 The poor staffing of the department of quality control was not accidental. With the general shortage of highly trained technical personnel, due to the very rapid rate of expansion of the economy, management needed all the trained people it could obtain for the purpose of direct production. Any good engineer or technician placed in the department of quality control was one skilled man who was not helping directly in the task of fulfilling the production program.'* The consequence of this attitude is that the department was often stripped of any good men it succeeded in obtaining: 57 It is necessary to make a basic change in the attitude of the plant management toward the department of quality control. To this day the department is poorly staffed. Our best people have been taken away, and have not been replaced by sufficiently qualified people. Comrades Aleksandrov and Losev have been taken out of the department of quality control and made into assistant foremen . . . A month ago Comrade Kuznetsov, a quality checker, was made foreman of the mass assembly shop and no one replaced him. Resources as well as personnel were too expensive a luxury to be spared for the department of quality control. Officials of the department complained frequently of the lack of tools and instruments and of the poor condition of the testing laboratories. The neglect of quality control sometimes went to the point of virtual abolition of the department. "In some textile factories the departments of quality control were completely dissolved some years ago. It is hard to believe that in the calico factories there have been no departments of quality control for eight years." 58 Details are sparser for the postwar period, but the general picture seems not to have changed. "In many enterprises the role of quality control is reduced to a low level. In the Stalin-Novokramatorsk Plant the department of quality control has been transformed into a bureaucratic office." 69 "The departments of quality control in many enterprises are not sufficiently provided with the essential technical documents, blueprints, instructions, equipment, and measuring instruments." 60 "In many workshops these departments are not staffed with highly qualified personnel." 61 Quality control remains one, though not the only one, of the stepchildren of plant management. 4 A similar attitude prevailed in the staffing of other auxiliary departments such as the planning department and the maintenance department.

F A L S I F I C A T I O N OF

REPORTING

X

As the end of the month draws near the manager may feel compelled to resort to deviation from the assortment plan or quality deterioration in order to simulate plan fulfillment. But once the month has drawn to a close, these courses of action are no longer open. There remains only one more way of salvaging an unsuccessful performance, by falsifying the reports submitted to the authorities. There is no shortage of evidence on the prevalence of this form of simulation. "The director of the Stalin Kiev Boat Repair Yards, Comrade Tikhienko, exaggerated his 1953 report by 683,000 rubles and thus reported that his annual plan had been fulfilled 100 per cent." 1 Director Burdin of Factory Number Two of the Moscow City Leather Footwear Trust found himself in a worse position at the end of 1951. "He announced that the December plan had been fulfilled 100.8 per cent when it had actually been fulfilled only 73.9 per cent." 2 But while there is abundant qualitative evidence, it is more difficult to estimate the extensiveness of the practice. One of the most reliable informants expressed his judgment in these words: The Soviet system of enterprise administration, the method of calculating the degree of success of the work of the enterprise and the system of financial operations are founded upon an enormous amount of falsification in all branches of production and in their accounting systems. Not a single enterprise, if it worked in full accord with all orders and decrees of the government and planning organs, would be able to function without interruption. Every day, for the sake of production, the official norms are violated, everywhere there is evasion, false figures, untrue reports, and so forth. (Informant 90.) Perhaps these words are too strong. The statement cries for quantitative evidence which in the nature of the case is not likely to be forthcoming. It is necessary to fall back upon such evidence as shows that these things are widely done and that they make sense in the light of the situation in which managers find themselves.

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OUTPUT

Simulation by falsification is not simply a matter of exaggerating the volume of output. "Taking a figure out of the air" is sometimes resorted to but it is exceptional. "This is a great crime and is rarely risked," remarked Informant 26. There are numerous subtler methods of falsifying output reports, and each manager chooses those which are most compatible with the special conditions under which his plant operates. One of the most common forms of falsification is the "borrowing" of output from a future month and reporting it as part of the production of the current month. The practice is suited to an enterprise with a long period of production, in which a large volume of goods in process is carried over from month to month. Since the gross output target is measured not only by the volume of finished production but also by the net change in the value of goods in process, a slight overstatement of the reported goods in process at the end of the month may easily change underfulfillment to fulfillment: In order to present the output plan as fulfilled, enterprises frequently turn to the following manipulation: output which is not yet completed at the end of the planning period is valued by the factory at a considerably higher percentage of completion than it really is. This is practiced by almost all Soviet enterprises. This method of accounting is also one of the reasons why one can observe in Soviet industry the constant fall in production in the first ten days of every month and in the first months of every year. For example, a factory completed the production of ten machines with an expenditure of 1,000 man hours of labor on each and partially completed five others — but it declared each one to be 60 per cent complete instead of 30 per cent. In the report gross output was given as 10 X 1,000 plus 5 X 600, which equals 13,000 man hours of labor: in fact it had produced 10 X 1,000 plus 5 X 300, which equals 11,500 man hours. The difference is 1,500 man hours, that is, the falsified increase in production is over 10 per cent. But these 10 per cent have to be made up in the next period. (Informant 90.) If a certain portion of the goods in process is represented as being 90 per cent complete instead of the actual figure of, say, 75 per cent, it shows up as an increase in goods in process but does not affect the reported volume of finished production. If the reported degree of completion of the goods in process is pushed up to 100 per cent, it amounts to declaring some of the goods in process to have been completed. The overstatement is then reflected as an increase in the volume of finished products, that is, of market output.3 Therefore if the enterprise has been lagging behind the target of market output, plan fulfillment may be

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simulated by declaring some of the goods in process to have been completed: Sometimes at the end of the quarter the market-output plan was fulfilled only 90 per cent. No one wanted to send a telegram like this to the ministry, or else director and the Party secretary may both be brought up on charges. So they would take part of the gross output and include it with the market output in order to raise the figure for market output. This was plain swindling. (Informant 388.) Such methods of simulation are limited to enterprises, such as some machinery works, which have a relatively long period of production. If the period of production is short, the volume of output in any period is so large compared to the volume of goods in process that it would require a very large overstatement of goods in process in order to make an appreciable change in the volume of gross or market output. For such enterprises it is more expedient to "borrow" directly from the expected output of the next accounting period: 4 On August 31 it became clear once and for all that the textile output of the Molotov Weaving and Finishing Mill would not meet the monthly plan. There was a deficit of 12,600 meters of brown Holland cloth, and a great deal of unpleasantness with the chief administration and the borough Party committee lay ahead. What was most important, there was no chance of a bonus. All this was a source of great embarrassment to R. G. Shtabinsky, loom manager. Instead of admitting his shortcomings honestly and forthrightly, he went in for windowdressing and cheating the state. The production manager made up some kind of statistics and then summoned inspector A. Ia. Belyayeva and former senior accountant N. A. Klushina, giving them strict orders to include the output of the first two days of September in the August plan and, of course, to draw up appropriate "records" for this purpose. "Then we will be able to catch up," Shtabinsky decided. It will be noticed that the accounting period plays an extremely important role in the operations of Soviet plant management. It is not merely an arbitrary division of time conveniently chosen for reassessing the production performance of the enterprise. If it were merely that, no decisions would be made which would take the accounting period itself into consideration. Because the performance of the enterprise is judged by the measure of fulfillment within the accounting period, it becomes vitally important to fulfill the plan before the end of that period. It is the crucial role of the accounting period which largely explains the persistence of the uneconomic practice of "storming." 5 And it is the same fact which explains the decision to simulate plan fulfillment by the "borrowing" of output.

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Of the various accounting periods with which the enterprise is concerned, the monthly period appears to be the most important one. This is undoubtedly closely associated with the fact that premiums are paid according to the fulfillment of the monthly plan. But other periods seem to play important roles under certain circumstances. In the late prewar years, for example, heavy emphasis was placed by the commissariat upon the fulfillment of daily production quotas in the iron and steel industry. Because of the importance of the daily plan in this industry, it is not surprising that the "borrowing" of output from day to day was rather frequently reported:* Under conditions of an uneven tempo of delivery of finished products to the warehouse, it is clear that twenty-four hours are not enough for one day. Then measures are taken to "prolong the day." Comrade Chmykhov, an official of the plant Party committee, showed some telephone messages which had been sent in the last days of March by the plant dispatchers to the shift chiefs of the warehouse of finished products. The messages were sent recently. By order of Comrade Matevosian, the chief engineer of the plant, it was decided to prolong the receipt of the finished products from the rolling mill on March 15 until 1:30 A.M. of March 16. On March 11 Comrade Matevosian authorized the inclusion, in the output of the current day, of the output of the quality-steel shops which had actually been completed by 6:00 A.M. of the following day. On March 9, at 1:56 A.M. there was an order of director Comrade Matveev to add to the delivered output of the quality-steel shop twenty tons over the reported amount, but at 2:15 A.M. this telephone message was annulled because there was not enough finished metal.' While the monthly plan, and sometimes the daily plan, is of prime importance to the enterprise and the shops, the quarterly and annual plans are the principal bases of the measurement of the ministry's performance. Therefore at the end of the quarter and of the year the enterprise is under double pressure to report plan fulfillment, both for its monthly premiums and because of the pressure from the ministry.! * Cher, met., March 22, 1941, p. 2. The effect on quality inspection of this rush to simulate fulfillment of the daily plan is suggested in the following: "Part of the metal is still 'unidentified' with regard to certain elements, or 'delayed.' But since the heads of the department of quality control are not in the plant, telephone 'agreements' are reached, according to which the shift officials are given the following instructions: 'Accept the metal into the warehouse, but don't load any of it until morning; when we come we'll sort it!' Thus the day's delivery includes metal which has actually not been accepted yet, which very often is turned back in the morning for the correction of defects or goes back for retesting." Cher, met, March 13, 1941, p. 3 t In the prewar period ministries sometimes sharpened the pressure for fulfillment of the quarterly plan by specific measures tied to the payment of premiums. According to Informant 316, the monthly premiums were paid in proportion to the fulfillment not of the monthly plan but of the quarterly plan: "Of course, when you over-

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Although some informants denied that the "borrowing" of output was a feasible practice when dealing with periods as long as a quarter of a year, others described practices of simulation of reported fulfillment in terms of quarters and years. Undoubtedly the feasibility of the practice varies from enterprise to enterprise. But in any case, it should be remembered that a week's output borrowed from the future makes a difference of about 6 per cent in the quarterly plan and of about 2 per cent in the annual plan. These small percentages may be enough to put the enterprise over the hurdle of plan fulfillment. However, a week's borrowed output means a reported overfulfillment of the monthly plan by up to 25 per cent, a rather huge amount. Only an enterprise with a very long period of production could borrow as much as a week's output by overstating the value of goods in process. If the period of production is short the borrowing will have to come out of finished production. While the most common form of falsification involves the overstatement of current production, of considerable interest is the fact that sometimes the opposite is done: the actual volume of production in the current period is understated. As noted in the discussion of the safety factor in the production program, the manager has an eye out for the fulfillment of the plan of the next period, and if he has greatly overfulfilled the plan in the current period, it is advantageous to tuck some of it aside in case the next period's work is not as successful.* Moreover, awareness of the estimate the value of incomplete production [that is, goods in process] you must cover it up the next month. This is not too difficult if you overfulfill your norm in the following month. Then you simply understate the value of incomplete production during the following month, and instead of 108 per cent fulfillment of plan, you fulfill it only 102 per cent. In this case you still get your premiums. This is because the granting of premiums required that all three months be fulfilled, and if the quarterly plan has been fulfilled but one of the months slightly underfulfilled, you do not get your reward. Also, the shifting of the value of incomplete production does not affect the rates of the rewards because they were based on the percentage fulfillment of the quarterly plan." * In the prewar period, output which had been underfulfilled in one period was often included in the plan of the following period by omitting some of the planned items of the second period. For example, "According to the plan of the Chief Administration of Agricultural Machinery, the enterprise was supposed to produce 500 seed-cleaning machines in May, but the planning department of the enterprise oriented the shop to a production of only 425. The plan provided for an output of 250 clover-threshing machines, but the shop was oriented to an output of only 50. In the planning department they explain that in May the shop had to make up for an underproduction during the previous month of grain-threshing machines and ricecleaning machines: therefore, they say, the over-all figure for output is not too low. But these explanations do not conceal the essential fact of the matter, that is, the inadmissible practice of double planning and artificially reduced plans." Mash., June 3, 1939, p. 2. However, the postwar planning statute of 1946 requires that any production underfulfilled in one month must be made up in the following month, but in addition to the full production program of the following month. This requirement is an additional reason for postwar managers to seek a safety factor. Teplov, Planirovanie, p. 224.

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existence of the "ratchet" principle of planning causes the manager to be wary about reporting too high a level of fulfillment in the present period. The following statement by Informant 388 is presented in full because it reflects the operation of this aspect of the safety factor not only in the enterprise but in the ministry as well: Sometimes the plan is deliberately underfulfilled. This may happen once or twice a year. They underfulfill it because they want to remove any suspicion that might arise if the plan is fulfilled every single month. The purpose of this is to give the assistant commissar the impression that he is really putting pressure upon the enterprise. Because if month after month the plan is fulfilled, then the commissar might crack down upon them. But if in some months the plan is not fulfilled, then it will seem like a very hard program. They are willing to give a few months' premiums for this. And the director agrees also. The resident commissariat representative also knows about this and is also interested in getting a lower plan. Also, they are opposed to high overfulfillment of the plan. If the plan is overfulfilled 115 per cent the director will be opposed to sending such a report to the commissariat. They will try to lower it to 103 per cent. Q. How can they do this? A. The resident commissariat representative is not objective, he is partial. He will say, "Let us not consider this machine finished because it must work in conjunction with another machine and the other machine is still not finished." This is called "cleaning up the plan fulfillment" or merely "correction." The commissar agrees to this because he too is afraid of being charged with giving too low a program. This would be worse than underfulfillment of the plan. Therefore they all fear to show a very big overfulfillment. Q. Can you give me a case in which this happened? A. It happened several times. Once we were making large rings for a tunnel. This was figured not by weight nor by segments but by each linear section of the tunnel. There may have been twenty or thirty rings to a linear section. W e were not allowed to figure by each ring, but all were shown at once and they had taken three months' work. Therefore in the third month the plan showed a fulfillment of 110 per cent. The commissar said no, this is too much. He told us to figure it by the number of rings which had been shipped and not by the whole linear section. He said that the rest of the rings will go in the next month's shipment. This reduced our percentage fulfillment to 101 per cent. In individual production there are many opportunities for this. You can include only the output actually loaded for shipment if you desire to lower the percentage fulfillment. The combined operation of the premium motivation and the safety factor results in a tendency to falsify reported fulfillment in a way that evens out the reported month-by-month plan fulfillment. In the unsuccess-

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ful months output is "borrowed" from the future, and in the successful months output is "lent" to the future or "repaid" to the past. In deciding which products are most appropriate for falsification, the possibility of detection is an important consideration. The experienced manager knows precisely the areas in which his manipulations would be most difficult to detect and in which it is safest to chance falsification.* With the aid of a skillful accountant he is able to use the official accounting procedures to his own advantage. For example, the valuation of goods in process is based upon the value of materials put into production plus the labor expended on them. It is a simple matter to transfer, at the end of a bad month, a certain quantity of materials from the plant warehouses into the shop storerooms. This transfer is reflected in the accounts as goods put into production and thus increases the value of goods in process.6 This situation is a source of great frustration to the writers of regulations. In 1954, for example, the Central Statistical Administration issued a new set of regulations, providing that any error in reporting output must be corrected in the report for the month in which the error was discovered. Thus, if an "error" was made in overestimating the value of goods in process in one month, it may be lawfully "corrected" in the next month. A critic of the new regulations, fully aware of the probable turn of managerial thinking, describes this as an open invitation to falsification: . . in practice, such corrections of errors remain unknown to anyone except the very persons who themselves made the error in the reports in the first place, and themselves corrected them in later reports." 7 Knowledge of such techniques not only comes from experience but is one of the selective talents which helps one manager succeed where another fails. This knowledge puts the manager one step ahead of the inspector. For however experienced and shrewd the inspector, his knowledge of the detailed operations of the enterprise can rarely be as intimate as that of the people who actually run the many plants which he is required to inspect. "It is very difficult to say what part of an airplane repair job has been completed . . . a specialist might be able to approximate the percentage fulfillment of a repair job, but the ordinary investigating commission cannot" (Informant 311). The measurement of the value of goods in process can pose an extremely complex problem, and one which was debated at great length in the prewar period by engineers " "In regard to the calculation of plan fulfillment, it is easy to check on the obvious things, such as the actual structure of the building, or how many bricks have been laid These externally obvious things amount to perhaps 80 per cent of the value of the construction. This part is also the easiest to fulfill. But the estimate of the other 20 per cent involves hidden things such as electricity, plumbing, and so forth. These things are very difficult to estimate and mistakes are often made in this area." (Informant 4 5 0 . )

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and planners.8 Therefore, while the outside inspector remains a potential threat of discovery, under ordinary circumstances the manager expects to be able to conceal his simulation: The very large factories have an inspector of the commissariat on the premises. He determines the percentage of completion of a locomotive and draws up a statement (akt). Say the locomotive is 30 per cent complete. The director gets his finances on the basis of this statement, and he can help himself only by his personal relations with the inspector. But the inspector is afraid for his own skin. There is relatively little of this conniving in large factories or military factories . . . but even in large factories the inspector cannot tell on what day a job was done. He is skilled in technical matters, and in policies, but he is not involved in the internal workings of the factory. Therefore it is still possible to manipulate the value of incomplete production. (Informant 485.) Since "borrowed" output must eventually be repaid out of the production of the future, the greater the extent of the simulation the greater is the danger that it will not be made up and that the simulation will be exposed. Therefore before deciding to falsify reported output the manager must consider the possibility of making it up soon. If the plan is not quite fulfilled at the end of the month, "we may declare it fulfilled if we feel certain that it will be fulfilled in the following month." (Informant 450.) If simulation involves declaring incomplete output to be complete, a special problem may arise if the anxious purchaser, learning that his product is completed, demands immediate delivery. Informant 388 described the rather elaborate measures his enterprise took to guard against disclosure from this cause: In order to do this you have to know the conditions of work in the enterprise which ordered the equipment. Say the equipment is ordered for January but you cannot produce it before February. If you find out through your representative or through some careful spy work that the plant is not ready to install the equipment in January, then you can take the chance of declaring it complete. This is because, when I say the plan is 100.6 per cent fulfilled, I must give a list of the completed output. If the buyer needs the machine I may get a telegram from him in two weeks asking why I have not yet sent it. But if I know that their shop is not built yet and is not ready for the machine, then I have two more months in which to complete it. Therefore I may write the machine down as completed. Ultimately the success of this method of simulating plan fulfillment depends upon the general performance of the enterprise. If the extent of the overreported output is not too great, and if it has been resorted to merely to get the enterprise out of a one-time difficulty, then the bor-

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rowed output is easily made up in the following period and the simulation is not likely to be discovered. If, however, the magnitude of the falsification is large and there is an insufficient safety factor for making it up in the next period, then "in the next period they have to do the same thing." (Informant 26.) As Informant 25 stated, "it is like a shirt which is pulled down on one side and comes out on the other." The effect of this carryover of borrowed output from month to month in an enterprise which is unable to catch u p with its schedule is similar to the effects of "storming": Including the production of a future period in the report presented for the current period is another way of showing plan fulfillment. As a rule, many enterprises work during the first days of the new accounting period, and sometimes for the whole first week, on production which had been presented as completed during the previous period. This is the second reason why the productivity of the enterprise falls in the first ten days and the first month of the new period. (Informant 90.) Since the actual output of the first week is underreported (part of it having already been reported in the previous month's output) it often becomes necessary once more to overreport the output of the last week in order to meet the month's plan. A week-by-week chart of output and productivity would therefore show a fall at the beginning of the month and a rapid increase at the end of the month. This is the same statistical pattern as emerges from the phenomenon of "storming." Thus, even in an enterprise in which there was no actual storming (in the sense of a slowdown of operations at the beginning of the month and the intense pace of operations at the end of the month), production figures may nevertheless show results similar to those observed in storming. If this peculiarity of simulation is at work at the same time as actual storming, the production data would exaggerate the magnitude of storming. The statistical monthly "business cycle" would continue until the enterprise had accumulated enough of a safety factor to be able to produce in any month a volume of output equal to the planned output plus the amount that had been borrowed in the previous month. In the absence of such a safety factor the periodic movement would continue. If the enterprise not only fails to keep up with its plan but falls further behind every month, then the amount borrowed each month increases, so that a larger and larger part of the current month's work goes to making u p output which has been reported as completed in the previous month. Somewhere along the line concealment becomes impossible, either because of the sheer magnitude of the falsification or because more and more customers are clamoring for goods which have been reported com-

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pleted but have not been shipped. Such a situation ends in a great skandal: It is true that this makes our work more difficult in the next quarter, because in that quarter we have to produce that machine as well as the entire current quarterly plan. Sometimes these manipulations accumulate and in the end everyone is arrested. The Party secretary often knows about these manipulations: it is all simulation. (Informant 388.) "SHUFFLING" ACCOUNTS

The discussion thus far has been confined to methods of simulating fulfillment of the output plan. But simulation as a principle of management is much more general than this. It operates in every sphere of managerial decision-making in which there are indicators which must be achieved or surpassed, and the specific forms it takes are similar to those at work in simulation of output-plan fulfillment. It operates with respect to "inputs" (materials, labor) no less than output. On the output side the state seeks to fix in the plan not only the quantity and value of total output but also the quality standards and the assortment distribution. Correspondingly, on the input side the state seeks to fix in the plan not only the total quantity and value of inputs, but the distribution of inputs among the various cost elements. Just as the enterprise finds itself compelled to simulate output-plan fulfillment by varying the assortment and quality of output, so on the input side it finds itself compelled to simulate fulfillment of the cost plan by varying the planned proportions of the inputs. "If one planned item is overconsumed, they say that the money was used for the purchase of another material. This is called the 'shuffling of accounts.' Therefore the plan does not really achieve its aim, because everybody tries to get around it." (Informant 26.) As with all simulation, a particular technique which is possible in one enterprise is not in another, and hence some of the informants denied the possibility of what others reported. Each informant tended to give illustrations from the field of his own experience. Stated Informant 384, a chief engineer: Often there is a shuffling of accounts. Suppose we have to set up some new machines, and the funds we have been given for this purpose are not sufficient and we cannot get any more. The mechanical engineer installs the machine and then he ascribes the funds to some other job such as the repair of a lathe or the repair of a power machine. Other specific illustrations in the interviews refer to the use of funds allocated to fire prevention for capital construction or repairs, to premium

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funds used for covering an overexpenditure on materials, to funds provided for internal plant investment used for new construction. Illustrations abound in the published sources. Minister of Finance Zverev reports that "unfortunately cases are not infrequent in which business managers permit improper utilization of their working capital, using part of it, instead of for the planned use, on extra-plan capital construction, capital repairs, and other ends." 9 In the novel The Thaw, the director ("there were those who said he was just a formalist and a reinsurer") built a precision casting bay with funds allocated to workers' housing construction. 10 The variety of illustrations reflects the fact that different enterprises find themselves in different positions in the extent to which various planned cost items restrict their activity. An enterprise may succeed in building up a safety factor in one of its planned cost items, perhaps transportation, by having allocated to that item a larger quantity of funds than it needs; whereas another cost item, perhaps coal, is stripped of all the "fat" and a larger expenditure than originally planned proves to be necessary. The enterprise therefore has an overexpenditure of the second item and covers this up by charging it to the first item. Clearly, just which items will play the role of overexpended or underexpended varies from enterprise to enterprise, but one item appears to have outdistanced all others as the most restrictive of the planned inputs. This is the item of labor and wages. WAGE REPORTING

A number of factors have combined to generate a persistent upward pressure on wages. Perhaps the dominant factor has been the shortage of labor, especially skilled labor. The influence which this shortage has had on the characteristic manifestations of the safety factor and simulation in the sphere of labor and wage practices was succinctly expressed by a Soviet writer in 1940:11 The shortage of labor created a favorable soil for mobility, added to the seasonal inflows and outflows, created uncertainty in the supply of labor power for the planning period. Connected with this was a feverish state of affairs in which heads of enterprises expended great efforts in filling up their planned contingent of workers, rather than concentrating on a better organization of production and labor. In addition some managers tried to secure their enterprises with labor and embarked on the antistate course of illegal increase in wages by means of all sorts of increased job valuations, surpayments, and so forth, thus adding to the great mobility of the labor force. As a result of the labor shortage, labor pirating was widely reported in the prewar press and managers were criticized for the "intolerable

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practice of recruiting labor at the gates of neighboring plants, and tempting people with higher wages." 1 2 The aggressive competition for labor aggravated the problem of workers "flitting" from job to job in search of "the long ruble." In a series of official measures the state sought to remedy the problem by binding workers to their jobs in various ways, and while these measures undoubtedly had a strong effect, there are indications that in the postwar period labor mobility in some areas continued to be a problem. Bulganin reported, for example, that in 1954 about 2.9 million workers were newly hired in union and union-republic industry, and about 2.8 million left their jobs. 13 Total average annual employment in that sector of industry was roughly 12 million. More important than the statistical record, however, is the fact that the system was still perceived as one in which workers must be induced to stay on their jobs. The famous Stakhanovite foreman, Nikolai Rossiiskii, describes how a number of his young workers were preparing to leave his shop because they thought they could earn more and enjoy better working conditions elsewhere. His reply was to prove that this was untrue and unpatriotic besides, not to dispute the possibility of making the change. 14 One has a strong impression that changing jobs was not considered out of the ordinary by the Soviet citizen, and that competition for labor still motivated managerial officials to take pains to keep their labor force together. Indeed, the privileged position of highly skilled workers is demonstrated in the essay by Rossiiskii. A certain skilled worker had become the virtual dictator of his shop because he was the only one who knew how to make the stems of micrometers. If he failed to show up at work, production had to stop. The foreman toadied to him, which began to go to his head, and when he became completely unreliable the plant had to change its method of making stems so that they could be made by less skilled workers." On April 25,1956, the government abrogated the prewar decrees which provided for imprisonment or fines for unauthorized absence from work or leaving a job. 15 Legal measures are now replaced by measures of a "disciplinary and social nature," the latter term referring apparently to * Rossiiskii, p. 23. A rather amusing illustration of the way in which a skilled worker could sometimes write his own ticket is the following report by a newspaper correspondent: "I personally witnessed the following scene in the machine shop. The norm setter, Comrade Rybin, was filling in the work order of machinist Comrade Komasevich for the trimming and cleaning of welded rails. 'Well, I'm giving you twelve hours,* said Comrade Rybin, writing down the number twelve. 'You know, that's a little too much . . .' objected Comrade Komasevich hesitantly 'Ten?' 'That's fine!' Rybin changed the two into a zero." Ind., May 29, 1940, p. 2.

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Party and trade union pressures on workers to stay on their jobs. Deprived of legal powers to keep their skilled workers, managers may well have to rely even more than in the past on wage incentives. A second source of pressure on wages is the official policy of steadily increasing the labor norms on the basis of which the labor and wage targets of enterprises are determined. For many enterprises such plan targets are impossible to attain, and require the hiring of unplanned labor and overtime work. By such measures production plans are fulfilled, but with a greater outlay on labor than planned. In the prewar period, the high labor norms, pushed steadily upward by the Stakhanovite movement, left large numbers of less capable workers with extremely small piece-rate earnings. A number of informants commented on this, particularly with respect to women. "The work was not easy for these women," said Informant 220, a young man who had been a foreman, "and their wages were very low. Many of them had several children and no husband . . . The condition of these women was on my conscience. Any one of them might have been my mother . . . I often used to give them this work to do, to clean shell casings which weren't even rusted, so as to enable them to earn more money." Said Informant 65, "We had particular trouble with the women's brigade. They had the easiest jobs, yet they never earned the full amount which was due them. Therefore we had to spend much time in various forms of deceit, write out different work orders, give them makeshift jobs to increase their pay." There appear to be established views among the workers as to what constitutes a "fair" income, and the foremen were under pressure from their men to pad the wage bill with various fictitious jobs. Malenkov called attention to "the following corrupt practice: after having provided an incentive for the good workers, they artificially raise up to their level the wages of those groups of workers who lag in productivity, who do not improve their skills, and who do not fulfill their output norms." 16 Foremen were accused of trying to achieve "guaranteed earnings" for their men. 17 Finally, a number of smaller causes have contributed to the pressure on wages. Inevitable inaccuracies in wage planning make it necessary from time to time to increase the pay checks of individuals or groups in order to keep peace in the shop. It is not always possible to provide each worker with a job corresponding to his rating, and if he is given a lowerpaid job, he has to be paid additional sums in order to maintain his earnings. 18 Wages must be paid to workers rendered temporarily idle by breakdowns or stoppages due to shortages; since no output is produced, such wages become "overpayments." 19 Also, the perennial problem of storming continues to lead to large quantities of overtime work and overpayment of wages. 20 Formalization of a wage overexpenditure centers on a document known

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as the work order (nariad). The work order is a form which, when filled out and signed by the proper authorities, legalizes the payment of a wage to a worker. The important role of the work order is indicated by the frequent references to it in the interviews when the informants discussed wages. 21 Its significance is that without it no worker may be paid anything. If the foreman or shop chief wishes to overpay a worker, he must fill out and sign a false work order. 22 Hence a good deal of the simulation of wage payments centers about the presentation of a false work order. 23 A work order may be given to a worker for some job which has never actually been performed." Some officials find it unnecessary to take the trouble to cover up such activities; for example, one periodical reported, "Last month twenty workers in this plant were paid over 2,700 rubles by work orders without numbers on them, for some unidentified work." 2 4 Most of them, however, manifest considerable ingenuity in finding appropriate jobs to enter on these false work orders as having been done. " W e say that water must be pumped out somewhere, or that the materials must be brought in from a further distance than they really are. W e often ascribe to a man work which he did not do at all. For example, we say that he had to carry materials and we use a false work order. W e draw up a special work order for sweeping the floors or cleaning up." (Informant 202.) Jobs such as the handling or movement of materials are particularly difficult to check up on, and are therefore most suitable for falsification, f On construction projects the famous Russian winter pro" "According to the documents it appeared that such worker categories as painters, steamfitters, ordinary workers, carpenters, etc., fulfilled their norms by 200 and 300 per cent. On checking we discovered that over 50 per cent of the work which had been reported as done was actually not done at all. This fictitious piece-work existed only in order to carry out more easily all sorts of illegal extra payments, the socalled 'namazki.'" Mash., January 18, 1939, p. 3. Commenting on a statement by the Minister of Finance that enterprises were illegally paying wages for work which had not been done, the humor magazine, Krokod.il, presented a cartoon showing a line of people standing before a cashier's office In their hands they carried work orders made out for such jobs as "simulation" (ochkovtiratel'stvo) and "taking figures out of the air." Krokodil, March 30, 1952, p. 2.

f "Often the workers would be sitting around without work because we had not got our castings from the factory. Or perhaps the testing laboratory had refused to pass on a lot of castings. In this industry they were very careful of quality. So I would have the women move around a pile of shells. If five workers were needed to do one job, I would credit each worker with having done the entire job. I pretended I did not know, and when each one handed in his work order, I would simply sign it " (Informant 220.) A Soviet writer has shown that one of the major sources of the relatively low productivity of Soviet labor compared to American is the high proportion of labor going to internal transportation in the Soviet enterprise Much of this is due to the low level of mechanization But since this is one of the areas in which control is most difficult, it is possible that internal transportation accounts for more than its share of

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vides a most natural pretext — snow shoveling; judging from the work orders for shoveling snow, commented an informant, it would seem that all the snows of Siberia fell on our project. Somewhat safer than the presentation of a work order for jobs which have not been done at all is the inclusion of false information on a legitimate work order. The easiest thing is to overstate the amount of work actually done. "If the worker has dug only three cubic meters of earth, we would say that he dug five." (Informant 450.) Sometimes the foreman may go too far, as in the case of a mechanic in the mine who "had thirty-eight shifts ascribed to him in one month and on the nineteenth of June is reported to have worked twenty-six hours(?!)" 2 5 Or more recently, there is the construction project in which "the hauling of sand in bags, by hand wheelbarrow, to the cement-mixers covered a distance of 4,000 kilometers, judging by the work orders!" 2 6 But usually ways are found for covering up the exaggeration. In many industries, for example, various units of measuring output are used, and the worker's output may be measured in the units which are most advantageous, pieces or tons of spare parts, square meters or running meters of textiles. 27 Apart from falsification of the quantity of work done, a good deal of attention is devoted to the manipulation of the norms by which the work performed, or reported, is evaluated. A common practice is to use official norms when setting up the wage plan, but in practice to apply lower norms, that is, to require a smaller output for the same pay. 28 This practice is especially feasible when there are large subjective elements in the choice of norms to apply, as often occurs in construction." There are many legal ways of covering up for the use of a lower norm. For example, if the official norm does not quite correspond to the job, perhaps because of a minor change in the production process, then the normsetter is allowed temporarily to set a new norm. "Sometimes," said Informant 46, a former norm-setter, "it was possible to get a supplementary work order if the job was considered of unusual difficulty . . . The norm itself was left unchanged, but this was a method of getting more pay which happened every day." There are many reports of the use of "additions" to norms, in case the official norm appears to be too high for the particular job. 2 9 the false work orders. Cf. S. Kheinman, "Ob islishkakh rabochei sily i o proizvoditel'nosti truda" (Concerning Surplus Labor Power and the Productivity of Labor), Problemy ekonomiki, no. 11-12, 1940, pp 113-114. * "Wages may be overpaid because the norms on the basis of which the workers are paid do not correspond to the actual work. Even in these norms different interpretations may be placed. It may be said that a certain type of work corresponds to type x, and another person may say that it belongs under norm y. Each of these norms has a different valuation. We always tried to overvalue work on the construction." (Informant 2 0 2 . )

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Finally, even if the correct norm is applied, the workers' pay may be raised by applying an incorrect wage rate. 30 This method was facilitated in the prewar period by the enormous variety of wage rates used in industry, often within the single enterprise. The Stalin Automotive Plant, for example, had forty different wage rates for first-grade skilled workers; the Molotov Automotive Plant had twenty-two different wage rates and ten different wage systems. "All these deficiencies in the structure of wages," stated a Soviet commentator, "gave birth to all sorts of unlawful surpayments and the mechanical increasing of the earnings of individual workers." 31 There is a law, for example, which provides that if a worker is employed at a job which is rated below his own skill rating, the loss in pay which he suffers must be made up to him. 32 These "surpayments of 'mixed-rating discrepancies' are not exceptions, they are part of the system . . . There is not a branch of machinery manufacturing in which surpayments of mixed-rating discrepancies' do not amount to huge sums." 33 Such lawful surpayments provide a useful cloak for the deliberate overpayment of wages: . . the shop inflates the skill ratings of workers, especially machine tenders, in order artificially to raise their wages." 34 For if a worker doing third-grade skilled work is listed officially as a sixth-grade worker, he must receive a surpayment. The handling of the work orders involves a huge amount of time, not only for the norm-setters and the clerks but for the foremen as well. The task is made somewhat easier if the work orders are filled out after the work has been done. This practice is condemned officially, for it undoubtedly adds to the confusion of working conditions.35 But the practical value of this delay to the foreman is clear: by filling out the work orders after the work has been done it is easier to assure that the important workers will be satisfied.36 The system of work orders, then, provides a sufficient reservoir of pretexts whereby a shop chief or foreman can hold his labor force together and keep peace within the shop. A crane operator like Comrade Gavrilov of the "Athlete" Plant in Moscow could earn 766 rubles at a time when his base pay was only 174 rubles. "This wage was composed of his base pay, a premium because the shop overfulfilled its plan, payment for special jobs, overtime work, cleaning the shop, installing molding boxes, and so forth." 37 Through such devices managerial officials succeed in their "striving to preserve at all costs an average 'guaranteed' income for their workers, independent of the results of their work." 38 The considerations which lead managerial officials to pad their workers' pay envelopes are apparently more weighty than the consequences of failing to keep within the planned wage target. Nevertheless it is desirable when possible to create the appearance of having "fulfilled the wage plan." The most common device for simulating this fulfillment is the

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concealment of a production-wage payment under some account other than production wages. Various other accounts are used for this purpose; the one most often referred to by the informants was the repair and maintenance account. The procedure is to draw up a work order for a repair job, on the basis of which the worker is paid, and then to have the worker spend his time in direct production. One also reads of enterprises which "spend this money not for vacations but for other purposes . . . They cover their wage-fund overexpenditures with this money. Many economic organizations every month receive more money for vacation pay than they really require for this purpose." 39 Another account under which wages are often concealed is construction. The quality of bookkeeping and cost accounting in the construction industry is reported to be on an extremely low level, and this characteristic appears to have carried over into manufacturing enterprises which have been authorized to undertake a capital or residential construction project. In view of the ease of confusing cost records on construction, this account is especially appropriate for covering up an overexpenditure of production wages.® Another practice is to subcontract work which was supposed to have been performed by the enterprise and for which provision had been made when the planned wage bill had been established. This operation frees a certain amount of planned wages which can then be used for covering up an actual overpayment of wages in production. 40 It applies to the subcontracting of transport operations, repair jobs, painting and small construction jobs, material processing, and others. Interestingly enough, there are reports that the opposite is also done, that jobs which were supposed to have been subcontracted are in fact done by the enterprise itself. This occurs for the most part when the enterprise is unable to find a subcontractor for the work which was supposed to be done. For example, if it is unable to obtain the transportation facilities for which an allocation had been made in its financial plan, the enterprise simply hires more workers to run its own trucks and vehicles, and pays the operators from the funds which have been allotted to transportation. 41 This latter practice poses certain difficulties. Wages are paid in cash, and except for small amounts of petty cash, the only significant purpose for which the State Bank will honor a request for a cash withdrawal is wages. With minor exceptions, all payments made by an enterprise to * "Say the commissariat allows us 600,000 rubles for construction and housing. W e actually spend only 400,000 of this, but we indicate the full 600,000. The rest goes to the hiring of seasonal workers, travel expenses, materials, and hauling. Even if we have a batch of materials on hand we pretend that we had bought it and had it hauled. Then we draw up work orders for stone-cutting, hauling cement, but in actuality we paid these workers for working in the factory, because we were allowed more money for construction than was necessary." (Informant 3 8 4 . )

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other enterprises are transacted without cash, through the system of bank clearings. If the enterprise plan provides for the purchase of ten thousand rubles of trucking services from a transportation depot, there is no provision made for this in its wage plan. Hence, if the enterprise cannot obtain the trucking services, it cannot simply ask the bank for the ten thousand rubles in cash to pay wages to its own truckmen. It must first obtain a supplementary wage allocation from its ministry. Inability to place the planned contract for trucking services is apparently a sufficient excuse for obtaining the wage allocation. In this fashion even the materials account may sometimes be used as a source of wages. For example, an enterprise may be allotted a certain amount of money for the purchase of new packing boxes. If it is unable to obtain new boxes, it may hire workers to collect and repair the available boxes. The wages for these workers come from the fund for materials. 42 It should be noted that all falsification of wage payments does not involve the concealment of production wages under another account. Apparently the opposite is also done; that is, other expenditures are concealed under the production-wage fund. For one enterprise, it may be that some money is needed to buy materials which cannot be obtained in legal fashion, and this money comes from the wage fund and is accounted for as a wage outlay." For another, it may be that not enough funds have been allocated to the most necessary current repairs, or perhaps the enterprise has spent more than it was allowed for current repairs and wishes to conceal the fact. In the case of repairs, we always tried to build up the repair wage fund to give us a reserve for repairs. If we overpaid our wages for repair, we drew up a statement saying that we had bought some old equipment which needed a large amount of repairs. W e would say we bought the machine for only 5,000 rubles although its regular price was 10,000 rubles. And therefore we paid 3,000 rubles in wages repairing it, and 1,000 rubles for materials in order to rebuild it. This statement goes into the annual report at the end of the year. (Informant 26.) * "Suppose you needed 1,000 rubles' worth of nails. The bank would not pay this because you do not have an official materials-allocation order. You must therefore obtain the nails by blat (see Chapter X I ) . Say that your wage fund is 6,000 rubles per month. You have to provide a wage statement telling how much wages you will pay this month. You draw up an order for wages for the next ten days. You say you need 3,000 rubles for the ten days. Really you do not need 3,000 rubles but only 2,000. The statement of requirements is an order to the bank for payment, based on the wage statement and signed by the director, the chief accountant, and the chief of the financial department. You would explain the extra 1,000 rubles as occasional work, such as washing, repair, and so forth. If you made an economy on wages, you would never be permitted to use this money for purchasing materials. But it is done." (Informant 114.)

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The fact that other expenditures are sometimes concealed under the wage fund indicates that for some enterprises wages are not the most restrictive element in the financial plan; such enterprises have succeeded in building a factor of safety into their wage plans so that wage funds can help to provide for areas in which a safety factor is not present. In fact, simulation in the accounting of inputs is closely related with the desire for a safety factor, for the greater the safety factor included in any planned item of expenditure, the greater the opportunity of simulating fulfillment of some other item of expenditure in which the pressure for overexpenditure is greater: If I am instructed to lower my wage fund 5 per cent, I never try to reduce it by 10 per cent because tomorrow they would increase the requirement by 5 per cent more. This is a great risk, and it would be hard on the workers and on me. I always instructed the norm-setter to meet only the required 5 per cent. But often I have to take funds from other sources in order to pay for wages. Therefore repair estimates are greatly inflated, as a sort of safety-factor fund, in case of breakdown and in case of the need to find an additional source for wage payments. (Informant 26.) The practice of reporting wage expenditures under other accounts introduces inaccuracies in the national accounting of wages. Thus a Soviet economist reported that in 1938 there were three major calculations of wages paid out in the national economy. One calculation was by the trade unions, on the basis of social insurance data; another was by the State Bank, on the basis of its data on fulfillment of its cash plan; and the third was by the Central Statistical Administration, on the basis of the reports submitted by the enterprises. Even after corrections for coverage, the Central Statistical Administration figures were some "hundreds of millions" of rubles less than the figures obtained by the other organizations. While it is difficult to estimate the effect of falsification on Soviet wage statistics, it is clear that a large amount of money was being paid out to individuals which was not accounted for as such in the reports submitted by the enterprises themselves.43 LABOR FORCE REPORTING

Finally, the practice of simulation in the payment of wages is paralleled by the practice of overstaffing the labor force. That the hiring of excess labor is based primarily on considerations of the safety factor is recognized by Soviet authorities. Harsh criticism is directed at managers who, "under the influence of attitudes inherited from the past which are associated with a shortage of the labor force, instead of correctly utilizing labor, create 'reserves' for every occasion, dismissing from view the fact that every excess quantity of labor interferes with the normal

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course of production and the growth of labor productivity." Skilled workers whom the enterprise has managed to hold on to are "kept in the shadows . . . in order to 'preserve' such people 'for themselves.'" 45 Even when the enterprise has no immediate need for certain groups of workers, it is thought wiser not to dismiss them, for the act of dismissal is a demonstration of the existence of surplus labor. As a group of Leningrad managers complained in the press, there is fear of the operation of the ratchet principle, for whenever they do undertake to reduce their staffs, the chief administration immediately orders a reduction in the size of the maximum planned staff.46 If the enterprise later needs to increase the staff, it is difficult to have the maximum raised again. When direct orders are received to release personnel for work elsewhere, managers continue to preserve their best people. In the novel, The Thaw, Director Juravliov turns to his double advantage an urgent order from the Party to send men to help out on the farms. On the one hand he "insists upon a campaign" in order to manifest his political ardor; and on the other hand he uses the occasion to pack the troublesome factory drunkard off to the farms. 47 Similarly, Informant 16, who had been an official in the Soviet economic administration in occupied Germany, reports that in order to recruit engineers for occupation duties, the economic ministries were ordered to release a certain number of their engineers: A ministry did not want to release a good engineer. As a result they sent either their old engineers whom they did not want any more, or their young engineers who still had to learn. In general every ministry released its engineers only under pressure from the Central Committee. Consequently they were not among the best engineers. They were often Party members for whom there was no use in production. Because of the enormous problems of definition in labor classification, simulation of conformity to the labor plan involves no great difficulties. Perhaps the purest form of simulation, classic in its simplicity, was manifested by certain labor recruiters, whose performance was judged by the number of new recruits who could be persuaded to sign labor contracts for a specified period of work in the peat bogs: "Many labor recruiters, in their drive after numbers, sometimes enter into contracts with invalids who are hardly likely to work in the peat bogs." 48 The techniques of simulation within the enterprise are perhaps less direct but equally imaginative. In drafting the labor plan, for example, if a certain job is defined as "current repairs," it has to be carried out by the existing labor force, but if it is defined as a "capital repair," then the plan may provide for extra funds and extra labor. Hence there is a tendency to reclassify repair jobs, where possible, as "capital repairs." 49 But more common is

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the redefinition of labor categories. The labor plan establishes the maximum quantity of labor in any category of personnel. By reinterpreting the definition of a category within certain limits, it may be possible to simulate conformity to the plan without having to cut the labor force as intended. Regulations provide ample opportunity for this: "in practice, very many groups of persons may easily be assigned to various personnel categories at the choice of the person drawing up the report." 5 0 In the following statement by Informant 316, describing such an event taking place in rather high circles, one gets the impression of a ritualistic acceptance of certain regulations and a common amoral appreciation of the need for all to collaborate in finding a way to meet the situation without going counter to the letter of the regulation: I once happened to be in the State Planning Commission when we were discussing the plan for our commissariat. In our commissariat, there were 10,000 engineering-technical personnel. There were also 2,000 students coming out of the institutes during the current year which our commissariat had to absorb. This made a total of 12,000. But the State Planning Commission said that our plan allowed only 11,000, and our salary plan was based on this figure. Salaries are calculated as a certain percentage of the wage fund. What to do with the extra 1,000? The State Planning Commission said, "Among the ranks of the engineers you have many technicians. Move them out of the rank of engineers and back to the rank of technician. Also, you have many brigade leaders who are included as technicians. Move them down to the rank of brigade leader." In this way we were allowed to keep our allotted number of engineering-technical personnel. Of course, the people who were demoted had to take a cut in pay. This sort of thing was rare, but it actually happened. Just how rare this form of simulation is depends upon the pressures of the moment. When the state instituted a vigorous campaign in 1954 to reduce the sizes of managerial staffs, one could well have predicted the reaction. "In the hosiery factory 'Aurora' of the Ministry of Industrial Consumer Goods of the Latvian Republic," runs a typical criticism, "employees of the administrative apparatus were maintained under the guise of workers." 5 1 The Ministry of the Machine-Tool and Instrument Industry abolished three-hundred-fifty staff positions from their "reserves": "In other words, in this ministry the reduction was accomplished in large measure by the elimination of actually non-existent positions. Facts have been found about heads of some organizations and enterprises who try to maintain their staffs by assigning new names to administrative and managerial personnel." 52 As in the case of wage overpayments, the enterprise makes every reasonable effort to conceal the hoarding or overstafling of labor by some

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method of simulation. But apparently the magnitude of the practice exceeds the possibilities of concealing it all. Both aggregative and detailed statistics are given from time to time on the magnitude of the over-plan employment of labor, and individual cases are reported in which the size of the labor and managerial staffs are simply and unashamedly in excess of the planned limits.53

BLAT

XI

The term blatwhich introduces the third broad group of managerial activities, is one of those many flavored words which are so intimate a part of a particular culture that they can be only awkwardly rendered in the language of another. The word implies the use of personal influence for obtaining certain favors to which a firm or individual is not legally or formally entitled. In the industrial sphere it refers to such actions as obtaining materials contrary to the intent of the plan, or persuading ministry officials to relieve one's own firm of a difficult production task and assign it to another firm with less influence. In the private sphere, it refers to such actions as obtaining consumer goods without having to queue up, or securing an apartment to which one is not strictly entitled by his occupation. The particular type of influence needed varies. It may be influence based upon family relationship or close friendship, or it may be merely an entrée into a supplying firm that permits a purchasing agent to propose an unlawful manipulation without fear of being rebuffed or reported to the police. There is an implication of reciprocation of favors, but the reciprocation is usually not a direct quid pro quo. A favor done today may not be reciprocated until sometime in the indefinite future. In the private sphere, blat has more of the connotation either of helping a friend out, for friends must help each other, or of using one's position of authority to grant certain favors to important people in order to keep on their good side. In the industrial sphere the reciprocation is often more direct, sometimes involving an exchange of goods or favors. The blat involved in such transactions is the knowledge of which persons are approachable for arranging deals, and the mutual trust which permits the deal to be initiated. Blat is an old word which has developed a new meaning under the Soviets. The prerevolutionary meaning of the word connoted criminal activity, usually confined to the less serious kinds of crime, such as theft. The criminal underworld spoke a jargon of its own which was referred to as the blatnoi jargon, or thieves' jargon. According to an authoritative Soviet dictionary the word has a "new common vulgar" usage; in the * Pronounced blaht.

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expression po blatu it means "in an illegal manner." 1 Another Soviet dictionary defines po blatu as "illicitly, by protection, by patronage." 2 The term has, therefore, a much milder connotation than in the prerevolutionary period. As used by the informants it involves actions which combine illegality with personal influence. The absence of real moral disapprobation in the term suggests that the illegality involved is not one which offends deeply rooted cultural mores. The evasion of changing economic and bureaucratic regulations involved in blat is looked upon as something perhaps not quite respectable, yet not on the plane of a real moral transgression. In our own society it is similar to black market operations during a period of government controls, or to distilling home brew during the prohibition period. As with the latter analogy, there is a mild tone of naughty humor involved in the use of the term. The important place of blat in the informal operation of the society is indicated by the responses evoked from the informants when the interviewer used the term. From time to time an informant would take a supercilious attitude, betraying his feeling that the interviewer knew nothing at all about real life in the Soviet Union and wouldn't understand if it were explained to him. In such a situation, the interviewer often found it expedient to ask the informant a question about whether a certain objective could be achieved by blat. Invariably the informant displayed amazement mixed with some laughter that the interviewer knew about such things. The informant's respect for the interviewer's knowledge of the system was greatly enhanced by this bit of "gamesmanship" and the rapport in the interview situation was considerably improved." Another indicator of the wide prevalence of blat and its integral place in the social system is the rise of a number of widely quoted folk sayings about it. Most common is the expression, "Blat is higher than Stalin" or variations of this such as, "Blat is higher than the Council of People's Commissars." Another is the expression, "you've got to have ZIS." ZIS in this context is a play on words; on the one hand it refers to the Soviet automobile of that name, and on the other it stands for the first letters of the expression, "acquaintanceship and connections" (znakomstvo i sviazi).

Although the word blat is widely used in popular speech, it is not a "polite" word and people of more refined manners are half-embarrassed to use it. It therefore never appears in Soviet publications, although the * Informant S was a former plant manager in the Soviet Union, who displayed his entrepreneurial talents by building up a small but thriving business, employing about eight workers, while living as a displaced person in Germany. S was so impressed with the interviewer's simulated sophistication about blat and the ways in which money is made that he sought to work out a mutually profitable business deal for himself and the interviewer.

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phenomenon to which it refers is revealed from time to time in articles of criticism. The taboo against the use of the word in the literary language raises some methodological problems, for since the living society is insulated against close personal contact with western students, we have been almost totally dependent upon written sources for our knowledge of the character of the society. Since the written sources do not use the word, it would be difficult to obtain from them alone a true appreciation of the phenomenon and the important role it plays. Undoubtedly, our knowledge of dead languages is quite deficient in the stock of certain words which lived in the popular speech but failed to come down to us because they did not appear in the literary language. The discovery of the ruins of Pompeii, the bawdy playground of ancient Rome, provided a rich addition to the existing knowledge of the Latin tongue. Similarly, if we were totally reliant upon the written sources of Soviet society which come into our hands, we might hardly have guessed at the importance of the phenomenon of blat. Most of our knowledge of the widespread existence of blat and of the ways in which it operates comes, therefore, from the observations and reports of people who have lived in the Soviet Union. Some keen non-Soviet observers who have lived there for a number of years have caught sight of the phenomenon and have reported it. Edward Crankshaw, for example, calls blat the most significant word in contemporary Russia.3 But the largest body of data on the role of blat and the way in which it functions comes from the testimony of people who have worked in the system. One of the first accounts of the testimony of former Soviet citizens is that given by David Dallin, who devoted a chapter of his book to blat. 4 It is significant that Dallin's first extended account of blat should have come from a person who had interviewed former Soviet citizens, because it emphasizes the fact that one cannot talk with a large number of those people without having the phenomenon of blat thrust and impressed upon one as a major aspect of the social system. BLAT IN PROCUREMENT OF SUPPLIES

It is in the sphere of industrial procurement that a centrally planned system is supposed to make some of its greatest advances over the decentralized, atomistically competitive market system. Since all plans of all firms are known beforehand, it is theoretically possible to pre-arrange all interfirm shipments of materials, so that no firm will ever have to worry about sources of supply after the planning period has begun. But in setting up the formal structure of their industrial procurement system, the Soviet planners have not sought to achieve anything as ideal as this. Their aim was much more realistic and modest. For one thing, not all

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materials are centrally allocated, but only those which experience has shown to be the most troublesome. In fact, however, these troublesome ones constitute a large proportion of all interindustrial shipments. The Soviets also recognize that because of the uneven pace of plan fulfillment in different firms, even the most perfectly integrated plan will have to be corrected as the planning period gets under way. Therefore the director is exhorted not to expect his materials to flow into his firm more or less automatically (as the director of a firm in the theoretically ideal system may properly expect), but rather to be ever vigilant over his supply channels, making sure that the flow of materials is never interrupted. In case of an interruption of supply he is charged with making every possible effort to obtain the materials necessary to keep the plant from having to stop work. Certain formal channels are open to the firm whose inflow of materials is threatened. It may make representations to the ministry, which can then bring the matter to the attention of the supplier's ministry. Or it may try to influence the supplier directly. In a critical case it may call upon the aid of the Party to change or by-pass plans and regulations in order to meet the emergency. Sometimes these formally established channels are used, and with success, but on other occasions they are thought to be unsuitable, either because the particular procurement need of the enterprise would be frowned upon by the higher officials, or because the formal channels would involve an excessively long time. The exasperation felt by managerial officials at the cumbersome maze of official channels comes to light in descriptions such as the following excerpt from a letter published in an industrial newspaper:5 The process of supplying sulphuric acid to enterprises of the commissariat [of General Machinery] located in Kiev and Odessa is carried out in the following fashion: the consuming enterprise sends its statement of requirements to its chief administration, in Moscow; the chief administration sends a statement of requirements for its enterprises to the commissariat; the commissariat presents its summary statement of requirements to the marketing department of the Commissariat of Local Industry in Kiev; this marketing department sends an allocation (fond) and a notice of allocation to the commissariat in Moscow; the commissariat distributes the allocated amount among its chief administrations and sends the distribution plan to the marketing department of the Commissariat of Local Industry of the Ukrainian SSR; the chief administrations distribute their allocations among their enterprises and send the distribution order to the marketing department of the Commissariat of Local Industry; the latter, finally, sends out allocation orders to the producing enterprises authorizing them to sell.

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Rather than face this long drawn-out process whenever a shortage of some material threatens production, the firm often prefers to turn to the well-established informal procurement system, a major element of which is blat. One of the most frequently used terms in the industrial jargon of the informants is the "allocation order" (nariad).* This document appears to be of extreme importance to the successful operation of the firm. It certifies to the seller of a centralized product that the buyer has the right according to plan to purchase the stated quantity of that product. Sellers of "funded" or "planned" commodities, which comprise the great bulk of important industrial commodities, are not permitted to sell to any customer who does not possess an allocation order. Only decentralized commodities may be bought and sold without one. Because of the central role of the allocation order in the procurement operations of the enterprise, most of the informal procurement techniques involving the use of blat center around it. Although the evidence leaves little doubt about the importance of blat in circumventing the regulations of the allocation system, the available information on the details of its use is sparse. From the testimony of the informants and the few indications from the literature a partial picture may be drawn of the ways in which blat works. It is possible to document the use of blat at practically every stage of the long process from the securing of the allocation order to the final delivery of the goods to the warehouse of the purchaser. The most serious problem which an enterprise faces is obtaining a vitally needed material when it has been unable to secure an allocation order for it. It is in such a situation that blat serves its principal function. An insight into how this is done appears in a rather interesting letter which was reproduced in the newspaper Chernaia metallurgiia. It seems that a certain Iakov Lukich Karnarukov occupied the post of Chief of Fuels in the Rural Wood and Industrial Fuel Office (SeTlespromtop) of the Commissariat of Agriculture. The commissariat needed 150 tons of coke which it were unable to obtain, having no allocation order for this funded product. Karnarukov forthwith wrote to his "former colleague but now just good friend" Konstantin Mikhailovich Zolotarevskii, who was deputy commercial director of the Nikotovsk Dolomite Kombinat. Unfortunately, he did not take the precaution of stamping the letter "personal," and as it happened, Zolotarevskii was out of town on a travel mission at the time the letter arrived. Thinking it was an ordinary business letter, someone in the office opened it, and the contents eventually found their way into the pages of the newspaper, submitted " See Chapter II. The word happens to be the same as that used for a labor work order.

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by an unidentified V. Pshenitsyn. The relevant part of the letter, after the friendly news and regards, is the following: 8 I am approaching you as a magician and wizard in commercial matters. This is the problem. We have to obtain 150 tons of smallsize coke for the use of the Commissariat of Agriculture. Since we have no way of getting it, I have arranged with my boss to pay out a certain sum of wages, the amount of which you yourself are to name. And I am approaching you with the request that you figure out and name the sum which will satisfy you if you can arrange to ship 100 tons of small-size coke to Leningrad and 50 tons to Moscow. You there in Khanzhenkov have a hand which has always come to the rescue in time of need. Payment will be made immediately upon presentation of the bill. Do not fail also to indicate the price of the coke. I am sure that you, Konstantin Mikhailovich, will not refuse to satisfy my request and earn a little extra milk for the kiddies. This is the typical situation in which blat is used to help the enterprise out of a supply difficulty. The enterprise needs some materials for which it does not have an allocation order, so someone in the enterprise with the proper connections, or ZIS, arranges to obtain the materials without an allocation order. Fewer laws are broken, however, if the enterprise can manage somehow to obtain an allocation order first, and blat can help here too: For the supply of such things as cement, oil, and so forth, we often had to go to the chief of the supply department of the ministry which produced these things and ask for an allocation order. Here acquaintanceship played an important role. Therefore all the supply chiefs had to be very healthy and know how to drink with a lot of people. They were brazen people who knew how to set up blat. (Informant 384.) Possession of an allocation order puts the enterprise on the road to a legal solution of its supply problems. But often this is only the beginning of the practical difficulties. For example, it often happens that more "fat" has been cut off the original statement of requirements than management had dared include as a safety factor, and therefore the allocation order does not cover the full needs of the enterprise. If the officials of the enterprise have good blat, they may be able to repair this deficiency by obtaining more materials than provided for in the allocation order. The following is the statement of Informant 481, a former supply agent of an enterprise: Say the factory needs some writing paper. The chief of the supply department will not worry about this. He will simply tell his agent to go out and get it. We did receive an allocation order, but it is

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not sufficient. We need 150 kilograms more than we are allowed on the allocation order. We got this by blat. Say I have an allocation order for 250 kilograms. I always used to get my paper from a particular store in Leningrad. Since I always got it there, I had developed an acquaintanceship (znakomstvo) there. I might need 500 kilograms, but my allocation order is only for 250. The accountant gives me funds only for 250 kilograms, but the director gives me enough money out of the director's fund to get the extra paper. Then I go out to the warehouse, or perhaps even to the store itself. The store is not allowed to give me so much at retail, but I know the manager personally and he can give me 1,000 sheets instead of just 10. In the warehouse I also get an extra 100 kilograms by blat. While the allocation order may cover all the planned needs of the enterprise, the problem may arise of obtaining more materials in order to make up for a greater consumption of materials per unit of output than had been planned. Or if the plan has been fulfilled, additional materials may be needed in order to overfulfill the plan. If it is an important enterprise there are likely to be no special difficulties in obtaining the extra materials through legal channels, although the process might be very time-consuming. But if it is a firm producing low-priority goods, then the plant's ability to overfulfill may be limited by the difficulty of getting the allocation order for the additional materials. There appears to be a form of document known as the "nonplan" allocation order, which the seller is supposed to honor only if he has fulfilled all his obligations to customers who have regular planned allocation orders. Blat may be successful in having a nonplan allocation order honored as if it were a regular allocation order: Besides, in the case of raw materials, sometimes you can get overplan materials by a special distribution. It is done in this way. Suppose you are given a special order to produce and you obtain a nonplan allocation order for the necessary materials. With the help of blat you can get your nonplan allocation order considered as part of your plan. (Informant 485.) The sparseness of the data permits only a few glimpses into the endless variety of techniques which resourceful managers employ for the purpose of evading the allocation regulations. From time to time reports such as the following appear in the press to confirm the view that the ingenuity of managers is unbounded. A director of a knitting machine factory needed a new machine tool. He applied to the machine tool plant, saying that he did not have an allocation order but would like to assemble the required machine tool out of a full complement of rejected spare parts. The machinery plant officials refused to do this at first, but told the director how he could get an

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allocation order. The allocation order was actually received, and a new machine tool was delivered. But the chief engineer and chief mechanical engineer still had their hearts set on getting another machine through the spare parts technique. This they arranged with the Bureau of Technical Aid and Complaints of the machine tool plant. About 15 per cent of the parts delivered were actually rejects; the rest were obtained from various shop personnel who released perfectly good parts for the machine tool under the guise of rejects. Although such incidents make no mention of blat, it is clear that the ability to put together a whole machine out of "spare parts" was based upon a considerable degree of mutual confidence between the officials of the two enterprises. 7 Although Soviet economists have been taken to task for saying so, the mere possession of an adequate allocation order does not at all assure that the materials will be delivered.* Because of delays in the arrival of planned materials the enterprise may be forced to seek out small quantities until the expected shipment finally arrives. Informant 114 stated, "Suppose you have an allocation order for 100 pounds of nails but nothing has arrived. The shop cannot stand idle. So you ask the foreman how many nails he must have in order to keep the shop going until the shipment arrives. He says he needs at least a pound for today. So you go to the store and get one pound of nails by blat." In view of the frequency of delayed deliveries, enterprises strive to obtain their planned materials well ahead of time, to make doubly sure that they will be available when needed. The enterprise with good blat will use its influence to try to have its orders delivered as soon as possible; if it can obtain its supplies for the following month ahead of time, it can use some of these supplies for overfulfilling the current month's plan. This would be significant in cases in which reserve stocks are extremely low, which is not an uncommon situation. He [the supply agent] develops a wide acquaintanceship and tries to get all orders filled before the planned date. He tries to get them all on the first of the month, to get all of the supplies for the quarter as soon as possible. W e therefore always try to fulfill our procurement plan ahead of time. We may get our April supply three or four days before the first of April. Therefore we can overfulfill. (Informant 485.) It is not only the time of delivery which is important but also the nature of the materials delivered. Since an enterprise under pressure * A reviewer criticizes the author of a textbook for forgetting to discuss certain important problems of auditing, ending with the acid observation, "but the author does not forget to warn the reader that the construction project may not be provided with funded commodities, even though, as is well known, funded commodities must be allocated in accordance with the established volume of work." Planovoe khoziaistvo, no. 3, 1953, p. 93.

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to fulfill its plan may be forced to ship out products which do not correspond in quality or assortment with what has been ordered, the purchaser will use his blat to assure that the materials delivered to him correspond to what is needed. Informant 164, who had been an official in the cooperative retail trade network, described this problem with reference to the assortment of products shipped to the village cooperatives by the regional cooperative: The pressure for fulfillment of the sales plan is greatest in the case of mass consumer goods (shirpotreb). The higher organs always try to force more of these easily obtained goods upon the lower organs. But they can never get enough of the normed goods. Blat exists everywhere, in the village cooperative, in the district cooperative, and in the county cooperative. Each district cooperative carries its own specific weight in the county. If they have a friend in an important position in the county, then the district cooperative may get more than its proportional share of normed goods. But for the mass consumer goods, there is no competition. Friendship in the county may be used to reduce the quantity of mass consumer goods which the district is required to sell. But even after the desired materials have finally been obtained, the worries of the purchaser are not over until the materials have been shipped and delivered to his enterprise. Even at this last stage of the process it may still be necessary to use blat in order to assure delivery. Taking advantage of the sellers' market, sellers may disdain from arranging for the shipment of products and insist that the purchaser's representatives take care of this little matter themselves. In the Bashkir Republic Consumers' Cooperative, "merchandise intended for the rural trade network is not shipped from Ufa until the chairmen of the district consumers' cooperatives come after it. The warehousemen do not consider it their job to pack and ship the goods to the districts, so that an agent from the district consumers' cooperative must bring workers with him to Ufa to pack and ship the goods." 8 How blat fits into the picture of arranging to have materials delivered on short notice is reported by Informant 114: But we were more interested in railroad cars than in lumber. Often we were given only fifteen railroad cars when we needed eighty to haul our lumber. That is, the lumber was easier to get than the necessary freight cars. The supply agent goes to the railroad and gives out a few gifts here and there. Thus at every stage of the long procurement process, from the allocation order to the goods in hand, blat may be used to expedite matters.

Blat

191

THE PERSONAL BASIS OF BLAT

Although the informants distinguish between blat and bribery ( vziatka), the difference is not very clearly defined. One element of difference appears to be the nature of the entrée into the arrangement. In blat there is some personal basis for expecting a proposal to be listened to sympathetically, either because of past friendship, or because of the trust developed after a long business association. In bribery it is only the offer of the bribe which links the two persons involved. Hence bribery has a somewhat more cynical quality than blat and is considered a more dangerous practice. Referring to an exchange of materials, Informant 320 stated, "occasionally this is done by bribery, but this is very rare and dangerous. Usually there is just a transfer of materials." Similarly, in a series of test situations in which a large number of respondents were asked how a person could accomplish a given end, blat was usually acknowledged to be a successful means of action, but bribery was highly doubtful. A second difference between the two is that a direct and immediate payment is usually implied in bribery, whereas in blat the reciprocation may be now or at some time in the future, and may take any number of different forms. In either case the general awareness of the pressures under which managerial officials operate tends to dull the moral tone with which such actions are described: And then, you know, an inspector comes, an accountant. He is also a man. I don't want to say that it is the system, I don't want to vilify, that is to say, to vilify everybody, but at the same time, you understand, the inspector comes . . . He comes from the government, but he also has a wife and children . . . And so it comes about, here everything can be smoothed out. Of course, people remain people in such cases. They are not angels, they who are born out of the Soviet regime, they aren't angels. That is my view. Consequently, well, call it what you want, bribery, not bribery, but something like this takes place. Well, call it services. ( Informant 610. ) Although friendship is considered the basis of blat, great care is often taken in cultivating the friendship by means of little gifts. "The supply agents always try to find a weak spot and develop it. They give the responsible worker a bottle of vodka in order to have the materials loaded and shipped sooner." (Informant 485.) For many persons who are in a position to do favors for others, this blat is a source of considerable supplementary earnings: There is blat everywhere. There is leather blat, shoe blat, etc. People with different kinds of blat get together. Everybody who has

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Factory and Manager in the USSR

some power over goods has a supplementary income based upon blat. Those who work on the lower level of the ministry have no such extra income, such as statisticians and so forth. These people just starve. It is only for those who have located themselves on the crossroads of the distribution of goods. The arbitrator ( r e f e r e n t ) has such power. He is in charge of a small section of a large field. Say he is in charge of rubber supply to the textile industry. He has very great power. (Informant 396.) Blat in the industrial sphere is indeed often associated with a reciprocation of favors. "Say the coal mine needs 200,000 cubic meters of timber. The 'representative' goes to the lumber camp, hangs around there and watches their work, and sets up his blat. He is able to provide them with coal without an allocation order, and this is how the mine gets its timber on time." (Informant 114.) Although the eifect of this arrangement is the same as direct exchange, the informants do not consider it the same. In such cases they usually talk and think in terms of giving something as a "gift," as a favor returned, and not as a hardheaded quid pro quo. Because of the importance of gifts in blat, to be the producer of a product which others would very much like to obtain puts one in a distinctly favorable position. It is easier to "stimulate" another enterprise to give you what you need if you happen to produce a product which is difficult to obtain: There was also a "stimulus" involved in blat. It may be a mutual exchange of goods. Certain branches of industry are in a preferred position because of this. Q. Which industries were in the best position? A. The chemical industry, which produces caustic soda and soap. Or the ball-bearing industry, which produced bearings which everybody needed. If you needed some cement you could always give a bearing in exchange. The chief of the supply department always knew which persons he could manipulate. This was called "stimulating." (Informant 384.) But even in actual cases of direct exchange, a certain amount of mutual confidence is necessary before the deal can be arranged, and it is this confidence which is the essence of blat. One would not attempt to arrange an exchange with someone who was a total stranger, for it is, after all, illegal. It must be a friend or a cousin or, more often, someone with whom one has had past dealings and whom one knows to be as dependent upon this sort of activity as oneself. The supply agents of factories who become known to each other and to various enterprises are considered safe persons. The basis of the unlawful exchange of materials is the existence of unneeded surpluses of certain items and shortages of others; given this condition the supply agents

Blat

193

are able to count on the willingness and indeed the need by other enterprises in similar positions to engage in such unlawful manipulations as exchange. The general problem of shortage creates the common interest which gives rise to such "abuses": The allocation order contains the time of delivery, but even so it is often necessary to go to the supplying factory and to use supply expediters and engage in abuses (zloupotrebleniia). It is often common to exchange superfluous materials with other people who have an excess of the materials which you need. (Informant 320.) The supply agents who come without an allocation order, trying to obtain materials for their enterprises, are a fruitful outlet for the sale of the enterprise's rejects. Thus the sales managers of many enterprises are enabled to sell at a profit rejects which otherwise would have been a dead loss. There was also spoiled output. Suppose some product did not meet the technical requirements. We had a control laboratory which tested whether the output met requirements. We used spoilage as reserves. Small buyers who were not included in the plan could come and buy this spoilage. We would sell it and get money for it. (Informant 609.) This method of disposing of rejects is apparently quite respectable. The informant just quoted, for example, had been a Party member of a rather straitlaced kind; yet he saw nothing wrong in this use of rejects.1* Perhaps it is the very legitimacy of this practice that gives rise to the abuses. For if it is legal to sell rejects to buyers who have no allocation orders or low-priority allocation orders, then if a buyer has good blat he can succeed in obtaining "rejects" in name only. The following colorful description was written in a manuscript by Informant 400, a former chief engineer: However, rejected output often serves a second use. When an experienced supply expediter is "preparing the soil" in the department of supply and marketing of the seller's factory, the chief of this department informs the director of the factory, "About ten cars of rolled steel had to be declared rejected. The department of quality control has found, on a second test, that there are defects in the microstructure." * The testimony of this informant is of special value because he was an admitted Party member and apparently a devoted one. He represented a certain type of Soviet exile who hated "Stalinism" but continued to accept the Soviet system, including even the system of collective farms, which was rejected by the overwhelming majority of his compatriots. His testimony therefore reflects in many ways the attitude of the "idealistic" Party member. With reference to blat he stated, "They never tried anything like this on me. I was a member of the Party I never experienced anything like this . . . If I knew about it I would not have permitted it." He was the kind of Party member whom the shrewd supply agent tries to give a wide berth.

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Factory and Manager in the USSR

After enjoying the expression of dismay on the face of the director, the department chief then adds, "Oh, by the way, there is a young man here who agrees to take this stuff off our hands, and he has an allocation order. Actually it's not a high-priority allocation order, but it's an allocation order nonetheless." "Go on, give it to him," says the relieved director. The supply agent had "prepared the soil" so well that the seller discovered "on a second test" that ten wagon loads of steel had to be rejected and sold to him. The false labeling of good output as a reject is apparently a fairly common way of obtaining something illegally in a blat negotiation. In a case mentioned earlier, in which a retail store used to help a furniture plant from time to time, the following is the way in which the furniture plant reciprocated the favor: So instead of manufacturing 100 tables according to plan we would make 101 tables. We would declare this extra table a reject and then sell it to the store at a much lower price, because the store frequently helps us out with nails, paint, and so forth. This is perfectly legal, and is accepted by the bank. In the case of a reject, an allocation order is not necessary. (Informant 114.) In view of the relative scarcity of information on the subject of blat it is difficult to say very much about the detailed conditions under which it can or cannot be practiced. It is clear, however, that under certain conditions it is much more prevalent than others. The informants distinguish most often between large and small plants, asserting that blat is less common in larger plants because of better order and more effective control. Other informants stated that where large quantities of supplies were involved, blat was ineffective. "There was no blat, the supply was too large. We would buy several carloads of coke at once," reported Informant 609. However, it may be argued that the firm which deals in large quantities is better able to manipulate with a marginal fraction of these supplies, which may constitute a large absolute amount for a smaller firm. Informant 25 described a case in which a representative of a collective farm sought to buy some sewer pipe from a factory. "In this case," he said, "if it is a big factory, the director can provide him with the pipe without any danger." * Hence, the large quantities in which big factories deal encourage informal blat relations with smaller firms. Secondly, a large firm may order relatively small quantities of certain materials which may nevertheless be of critical importance to it; but because it is a small purchaser of this material, it may not stand very * The testimony continues, "The director will say, 'What can you pay for it?' He would say, 'I can give you a ton of oil.' And the director would agree."

Blat

195

high on the priority list of the seller. In such a case even an all-union firm may have to use informal means to obtain this critical material: For example, when I was technical director of the factory we used a certain compressor. This compressor had one little leather part, very specially made, the loss of which could stop all production. If this plant broke down, the director would be dismissed immediately. If I ordered fifty of these leather parts as spares, the trust usually cut it down to twenty-five. It was not my fault. But if the leather wore out due to my fault then I would be guilty. But in any case it is most important not to let production stop, and one way or another you had to go out to get this spare part. (Informant 609.) It is not only the size of the enterprise but also the nature of the product that determines how much blat will operate in its distribution. The degree of control over the product, that is, whether it is a "funded" product or not, apparently does not play the decisive role. What is important is the effectiveness with which this control can be carried out. Although most mass-produced industrial products are funded, they are produced and shipped in such large quantities that misappropriation is relatively difficult to detect. Therefore, blat is carried out "mostly in raw materials, because manufactured articles are produced in specific quantities." * The nature of the demand for the product also plays a crucial role. Products for which there is a general demand, and industrial raw materials are in this category, are likely to be involved in blat more often than products for which the demand is highly specific. This is why industrial products which have alternative uses as consumer goods figure so prominently in published reports of illegal dealings in materials. The following incident is typical of many which may be found in the press: 9 The managers of the Dnepropetrovsk Plant of metallurgical equipment decided to acquire a reputation for — shoemaking pursuits. An occasion for this was found. Since the plant experienced a need for special shoes, they decided to create their own shoe shop. In order to make shoes, you need leather. In order to get it, Director Comrade Gusarov, the chief of the purchasing department, Comrade Degtiar', and his deputy, Comrade Cherchenko, decided to employ any methods, even antistate ones. Between February and August of this year they shipped to the Kuntsev Leather Plant 300 tons of coal, including 60 tons of undersized thermo-anthracite, and 20 tons of girders and beams. In return for this service the leather plant sent to the Dnepro" Informant 485. This is not to say that blat does not operate in manufactured articles, for there are references to blat in such items as tools, machines, rubber goods, tire tubes, even tractors and trucks. What the informant may have had in mind are such things as locomotives, things which are manufactured in very small lots for special consumers.

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Factory and Manager in the USSR

petrovsk Plant various kinds of leather amounting to more than 17,000 rubles.® But although one can point to the general conditions which facilitate the practice of blat, our knowledge is far from sufficient to enable us to make any precise statements about where it can and where it cannot take place. Indeed, it is probably no less difficult for one living in the system to predict correctly, for there are many unpredictable factors at work which might facilitate a successful blat transaction in one case and render it impossible in another similar case. This is part of the ever-present uncertainty of Soviet, or of any dynamic, economic life. In the following incident, related by Informant 481, for example, it is difficult to say why the problem could not be remedied easily by blat. It is true that the boiler tube in question was centrally allocated, but there are other cases in which centrally allocated goods have been exchanged by blat. Yet in this case not even Party aid availed in making the direct informal contact which would have kept the shops operating: In 1940 one of our shops burst a boiler tube. I knew, and the director knew, that in a neighboring factory seventeen kilometers away from us they had just such spare tubes. This was very important to us because it might cause us to underfulfill our plan. I went to that plant and said that we had called Moscow, and Moscow had said that they were to give us a spare tube immediately. They answered that they were afraid of going to jail if they did this. I had to go to Moscow twice to inform them that such a tube did exist in that factory. Finally I had to go to Leningrad to get an allocation order, which took seven or eight days more . . . I had told the chief administration that there was a tube in the other factory, and they said that they could do nothing about it because it was planned for that factory to have the tube . . . If we went through the Party, by the time it went to Leningrad to be decided it would take just as much time . . . military factories are in a special position. The Commissariat of Defense can ship things from one factory to another. But if I had these ten extra tubes I could not simply give them away, lest someone might come from Moscow with an allocation order for them, and then I would be stuck because I had given them away. Ordinarily the chief administration can transfer my excess to another one of its factories, but in this case the tubes were not in excess. They had been planned for the other factory. * Of course, the shoemaking shop began to produce fashion shoes instead of work shoes, which the officials of the enterprise were able to obtain for themselves. For this enterprising activity, the managers of the plant received a premium from the chief of the trust who, it appears, also received several pairs of shoes. When the matter was disclosed at a meeting of the collegium of the commissariat the following punishments were given. The plant director received a strict reprimand, the chief of the trust was fired, and the purchasing-department officials were fired and turned over to the courts for legal action.

Blot

197

It took about two weeks to go through the full formal process of getting an allocation order from Leningrad, permitting the neighboring firm to release its tube. It should be noted that the informant thought this would not happen in a military plant, where it would be taken care of immediately. Much of the purchasing activity which is carried out by blat is based on the unlawful sale of commodities over which an individual has some control. Blat appears to be especially important in the consumergoods sphere, and officials of the trade network earn a considerable income by taking advantage of the goods which are entrusted to them. The press carries frequent reports of the abuse of this trust. This private blat is of less interest here because it contributes little to the understanding of the operation of enterprises, although it does reflect the extensiveness of illegality in other phases of Soviet life. This distinction between the use of blat for personal enrichment and for smoothing the work of the enterprise was emphasized in the interview testimony. "Sometimes this sort of activity was done for the sake of the enterprise and sometimes for the pocket of the one who sold the commodities. But in fact we were often compelled to do ilk'gil things not for our own benefit but simply so that the enterpiise could function." (Informant 26.) Thus, responsible officials may sacrifice the opportunity for personal gain out of an illegal arrangement in order to devote the benefits to the work of the enterprise. The supply agent, for example, often has large quantities of money at his disposal for arranging his blat, much of which he might use for himself but which he devotes instead to making deals of advantage to the enterprise. "Even though he could pocket this money himself, he often spends it for blat because his job depends upon this." (Informant 114.) There is one case, however, in which blat used for personal gain has a direct bearing upon the operation of the enterprise. This is the relationship of blat to the operation of the so-called "market." BLAT AND THE "MARKET"

The primary use of blat in procurement is to obtain necessary commodities from other enterprises without the proper authorization for doing so. But commodities may also be obtained from individuals who are in a position to dispose of them. Such individuals sell these commodities not to improve their relations to the buyer in anticipation of favors to be done for their enterprises in the future, but purely for personal gain: Once I needed a transformer. I found an agent who said that he knew just where such a transformer existed. Since it was a deficit com-

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Factory and Manager in the USSR

modity, I did not tell the Machinery Rebuilding Trust or the chief administration. My agent said that the transformer was located in the Kiev Power Office. The chief of this organization was a Communist. This organization was responsible for all of the transformers in the city of Kiev. We asked him to find us such a transformer and a month later he informed us that he had found one. We had to pay 1,500 rubles for the transformer, which was the real price, but we also had to pay the chief 1,000 rubles. How did we do this? We simply pretended to hire him as a consultant for three months and over this period we paid him for this nonexistent consultation. (Informant 26.) The agent who located the person willing to sell the transformer and finally arranged the deal had done this through what is referred to by the informants as the "market." * It is difficult to define precisely what this market is, but apparently it is a relationship among persons who know each other and know where and how commodities can be obtained from individuals illegally. It has established itself as a place where anything can be bought for a price. Commodities get into the market in many ways, one of which is direct theft from enterprises or organizations. If one has connections with this market, he can help his enterprise out of many a crucial situation: Say the agent was not able to find the materials I had to have. I might be able to get it in the market, but I could not use the funds of the enterprise. Once I needed some copper screen, which I could not locate anywhere. I had an old mechanic who knew everything about everything, and knew all the workers and what each one stole. He told me that he could find such copper screen for me, but that it would probably cost a lot on the market. I simply wrote out a work order for him saying that he had worked so much, and in this way I could pay him for the screen. (Informant 26.) Perhaps more important than direct theft as a channel by which commodities get into the market is the sale by individuals of things that belong to their enterprises. Undoubtedly one of the informal uses to which the safety factor is put is to provide excesses which individuals may sell for their personal enrichment. One of the functions of the supply agent is to know the persons who have excesses for illicit sale that may be used by their own enterprises. Informant 481, who had been a supply agent, reported: Our tire tubes used to wear out very quickly. But a city factory in Leningrad could use its tubes longer. Say he gets fifty tubes per quarter, but used only forty because the roads in the city are better. * The term "market" is also applied to the lawful sale to individuals of certain industrial commodities such as building materials, at quite high prices. See Naum Jasny, Soviet Prices of Producer's Goods (Stanford, 1952), pp. 7 8 - 7 9 .

Blat

199

He wants to sell them for his personal benefit. I can buy them with money which I get from the director's fund. The extensiveness of the "market" of commodities sold illegally by oificials of enterprises is testified to by the numerous illustrations given in the interviews, but these illustrations add little to the material which may be found in the Soviet press itself. Especially during campaigns against this sort of activity can one catch glimpses of the extensiveness of the practice. The following is a rather extreme illustration of the extent to which illegal selling and buying of state property takes place in some enterprises:10 The Chiatura Manganese Trust bought 76.8 kilograms of electric wire in the market, and the accounting office, although it had no bills for this, nevertheless wrote up an expenditure for the cost of the wire. In the trust there was the most unceremonious trade in scarce funded materials. Ninety-one tons of nails, 104 pairs of boots, etc., were sold to private persons. Among the losses were included the indebtedness of plant officials for rent, including the back rent of the chief engineer of the trust, Comrade Sheklashvili, for 2,600 rubles, Secretary of the Chiatura District Party Committee, Comrade Zhorzholiani, for 1,700 rubles, and so forth.® BLAT A N D THE PRIORITY S Y S T E M

Although blat sometimes facilitates the procurement of resources by an enterprise that had a right to them according to plan, the typical use of blat is to obtain resources to which the enterprise is not entitled by plan. In this case blat results in a redirection of resources away from the planned allocation. This misallocation is partly counteracted by the role which priority plays in the decisions of managers. The priority system is in part an attempt to provide a guide for decision-making at the lower levels of the economy. The major decisions concerning the allocation of resources are made at the highest levels of the state, in negotiations between ministry officials on the one hand and the planning committees of the Council of Ministers on the other. At this level of planning the state's scale of preferences, by which we mean the wishes of the top Party and government echelons, is the direct basis of the decisions made. Such decisions establish the broadest features of the national plan, and go into a considerable amount of detail only with respect to those elements of the plan which are thought to be of crucial importance. Decisions made at this level deal with periods of time no shorter than the quarter of the year. * The officials named rented apartments owned by the enterprise. The failure of officials to pay rent for enterprise-owned housing was often cited in the press. Apparently it was often treated as one of the prerogatives of the managerial position.

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Factory and Manager in the

USSR

At the intermediate level of decision-making the broad policies established by the state are given more concrete form in negotiations between ministries and enterprises. The high-level policies are worked out in more detail, and a month-by-month breakdown is made of the quarterly targets which have been given from above. 11 Since the highest government and Party officials do not participate directly in these negotiations, the state's scale of preferences is not the direct basis for the decisions made. However, the ministry officials are sufficiently close to the top echelons to be in a position to make their decisions in close accordance with the state's preference system if they are so motivated. There remains a considerable range of choice at the lowest levels of industry: in the enterprises, local planning organs, supply organizations, and so on. At this level, which is the focus of interest in the present study, the detailed operating decisions which were left unspecified in the enterprise plan are worked out, and the scheduling of the enterprise's activity within the month takes place. Although the choices which may be made at this level are quite limited in scope, they represent an important part of the total decision-making process out of which the actual pattern of resource allocation emerges. That such choices are constantly being made and are of the essence of managerial activities is clear from the terms in which the informants talked. "The Chief Metals Purchasing Administration has a choice of giving materials to one person or another first," is a typical introduction to a discussion by Informant 316. Or the following by Informant 25: Suppose three supply expediters came to me. Who gets the pipe first will depend upon who is the most important firm. If it is a choice between a soap factory or a military factory, the latter will get it. Usually the director himself decides. If there is a quarrel the ministry or the Party will be called in. Other decisions of this kind deal with the time-scheduling of production, with the choice of products to be overfulfilled, and similar problems. Since such decisions are too detailed to be dealt with at the top and intermediate levels of planning they must inevitably be relegated to the enterprise level. But since the enterprise management is twice removed from the preference system of the state, there must be some assurance that these decisions will be made in conformity with the wishes of the state. If we define a correct decision as that which would be made by the state itself if it were practicably possible for the state to make every decision for every enterprise and shop, then two requirements must be met if correct decisions are to be made. First, plant management must be motivated to make correct decisions;

Blat

201

and second, they must have some way of knowing what the correct decision is. To the extent that management considers the priority scale in making decisions, and insofar as its image of the priority scale mirrors that of the state, the range of possible error is considerably reduced. There is ample confirmation that managers are motivated to conform to the priority scale when possible. The concept of priority has filtered down to the lower managerial levels, and the awareness of relative priority plays a role in the making of economic decisions. It is less clearly seen in the published sources than in the interviews, but in the published sources too one catches clear glimpses of it. A metal products plant had its production held up because the supplier refused to change its production schedule to speed up the production of bar stock. The deputy chief of the marketing department of the supplying plant explained his position. "We will not turn back and roll out 80 tons of bar stock," stated Comrade Tsigankov, "especially since this order does not come from a very important branch of industry, metal products." 12 Presumably, if the bar stock were needed by a higher-priority industry, the production schedule would have been turned back in order to produce it. The importance of priority awareness to the economic system can be seen more clearly if we consider what would happen if it did not exist. The official plans, which presumably reflect the state's preference system, cannot provide for all the short-run operational decisions which must be made at the lowest levels of the production process. If managers did not discriminate among competing consumers on the basis of priority, it would be a matter of indifference to them whether to produce the products designated for a military consumer or for a civilian consumer first; their own plans require only that both products be fulfilled in the course of the month. The marketing department would be indifferent to the choice of shipping out first the order of a steel mill or of a bakery shop. If it became clear that the total plan could not be fulfilled, management would be indifferent between underfulfillment of the high-priority production or the low-priority. If, however, managers are aware of relative priority and discriminate among consumers on this basis, then the decisions are made in closer conformity to the desire of the state. Priority awareness thus serves as a sort of rudimentary "rule" according to which managers can decide among competing demands for the resources which they produce. On the second point, the success with which the state's scale of preferences is communicated to the managers, there is some difficulty. Certain broad categories are unambiguous, such as the dominance of heavy industry over light, and of military over civilian; but within

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any category the criterion becomes blurred. How can one decide between two military consumers, or between two heavy-industry customers? Moreover it is clearly possible that a factor of production may be of marginal use in a high-priority, but of crucial importance in a lower-priority industry. Such fine discrimination in the state's preference system cannot be communicated to the firms through the "leading links" guide to priority. For a further guide to priority, management looks for a variety of other hints. Products listed specifically in the enterprise (or ministry) plan but lumped into the "other output" category of the ministry (or national) plan are less important than those listed specifically in both levels of the plan.13 Larger plants are thought to be more important than smaller plants, and plants in prominent industrial districts carry more prestige than plants in smaller districts. In the highly politicized Soviet society the advantages of priority may accrue for curious historical reasons. "The factory Trekhgornaia Manufaktura was always well supplied with materials," stated Informant 384, "because the workers had staged an uprising there in 1905." It is extremely important for the manager to scrutinize the press carefully for new "campaigns," for these are a sure indication of a change in priority. "They have campaigns to break up bottlenecks. Usually in this case they deprive other factories of their special tools or funds and give them to the critical factory or industry." (Informant 485.) He must keep his sights steadily focused upon Party and government pronouncements for cues as to what has become more important and what less. This is the meaning of the Party's insistence that managers be "politically" educated and alert; and for a manager to be accused of a "narrow economic approach" to his job is a serious change. But in many cases the determination of relative priority is an art, one for which the successful manager must develop a "feel." Russians talk much of "reading between the lines," a vital talent for the manager. In early 1955, for example, Malenkov seemed still firmly in power, and his program of increased emphasis on consumer goods seemed still to be official policy. But the Soviet manager, reading his Izvestiia editorial on January 23, 1955, would have noted carefully the following criticism: "We must also call attention to the fact that in heavy-industry enterprises, particularly in machinery production, the overwhelming proportion of consumer goods are being produced from funded raw materials." This was a straw in the wind, of which there were many others, suggesting that the consumer-goods program had hit a snag. A few months later Malenkov resigned his premiership and a sharp return was made to the traditional emphasis on heavy industry. Often the manager may err; a textile firm may de-emphasize its

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production of gauze, a low-priority product, only to find to its chagrin that the military is clamoring for it. (Informant 384.) He may take his time filling a nonplanned order, and later be severely chastised for not having filled it ahead of his planned orders. 14 The veil of secrecy may conceal the ultimate destination of a military part ("the director knows what this part is for, but he does not know the details") yet he must not fail to pick up the hints of its military nature. (Informant 485.) Direct orders from the ministry are a surer guide to priority. The personal way in which the relative importance of special orders is communicated to management is reflected in the following excerpt: We often receive unexpected orders. About 10 per cent of our production was of this sort. Even the resident ministry representative did not know about it beforehand. Sometimes we receive instructions to start a certain job, and we are told that the actual government order is not ready yet, but the matter is under the supervision of Malyshev. He is the assistant for machinery production to the Council of Ministers. If the order is under his supervision we will start on it immediately. Sometimes we are told that the order is under the supervision of Poskrebyshev, who is the personal secretary of Stalin. In this case all hell breaks loose, all plans are interrupted and conferences are called at three o'clock in the morning. Q. What do you mean by "under the supervision of?" A. This means that from time to time this person will check the fulfillment of the order because he is personally interested in it. (Informant 388.) One consequence of the priority system is that important enterprises often find life less troublesome. In matters of finance, which in general are not treated as a consideration of first order by the informants, the high-priority enterprises are reported to have even less concern than the low-priority enterprises. While even high-priority industry may sometimes be held up for lack of materials, this lack is likely to be the result of actual physical shortages, and rarely the result of financial difficulties.0 The consequences of financial difficulties for a high-priority * "On my construction job it never happened that the work was stopped because of shortages of funds. This was an 'unlimited' construction and we could always get money. We had a very large budget and we always tried to spend every bit of it. There was great pressure to fulfill the plan and spend all of the planned funds. But supply was a big problem even though this was an 'unlimited' job." (Informant 202.) Note the remark about the pressure to "spend all of the planned funds." There are a number of such remarks in the interviews, based apparently on the feeling that an enterprise which has not spent all of its allocated funds must be lagging behind the plan. This kind of consideration tends to lead to a quite irrational effort to spend funds, which is a form of simulation of plan fulfillment. There is also the safety-factor consideration that if an enterprise shows in one period that it did not spend all the funds allocated to it, its appropriation for the next period might be cut.

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enterprise which nevertheless fulfills its plans regularly are likely to be slight; "but in nonmilitary construction money becomes more important. There you may be brought up on charges for monetary matters which in the case of military construction would be overlooked." (Informant 450.) In the sphere of procurement the high-priority enterprise has most of its supplies planned directly for it, to be delivered by a designated producer or wholesaler, while the agents of the less important enterprise have to frequent the harassed supply depots and comb the market for a large proportion of their supplies. Indeed, and it may seem strange in view of the political character of the industry, the informants who worked in military industry appear to have been among the least dissatisfied. "I can also go to an enterprise in another ministry and ask for the materials, saying that the allocation order will follow next month. As a military construction project this was easy for us to do . . . If we request them, we are always the first to get them." (Informant 450.) Informant 611 stated the case thus: We always had plenty of materials. We could get as much as we needed, and always of the highest quality. Secondly, it was easier with the labor force. Workers were mobilized and sent there. Most of the workers came from Great Russia . . . The food was good and there was cheap food for the workers. In general we were much better supplied than the civilian construction projects with transportation, money, and machines. It was easier to work there than on civilian construction. The only disagreeable thing was that we had to sign for every blueprint and were responsible if any were lost . . . In civilian construction there is always something lacking. You have to get it through "Z" (presumably, through znakomstvo, or "pull"), or there is not enough money to pay for it. But since we got everything we needed it was much easier to work. But we were tried by military and not civilian courts, and the military are stricter. Therefore, if something happened the punishment is stricter. But since fewer things go wrong, there are fewer chances to be brought up on charges. It is interesting to note, however, that lower-priority enterprises derive certain compensating advantages. They have a wider latitude of choice in the distribution of their output or in the determination of their assortment plan, because their output is deemed less crucial and therefore is not centrally planned. (Informant 485.) There is less possibility of close supervision, and they are therefore somewhat freer to engage in irregular manipulations. (Informant 164.) Because they are the residual claimants on scarce resources their plans may be reduced for lack of these resources. Indeed, one of the informants who complained the least about pressure from the ministry for more and more output was an official in the textile industry. "We could have produced

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very much," stated Informant 384, "but the ministry did not demand it. The ministry nfight say, 'Take it easy, we don't need any more.'" Decisions made on the basis of priority awareness correspond to the interests of the state and incidentally to the self-interest of the management of the important enterprises. But they do not at all correspond to the self-interest of the management of less important enterprises. One of the principal effects of blat is to redirect resources which the state would prefer to go to high-priority enterprises into the hands of lower-priority enterprises. Thus blat operates in a direction opposite to that of priority awareness. Both blat and priority awareness are at work in the system, competing for the decisions of managerial officials. When a decision is made on the basis of priority awareness, it is likely to be in a direction desired by the state; when it is influenced by blat it is likely to be in the opposite direction. It is true that an enterprise with good blat has a great advantage over one which does not possess it. But in view of priority awareness, blat appears to be not a source of strength purely and simply, but rather as a potent compensation for lack of strength. The high-priority enterprise has little need for blat, for state policy favors it at the upper levels of decision-making, and priority awareness favors it at the lower levels. The lower-priority enterprise needs blat in order to compensate for the fact that other enterprises would prefer to favor the high-priority enterprise ahead of it. The over-all effect of the widespread use of blat is that the advantage of the high-priority enterprise in the formal system is considerably whittled down in the informal shadow world of inter-enterprise relations. The legitimate demands of the important enterprise, on the formal plane of priority awareness, will always take precedence over the legitimate demands of the less important enterprise. But when the less important enterprise turns to the informal channels of blat, it stands a better chance of satisfying its demand for, say, the extra carload of coal. It should not be thought that the important enterprise is so secure in its priority position that it forswears the use of blat and informal relations entirely. Although it is able to obtain materials more easily through formal channels, and although its plans are reportedly set at a less straining level than the plans of less important enterprises, it is motivated by the same considerations of safety factor and simulation as other enterprises. It is also in competition, on the formal level, with other high-priority enterprises. It therefore also makes use of its blat for obtaining an extra shipment of steel or "work" clothes, or for a somewhat greater appropriation for travel missions. At the least it must make use of its own special purchasing agents to assure that its

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first-order claim on supplies is not undermined by the well-heeled supply agents of a shoe factory. Blat is therefore of importance to the high-priority enterprise as well. In general, the effect of blat is to frustrate to a certain extent the purpose of the priority system, and to bring the competitive position of enterprises into somewhat closer conformity with management's effective demand for their products. The penumbral world of informal inter-enterprise relations represents the severely harnessed rudiments of a market economy seeking to break through the hard crust of centralized planning.

T H E TOLKACH AND OF I N F L U E N C E

USES

XII

Of the various practices of management presented in this study blat depends most of all on the social relationships among persons participating in economic life. One can imagine many types of managerial officials manipulating successfully with a safety factor or simulating plan fulfillment, but the successful practice of blat requires a very special type of person with a very special social character. It is therefore not surprising that a process similar to the division of labor has led to the development of what is in effect, a distinct occupation carried out by those Who possess the talent for blat. The literature and the interviews provide a certain amount of information on the nature and effects of the activity of these invaluable persons who contribute so much to the informal operation of the enterprise. But we have fortunately been spared the task of constructing a composite picture of their character and their relationship to management by two Soviet humorists. In the pages of the humor magazine Krokodil1 these writers have published a poem which tells the story. The rest of this chapter testifies to the accuracy of the activities ascribed by the poets to their central character. The relevant part of the poem is presented below in a rather free verse: The Irreplaceable Anton Fomich Anton Fomich is irreplaceable, One feels safe with him, comfortable with him, However much the official estimates interfere, He always finds a roundabout way Of arranging this, of fixing that, Of working out any business problem, Of getting from the warehouse, without an allocation order, Everything that is needed and even what is not needed, And having received a carload of this, Of exchanging it for that, Of reducing the plan, of writing something off, Of concealing resources, and accepting rejects.

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Factory and Manager in the USSR He can get for you easily Anything . . . even pigeon's milk. For all our shrewd hero has to do Is pick up the phone, call, And any supply depot Without protest Will rush to help him out. Iron, nails, lumber, bricks, Who will get it? Anton Fomich. How will he get it? Over the "limit." Where will he get it? From who knows where. All hush-hush, under-cover, So that no one can ever trip him up. Let others pass as shrewd businessmen He himself is more innocent than a lamb. When he has made all ends meet, And concealed all loose ends below the water line The wisest of the wise Could never locate the ends. The bank account has been closed, work has stopped, There has been a snafu, somewhere, someone, something. They come running to Anton Fomich: "Intercede for us!" "I'll intercede." And he will intercede: slyly, precisely, He will "formalize," "write-off," "expedite," The unimportant order he will ship out as "urgent." He will cover up any overexpenditure . . . This is what he is! Everything is child's play When Anton Fomich is on the job. One hand, he knows, rubs the other. And therefore, of all the sciences, He has mastered one above all, The interrelations of sordid hands. This science says that one good turn Deserves another in return. If he has done something for you, why not Do something for him in return? It is not difficult to do a favor, A favor is not illegal For nothing criminal has been done,

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No order has been broken: A favor is not a bribe, And you can't be put on trial for that! Anton Fomich is irreplaceable, And there is no reason to part company with him. Some say he is an exceptional cheat; True, he's a cheat, but a valuable one! A thief? True, he's a thief, but up to now He has not been caught. So he's not a thief. A sneak? Probably, but useful. Impudent? Unquestionably, but pleasant. A pusher? Yes, but with a head on his shoulders. A rascal? A rascal, but a business-like one. Kick him out? No, pity the poor fellow! Yes, and how about management? Without him management often Cannot move a step. Management is so comfortable with him. Always, in every kind of weather, He dives into the deepest water for management, And always emerges dry. Involuntarily a question arises, It is indeed difficult to understand how, In this day and age, he always manages To worm his way into an institution, Such an Anton, such a Fomich! For the door has long since been closed to him: Plan, Estimate, Fund, Account, Limit Have closed the door with a hundred keys Against all Anton Fomiches. But, imperceptibly, he gnaws A little hole here, a little hole there And finally he crawls through one of them, Slowly, but wholly . . . ACTIVITY OF THE TOLKACH

Anton Fomich is what the Russians call a tolkach.* The word derives from a verb meaning "to push" or "to jostle," and tolkachi are people who "push" for the interests of the enterprise in such matters as the • Pronounced tuU-kahtch.

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procurement of supplies. The tolkach is also the name applied to the booster locomotive used to increase the power of a freight train. Various officials of the enterprise may play the part of a tolkach. "Usually these people held some job, such as chief of the purchasing department or his deputy," said Informant 26. "Sometimes they are simply called supply agents." If other officials of the enterprise possess the qualities of a good tolkach they may be sent out from time to time on a travel mission (kommandirovka) to obtain the needed commodities." If the commodity happens to be a piece of technical equipment, an engineer might be sent out on the job of obtaining it: f The director of the plant can't stand tolkachi. But all the same he picks out a special tolkach, one of his most aggressive and hardy engineers and gives him his blessing for the heroic exploit. "Go to Moscow, my boy. All our hopes depend on you." But such people are only amateur tolkachi. Larger enterprises can afford to retain full-time tolkachi who have no functions other than to "push" for the interests of the enterprise. "We did not have special people for this job," said Informant 114, who had worked in a small enterprise. "Only the large enterprises such as the large mines had tolkachi . . . There may be ten to twenty tolkachi at a lumber camp." They are carried on enterprise payrolls as "supply agent," or simply "representative," or by the officious title, "responsible executive"; two disgusted heads of chief purchasing administrations add their own catalogue — "representatives, plenipotentiaries, inspectors, resident agents in supplying enterprises, a whole army of traveling tolkachi . . ." 2 They "literally live on wheels," 3 apparently spending most of their time out in the "market," frequenting the supply depots, purchasing organizations and * " W e picked December 10, 1950, at random and counted more than 120 persons who had come from different districts that day. These people are not clerks, but the chairmen of district consumers' cooperatives, managers of trade departments, managers of department stores, chairmen of producers' cooperatives, etc. They usually bring three or four workers along to help them, and having come to the capital of Bashkiria, they remain there for weeks at a time. The chief expediter "pushes" his business through in a leisurely fashion, and then makes all the excursions he possibly can with his helpers." Current Digest, Vol. Ill, no. 5 (March 17, 1 9 5 1 ) , p. 37. From Pravda, January 30, 1951. f Pravda, August 9, 1954, p. 2. Informant 16 was chief of the electric shop in his plant during the war period 1944-1945. Since the plant was in the process of being rebuilt, he spent most of his time on "travel orders," trying to get materials and equipment. Once he was sent to Moscow on a specially urgent mission. A neighboring enterprise, the chief engineer of which had formerly been chief engineer of the informant's enterprise, heard about his mission and asked the informant if he would also carry out a commission for the second enterprise at the same time. It was agreed to by the director of the first enterprise. In order to formalize the position of the informant, he was made chief power engineer of the second enterprise, and was carried on the rolls of both enterprises at once.

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supplying enterprises, seeking to expedite the shipment of commodities to their enterprises and coping with emergency needs for materials as they arise. When a tolkach has developed a wide reputation for skill and dependability, and when long years of experience have broadened his range of contacts and connections, he may finally become a true Anton Fomich. The most highly developed form of the tolkach is the person who works for a number of enterprises at once — "The opportunist Lerner . . . without leaving Leningrad, was for a long time a supply agent for four organizations in Pskov; the city power station, a cement plant, the Pskov brickyard and a flax combine."4 He usually lists himself officially as the "representative" of one of them and carries the others as "accounts." He may have an office of his own, employing a number of assistants. Often he resides in a city other than those in which his enterprises are situated; it may be the city of his birthplace where his family and friend connections are strongest, or it may be the city "from which most of the materials come." (Informant 485.) As for his income, one of the more successful of the fraternity is represented in a feuilleton as putting it this way in making his proposition: "My fee? Practically peanuts. W e purveyors don't operate on a fixed salary . . . Five per cent of the cost of the produce, plus per diem." 5 Because of the semi-independent nature of his position, he is a unique figure in Soviet industry. Since he operates in the shadows of economic life it is difficult to obtain a full picture of his activity, but glimpses of it can be obtained from indignant newspaper reports such as the following: 6 Recently N. S. Kovezo arrived at the Dnepropetrovsk office of the Chief Purchasing Administration of Non-ferrous Metals and introduced himself. "Let's get acquainted!" "I beg your pardon? What has brought you here?" "Here is my telegram. I have to get something from you . . The deal, of course, did not come off. W e asked Comrade Dudnitskii to describe the "activity" of Kovezo more fully. It seems that this man comes as the representative of various organizations, receiving from each of them huge salaries. There are many such representatives, if we may call them that, in Dnepropetrovsk. Very often they are spawned by the supply organizations themselves. It is usually done in this way. Suppose that an office has to obtain a quantity of decentralized materials in Zaporozh'e.7 In order to get around the law which forbids them to have special representatives for this, inhabitants of Zaporozh'e are taken into service as "consultants" and they are listed as "residing" in Dnepropetrovsk. They even keep a list of them. Such "business" is engaged in by many of the supply organizations of the Commissariats of Non-ferrous Metals, Construction, Petroleum, etc.

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The importance of a good tolkach for the operation of an enterprise or supply organization is attested to by the large numbers of them that inflate the payrolls of economic organizations and mill around the premises of enterprises, warehouses, and supply depots. Although postwar information is scantier, in the prewar period there were frequent complaints in the industrial press of the large number of tolkachi employed by enterprises. Typical of such criticism is the following: 8 A huge number of travel missions are given out for the purpose of procuring spare parts and equipment. It is quite undisguised "pushing." Complaining bitterly about the invasion by an army of tolkachi from their customer enterprises, the officials of the combine without hesitation send out their own people on travel missions to push for "their" order. Seven organizations of the combine engage in this, including the departments of technical equipment, capital construction, mechanical engineering, electrical engineering, the automotive depot, the railroad transport shop, the mining administration, and — completely on his own — Engineer Parakov, chief of the construction of blooming mill no. 3. Many tolkachi spend an inordinately large part of their time out in the "market," often in other cities, leaving only a few of the officials of the purchasing department back home to care for the regular work of the department. In the Comintern Plant "the purchasing department is run by only four people, and the rest of the department officials are on special missions to Moscow and have remained there for long periods." 9 Large amounts of time and money are spent looking for items that are relatively inexpensive though sometimes vitally needed. "In Iaroslavl a representative of one of the Leningrad enterprises, sent to obtain two automobile tires(!), spent two months there." 1 0 A ministry inspector complains that an agent was sent to another city, not to purchase anything in particular, but "to find out 'when and how slate may be obtained.' " 1 1 The tolkachi from the petroleum industry at the Gor'kii Automotive Plant are concerned, among other things, with assuring that the colors of the personal cars of the oil executives suit their tastes. 12 The informant (481) who had been a supply agent tells of the large amount of time spent in going from store to store in the community in which he was well known in order to obtain the supplies needed by his enterprise. When this kind of work is carried out by large numbers of agents coming from numerous enterprises, all "pushing" for the supplies which their enterprises happen to require, the result is a harassing confusion which has been condemned time and again in the press: 13 In the automotive and tractor spare-parts store of the Chief Automotive and Tractor Parts Marketing Administration, there is a great crush. More and more new people are always coming. It's hard to

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push one's way through. There are leaders of tractor brigades, garage managers, officials of machine and tractor stations and machine and tractor repair shops. All have turned to the store in the hope of finding spare parts needed for trucks and tractors for the harvest. Comrade Iakimenko, chauffeur from the state farm "Comintern" in Novo-Volodarsk district, is looking over the parts shelves. He can't find what he needs. He has a statement of requirements for forty-six kinds of parts. In the store only six kinds can be found for him. "For three months," says Comrade Iakimenko, "I have been trying to get such extremely necessary parts as differential housings, cylinder blocks, driving gears, springs — and no results." In part, this wasteful confusion and expenditure of time and money is due to poor organization and bureaucratic rigidity. 0 But from the point of view of the enterprise, the expense may well be worthwhile. Considering the secondary importance of financial considerations, the cost of maintaining these agents in the "market" for the purpose of procuring what often amount to relatively inexpensive commodities may be perfectly reasonable. For although the cost of a few tires or a few spare parts may be relatively small, these commodities may be crucial to the operation of the enterprise, and failure to obtain them may result in the interruption of plant operation. However, when the need to spend these large sums reflects upon the efficiency of the Chief Purchasing Administration, which was supposed to have provided the materials in the first place, then the latter organization is likely to take a hostile view of these outlays. The following is a bristling letter to the press by the head of a Chief Purchasing Administration, who apparently was responsible for providing coal to the enterprise: 14 In January I had occasion to be in the city of Stalino. There I met the chief of the purchasing department of the Saksk Plant, Comrade Feiman. I asked, "What have you come for?" "Why," he said, "I came to push for the delivery of coal." "Have you been here long?" "Two weeks." For two weeks the chief of the purchasing department of the enterprise sits and loafs, having left his personnel without any leadership, spending the plant's money on a pointless mission. At the same time the Commissariat of the Chemical Industry maintains a fuel office in the city of Stalino whose job it is, in part, to take care of the shipment ® "It is difficult to imagine a more disorderly, more blind waste of time than this senseless, incessant standing in line. Formerly the depot had another system. When the bills were drawn up the depot sent them to the clients by mail But someone, analyzing the expenditures, noticed that postage stamps were costing them thiry to forty rubles a day, and ordered that this senseless squandering be stopped." Cher, met., January 28, 1941, p. 4.

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of funded coal on the instructions of the chief purchasing administration. The consequence of the practice of employing large numbers of tolkachi is that certain crucial locations become infested with them. Important enterprises have at times had a huge number of customer representatives maintaining regular offices and staffs on their premises. In the great Magnitorgorsk Combine at one time in 1940 there were eleven permanent representatives of various chief administrations and commissariats, some of whom had personal staffs of three or four people. In three months, one hundred and twenty agents had come to the plant, with permission, and spent a total of 1,372 man-days hustling about the plant. "And this does not take account of the unofficial' representatives who came to us without any permission," complained a plant official.15 Enterprises of the petroleum industry sent seven hundred representatives to the Gor'kii Automotive Plant in 1953 to push for their cars. 16 Important cities like Moscow, with heavy concentrations of industry and administrative organs, are ideal places from which materials can be obtained by blat. They also happen to be places which people from the provinces delight to visit, and have thus become the Mecca of hordes of supply agents: 17 An inspection carried out by the Central Inspection and Control Group of the Commissariat of Non-ferrous Metals established that the order to the Commissariat forbidding managerial officials of enterprises from coming to Moscow without special permission has been violated in many cases. The chief administrations make matters worse by summoning a large number of plant officials to Moscow for extended periods. For example, on February 26 there were 39 people on travel orders at the Chief Aluminum Administration, 32 in the Chief Administration of Rare Metals, 32 in the Chief Administration of the Western Gold Industry, 28 in the Chief Lead and Zinc Administration. Of all the people on travel missions to these four chief administrations, 45 had been in Moscow over a month and 7 over two months. Comrade Dubakin, chief of the drafting department of the Kuibyshev-Irkutsk Plant, had "resided" in Moscow over four months. With the permission of the head of the Chief Administration of the Tin Industry, Comrade Ivkin, the chief of the purchasing department of the Iakutsk Tin Trust, Comrade Kirakozov, has been in Moscow five months. The services performed by the tolkach, whether he is a regular enterprise official on a special mission or a fulltime professional tolkach, vary from defending the legitimate interests of the enterprise to "pushing" for some not-quite-legitimate interests. Their primary function is to " 'beat out' funded commodities, that is, to obtain from the enterprises in their areas machine tools, equipment, lumber, automotive vehicles . . . " 1 8

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They are used not only when trouble arises but "in order to see that the materials will come through without any trouble. When we expect trouble in the future the tolkach will be sent out earlier." (Informant 25.) A plant director justifies his use of a tolkach when shipments have been delayed in arrival: "So what must the customers decide? Should they 'wait for the weather to clear?' or should they send a representative to the mill?" 19 The latent fear is that the producer may underfulfill his plan, and the customer "will begin to worry and will send a tolkach to me who will try to persuade me to send him my pipe instead of sending it to some other chemical plant." (Informant 25.) Much of the work of the "swarms of all kinds of agents and tolkachi" who mill around producing enterprises consists of "obtaining illegal shipments." 20 The basis of the success of the tolkach is his blat. He is, first of all, a brazen person who knows how to establish blat with people whom he does not know well. In the stereotype which the informants draw he is depicted as a nervous, energetic man, a master of high-pressure techniques, able to talk his way into enterprises and quickly establish a working friendship with the relevant officials. "They know how to obtain allocation orders and how to get materials on time. They have connections . . . A good supply agent knows large numbers of people, and where all the warehouses are . . ." He knows "how to drink with people," and is lavish with gifts and entertainment. (Informant 26.) In this aspect of his activity he must be well supported by his director, who, if he is influential, can do much to smooth the way for the tolkach.* First, he must be provided with funds with which to operate, which apparently presents no great obstacle. The enterprise fund, premiums, and various other accounts of the enterprise serve as sources of funds for the tolkachi. How the director feels about the activities of the tolkach is clear: "The director never wants to know how the supply agent operates. All he demands are results," said Informant 384. And in the press we read that there has arisen the opinion that the petroleum industry couldn't survive one day without their services: "For pity's sake, how can I simply throw our funded materials to the mercy of an arbitrary fate." 21 The key figure in financing all these operations of the tolkachi is the accountant. It is he who must manipulate to acquire funds, and it is he who will bear a large part of the brunt of it if these manipulations are discovered. An informant who had been an accountant indicates that * "When I went to Moscow I could not do anything there without giving gifts. On such occasions the director would telephone the various stores. In one store I would get 200 bottles of champagne, in another, several cases of fish, and all at the official prices. With these things I could arrange something m Moscow." (Informant 16 ) The same informant compared two directors whom he knew, one of whom was quite influential and the other not. The former could facilitate informal negotiations in a way which the latter would never have dared.

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sometimes the accountant balks at the demands that are made of him, but he usually succumbs eventually and finds another way to get hold of a sum of money. We would receive our allocation orders, and then we would send our agents out to the factory. These tolkachi were usually in a position to buy someone off with the funds they had. They would cover up these funds by writing out false receipts, usually made out in the name of loading and unloading materials. If you did not do such things you usually did not get your supply in time nor in sufficient quantity. The accountant would quarrel with the supply department over these expenditures. The supply agent would say, "What can I do? I had to get the stuff"; the accountant would have to agree. They would then figure out ways of concealing these expenditures, often including them under "travel orders." In order to explain these expenditures they would later show receipts for overtime pay, and for loading and unloading materials. (Informant 311.) We do not have a very detailed picture of how these things are accomplished, but it is amply clear from situations such as the following that to obtain a supply of funds for the use of the supply agent is not a serious problem: 22 Astonishing things happened at the Voroshilov Locomotive Plant. For over a year, quite unofficially, five hundred men were working on the recovery of anthracite dust. Their wages from January 1, 1938, to February 1, 1939, were paid through agents of the supply department (!?). The agents received huge sums of money under some account and made any pay arrangements with the workers they desired, some by the day, some the week. They did keep wage lists on which were indicated only the last names, without initials and without the amount of wages paid. There were no addresses, no information about passports on these "worthless papers." They were made out in pencil and the lists of wages were usually obliterated. In this way around 320,000 rubles of wages were paid out. The reports given by these home-bred cashiers to the plant accounting office were never controlled. All the sums shown by them were entered wholly as procurement-warehousing expenditures. Comrade Get'manov, the Chief Accountant, suggested to the official working on these accounts, Comrade Gol'denberg, that they be checked only for their arithmetic accuracy without plunging into the heart of these documents.* * The ease with which funds can be obtained, even in a system as controlled as the Soviet economy, is reflected in the large amount of misappropriation of enterprise funds which is reported in the press. Accounts such as the following appear frequently in the press, up to the most recent period: "The cash box of the enterprise began regularly to pay bills to the local food store, which were accounted for under various items. Several bills for alcoholic beverages and delicacies, amounting to 3,145 rubles, were entered under procurement-warehousing expenditures." Ind., July 10, 1940, p. 2.

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Another bit of help which management provides the tolkach is a supply of the enterprises' output which may be given away to help "stimulate" someone. If the enterprise happens to produce a product which is in great demand, these gifts are more important than money in inducing other enterprises to accept orders:23 Previously the network of agents of the Dnepropetrovsk office of the Chief Petroleum Supply Administration consisted of fifteen people; now they have been increased to eighty and they do the same work as before. The orders placed by the office can be found in any local industrial cooperative, who fulfill them quickly and receive in return oil and oil products. One supply agent expressed himself very neatly on this matter: "For a barrel of oil you can buy the production of a whole industrial cooperative." Why doesn't the Chief Petroleum Marketing Administration bring some order into its organizations and bring to justice the ones guilty of this antistate business? The lucrative travel missions are also a prominent source of the funds available to the tolkachi. On the one hand the liberal expense accounts and per diem allowances are designed deliberately to enable him to incur the expenditures associated with the establishment of his blat. "The tolkach may be allowed seven rubles for his hotel. In fact he may pay only one ruble, and the rest must be used for giving blat in order to obtain his lumber." (Informant 114.) On the other hand the money left over is a source of the supplementary income which the tolkach considers his legitimate right because of the chances he takes in the course of his work. "The supply chief who nominally gets three hundred rubles in fact gets a thousand rubles . . . He was always better paid than the engineers." (Informant 384.) The travel missions serve the additional function of providing free trips for members of the staff of the enterprise. We read that "many travel missions are thought up in order to pay the railroad fares of some official or other," and officials traveling from Magnitogorsk to the vacation resorts of the south, via Moscow, manage to have the Magnitogorsk-Moscow leg of the trip paid for by the firm.24 The abuse of travel missions called forth a wave of criticism in the prewar period:25 The administration of the Moscow Power Trust had a large overexpenditure for special travel missions. But money is spent here with a broad hand. In June, you see, a sudden need arose to send some towels and linen immediately to the Khost Sanitarium. The execution of so responsible a task could be entrusted to no one other than the head of the purchasing department himself, Kuleshov, and he was ordered to go to the sanitarium. Comrade Byvshii, the chief of the capital construction department of the trust, was being treated in that sanitarium. And lo, as soon as his treatment was completed, a sudden need arose for an investigation of the condition of the sanitarium's

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construction and for expert advice. Comrade Byvshii stayed on a few days after his treatment was over and — he received free fare back to Moscow, per diem allowances and quarters. The opportunity to be sent on travel missions, the ample expense accounts, the general availability of funds and materials with which to negotiate blat, all these things provide the tolkach with a more than common opportunity to raise his earnings and his style of life above the level of those who are officially in the same income class. The life and character of the professional tolkach are reflected in a second poem about our Anton Fomich which appeared in a later issue of Krokodil.26 His style of life is reflected in the status symbols with which he is preoccupied: the best kind of car to drive, the chauffeur, the number of telephones on the desk, the appointment of the office, the country dacha. These are the things to which the successful tolkach may aspire. The opportunities available to the occasional tolkach are more modest but nevertheless substantial. The informant who had been a supply official in his enterprise gave the following account of his opportunities for supplementary income: Q. How much could you earn personally in a month by blat? A. I was able to make out well on paper, glue, and tire tubes. These were the things I could buy privately on the market. These sales were made with no record. I always indicated more than I actually paid. This was the black market. Everybody knew about it, but there was nothing that could be done about it. The director did not care how I got the stuff as long as I got it. What did he care if I earned an extra 100 rubles a month? He earned 1,200 rubles. My base pay as supply agent was 400 rubles. As chief of the supply department, I earned 750 rubles. As supply agent my ability to make extra earnings depended upon the situation. If we received new tubes, I had to wait until they were worn out before I could make something on buying new ones. As agent I was usually able to make 100 to 150 rubles a month extra. Q. As chief of the purchasing department did you earn more or less on the side? A. More, because as chief, I would be called in directly by the director and instructed to get 300 pounds of paper. But if I couldn't get it I would send out the agents. I would say, "Boys, go out and get it." (Informant 481.) THE TOLKACH AND OTHER OFFICIALS

As indicated earlier, important enterprises and supply depots are the clustering points of large numbers of tolkachi plying their trade. Their work has a certain influence upon the operation of the enterprises which they frequent, an influence which is mostly for the worse, according to the criticism found in the press. For one thing, the tolkachi have scant regard for proper channels, and the indications are that they enter the

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work areas themselves trying to buttonhole officials who can be useful in expediting their orders. "They annoy the shop chief and the foremen and cause a lot of trouble. The problem arises of whose orders to fulfill first. The shop chief often decides this by blat." (Informant 610.) But the most serious charge is that the tolkachi demoralize the work of the enterprise. For their very existence is a constant reminder of the perpetual seller's market in the Soviet economy. The various forms of "stimulation" which they offer are a constant inducement to the officials of the enterprise to depart from their planned tasks, and permits them to relax in a way which the state seeks to prevent.* Since buyers are in no position to be choosers, they provide a constant demand for the output of the enterprise without regard to quality, and they are one of the principal outlets for the disposal of rejects. The presence of the tolkachi emphasizes the fact that "consumers will take anything," which does not help to induce management to pay greater attention to quality: 27 So-called "representatives" of the various consumer factories carry out the miserable role of tolkachi in the Petrovskii Plant. The tolkachi sometimes engage in antistate acts. When a quarrel breaks out between the chief of the department of quality control and the shop chief over whether a lot of rolled steel can be accepted, the tolkach solves the problem easily. "Don't trouble yourselves," says he, "we'll take the rejected steel also." And they do take it, every day. With many tolkachi pushing for scarce resources, it is perhaps inevitable that "the tolkachi . . . compete with each other to get the materials first." (Informant 311.) In the case of decentralized commodities the competition is apparently more overt and direct. 28 But the competition extends to allocated commodities as well. The fact that a planned sale of materials is bound by a legal contract does not obviate the need for "pushing," for the seller has a number of contracts, some of which will be shipped out before others, t Ordinarily the seller prefers to ship out the orders of the more important purchaser first, and even when informal pressures are applied the man from the enterprise with the greater prestige carries more weight than the man from the smaller one. 29 The * "The agents offer to provide all the necessary raw materials sometimes in fantastic quantities, if only the cooperative will agree to accept the order. Under such unhealthy circumstances the enterprises of local industry and the industrial cooperatives lose all stimulus to utilize local raw materials and waste products." Ind, February 11, 1940, p. 3. f "The purchasing department of the enterprise receives its plan from the chief administration which tells it where to obtain its supplies. Then contracts are drawn up and tolkachi are sent out. Competition exists among the tolkachi." (Informant 185.)

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representative of the lower-priority firm therefore strives to outcompete the others, for "the supplying enterprise has a whole bunch of allocation orders, and if yours is on the bottom of the list you have to wait your turn and your production may stand still. Here blat begins." (Informant 396.) Competition in the prewar period was stimulated by the subdivision of the commissariats into several smaller commissariats which took place in the period 1937-1940.30 The smaller commissariats tended to duplicate the procurement apparatus of the former consolidated commissariat, with the consequence that a great proliferation of supply agents and tolkachi sought to get at the same supply of materials which had been sold formerly to a much smaller number of them: 31 The matter became even more complicated by the fact that in the course of decentralized procurement, the purchasing organizations, now of different agencies, began to compete sharply with each other, creating among the marketing organizations, cooperatives, and artisan organizations a genuine agiotage, with an attendant increase in prices, overbuying, cross hauls, and other abnormal phenomena. Soviet writers associate the competition for scarce goods with the development of an "agiotage," that is, of speculation and overbuying for future sale.32 The discussion of hoarding in Chapter VII pointed to overbuying for the sake of a safety factor as well as for the possibility of trading scarce materials which the enterprise happens to have in abundance for other materials which it needs. This motivation to hoard would indeed manifest itself as a form of speculation and agiotage. But a more interesting charge is that such agiotage leads to price competition as well: 33 Swarms of agents from the offices and sections of the purchasing organs of the chief administrations and commissariats run to the industrial cooperatives and try to persuade them to accept their orders, creating an actual agiotage. No one ever asks about prices. The matter of price competition is one in which the interview data appear to contradict the evidence from the literature. For the informants give the distinct impression that, whatever devices are used for evading the intent of the fixed price system, price competition is not one of them. Several reasons are given. Some informants state simply that prices were fixed "and we could do nothing about these prices." (Informant 384.) Others stressed the difficulty of concealing price violations from the financial agencies (Informant 450) and the legal sanctions against the practice. (Informant 202.) A rather surprising indication of the general tendency to accept state-fixed prices and to abide by them is the testimony of several informants that even when illegal deals such as the "ex-

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change of materials is carried out, they are usually exchanged at state prices. If the quantities involved are not of equal value they may throw in some other materials to equalize them, or they may pay each other with services. Anyhow, they are not interested in prices." (Informant 320.) But the most interesting reason given for the absence of price violations is that the enterprise has very little interest in prices or in financial matters in general. Where fulfillment of the output plan and the real problems of procurement are serious, the prices paid are a quite secondary concern. "We were never concerned with the price, only with getting the materials, because the price differences were negligible. We were just too happy to get any material, especially natural rubber." (Informant 26.) Although prices are considered to be of secondary importance to management, as in the case of profits, they are not entirely neglected. In some cases firms strive to have the fixed prices of their products raised by some device such as producing a "new product" which is substantially the same as the old one but incorporates some minor changes: "Maybe two or three more hours of work go into the product, or maybe better materials are used . . . This is a means of raising the planned price." (Informant 185.) Another common device is to declare output of lower quality to be of higher quality and to charge the price of the higherquality merchandise. (Informant 450.) The payment of "consultant" fees to individuals who help the enterprise procure a commodity at the fixed price has been mentioned above. The gifts and entertainment expenses of the tolkachi amount to virtual price increases, although the official "prices are all listed in the accounts." (Informant 384.) Thus, although in the narrow sense it is true that prices are not generally falsified, the competition for commodities does manifest itself in the price system through indirect markups paid for scarce resources. Only in this sense are the interview data consistent with published statements that competition among the tolkachi leads to price violations.34 Although the evidence points to a considerable amount of competition among the tolkachi, it should be noted that the competition is tempered by the benefits to be gained from cooperation and collusion. "Often the agents are from different factories, and they discuss their mutual problems." (Informant 485.) But perhaps the most effective restraint upon open competition is the fact that their activities are, after all, illegal, and the shadow of the secret police hovers constantly over their shoulders: "But they . . . would never complain about each other to the NKVD because all would get into trouble. The NKVD knows all about their activity, but they also get gifts and do not object." (Informant 114.) Despite the absence of statistical information on the extensiveness of

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illegal procurement activities, there is little doubt that they are substantial. Occasional revelations tell of metal-supply depots with enormous quantities of illegally obtained shipments. "In the Stalingrad district the supply depot obtained 50 per cent of all its deliveries illegally; in Dnepropetrovsk, 33 per cent; in Novosibirsk, 30 per cent; in Moscow, 30 per cent; in Sverdlovsk, 24 per cent." * The attitude of the supply officials toward these unlawful activities is clear. "In order really to get the materials you have to be a swindler (zhulik)" — Informant 485 thus summarizes their view. The hard-headed Soviet businessman cannot take the position that the laws are sacrosanct: 35 "If this is your opinion, then you are not a supply agent. In our commercial affairs there is no other way to work." This is what you hear from the supply officials of the DzerzhinskiiGus'-Khrustal' Plant. Try as you may to show that the exchange of goods is against the law and that mutual crediting is not allowed, it will do no good. The attitude of the state toward these activities is somewhat less clear. The more extreme activities such as theft of enterprise materials or money are punishable by imprisonment. From time to time the press carries reports of the discovery and prosecution of guilty parties, but the survival of the "market" as well as the persistence of the reports of prosecutions lends credence to the view that these practices continue to play an important role. But more interesting is the problem of controlling the subtler forms of informal procurement activities associated with blat and the use of tolkachi. For many of these activities are on the borderline of the illegal and quite difficult to pin down. In the first place, there is a positive exhortation to the manager to show "initiative" and to take vigorous measures to safeguard his flow of materials. The manager who is content to submit his statement of requirements and then sit back and await delivery is considered to be "bureaucratic" and to lack energy. This official approval of initiative and energetic solution of supply problems, rarely accompanied by a specific statement of the lawful limits, provides a cloak of justification for pushing the limits into and beyond the borderline of the lawful. Thus a prominent economist, advising supply officials on how to manifest initiative in their * I n d , December 31, 1938, p. 2. The authors of this article prefaced it with the following remark about the reliability of these figures: "The Chief Metals Marketing Administration inspected 173 metal-supply bases and depots belonging to various agencies and organizations. The places investigated tried in every way to resist the work of the Administration, and they did not provide all the materials which characterize their activity. But even these far from complete data which we succeeded in obtaining indicate that dozens of these agency supply bases and depots should be liquidated."

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procurement operations, comes perilously close to advocating a full-scale employment of tolkachi and endorsing their activities: 36 In regard to the search for sources of purchasing materials, besides frequenting the organizations and enterprises indicated by the responsible executive, the agent manifests his own initiative, making use of the information which he gathers in the process of frequenting various organizations and enterprises, and his intercourse with the operating workers of other organizations. For more complete utilization of information on deliveries, in the course of the daily correspondence of the supply department, they should keep a "reference book of suppliers" in which is entered all information about suppliers (their addresses and telephone numbers). Recognizing the inevitable imperfection of the information available to bureaucratically organized purchasing organizations about sources of supply, the state is forced to encourage supply agents to manifest their initiative and go looking about for materials. 37 One of the economic functions served by the supply agent is to collect knowledge of sources of supply upon which management can draw for meeting supply problems. The supply agent, by virtue of the experience gathered in the course of his work, thus develops a special competence which is necessary to the system. From this officially encouraged activity it is but a slight step to the tolkach, the person who has not only the knowledge of sources of supply but has also made a wide range of contacts in various organizations. The enterprise can therefore draw not only upon his knowledge, a perfectly legal action, but also upon his informal contacts and blat. At various times the government has tried to cope with abuses of the system. In June 1940, a decree was issued by the Council of People's Commissars limiting the duration of travel missions and the per diem and other payments which may be made. In August 1940 another decree forbade the sending of tolkachi to certain specified iron and steel plants. 38 Reference is made in the press to similar decrees designed to cope with some of these special abuses of the system. But there has never been an all-out campaign against blat or the illegal activities of the tolkachi, such as there has been against subquality output. Occasional efforts to abolish the position of "representatives" met with short-lived results. "For a brief period they disappeared from the horizon, only to begin again later in even greater numbers, wandering about the trade depots, trying to outdo each other in obtaining funded commodities." 39 Nevertheless, the tolkach moves with the ever present threat of detection and prosecution. "The supply agents," stated Informant 70, "were the first candidates for prison," for their activity is an open secret. Hence, "they much prefer to remain in the shadows." 40 Their willingness to take

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special risks, as well as the importance of their work to the operation of the enterprise, are perhaps what entitle them to their high remuneration. The absence of a concerted effort on the part of the state to control the use of blat and the tolkach may perhaps be a reflection of this very factor, their importance to the functioning of enterprises. "'He's irreplaceable. We live with him as if in Christ's bosom,' the head of the Food-Processing Combine says with emotion." 41 THE ROLE OF PERSONAL INFLUENCE

The foregoing description of the place occupied in Soviet society by blat and by its master practitioner, the tolkach, will strike many people as strange. More than most modern states, the Soviet state evokes among outsiders an image which stresses the formal, the logical, the homogeneous. Soviet society is often thought of as more "rational" than others, in the technical sense that larger segments of it have been consciously and deliberately legislated into existence. There is a stern neatness in the system of enterprises responsible to chief administrations and chief administrations to ministries; and in plans which flow smoothly from bottom to top and down again from top to bottom. This table-of-organization image is partly the consequence of our enforced reliance upon published sources, which dulls our sensitivity to the role of people in the system. It may seem like a rude intrusion to thrust such activities as blat, and such persons as the tolkach, into a system otherwise so thoroughly automatic and well integrated. Yet blat and the tolkach are but the most dramatic instances of the important role of personal relations in the operation of the enterprise. One of the strongest impressions that emerge from the examination of the informants' testimony is the all-pervasiveness of the personal factor in the determination of the allocation of resources. While it is impossible to offer a quantitative estimate, it is clear from the interviews that the output plan depends in large measure upon what the enterprise has been able to bargain out of "Moscow," * the supply of materials hinges upon " The frequency of the use of the term "Moscow," standing for generalized authority, reflects the informants' concept of the centralization of the system. The trips to Moscow are great and important events in the lives of management, especially senior plant officials. The months of December and January, when the new plans are approved and the annual reports are presented to the superior organs, appear to be a period of great activity and excitement in Moscow. One gets the impression that in these months the trams to and from Moscow are filled with directors, chief accountants, chiefs of planning departments, and other officials coming for the annual bargaining over plans, reports, awards, and so on There appears to be a festive air about the occasion, and officials from far-off regions, who come to Moscow less frequently, are filled with the anticipation of renewing old friendships and having a good time on their expense accounts. Ministries take advantage of the occasion to have business meetings with all their plant officials. A great deal of money is spent in buying special foods and manu-

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how much can be haggled out of the functionary in the State Economic Committee, the financial plan is based upon currying the favor of some minor official in the Ministry of Finance, and so forth. The cultivation of good relations is a prime principle of plant management. The importance of personal relations comes to the fore when it is realized that the most important economic decisions affecting the Soviet enterprise are made on the basis of direct negotiation between representatives of the enterprise and representatives of the other organizations with which they deal, such as the ministry and the supplying enterprises. Undoubtedly, planning by negotiation provides many positive benefits for the operation of the economy; it is certainly superior to the alternatives of planning by fiat or by one-way dictation. If the decisions made on the basis of these negotiations were made in the spirit of the ideal Soviet executive (that is, the representatives of enterprise and ministry operating in pursuit of the common goal of the best interest of the state), then planning by negotiation would be better calculated to produce a highly efficient allocation of resources. The danger of planning by negotiation is that it leaves the door open to personal manipulations for the advantage of individuals and their enterprises without regard to the interests of the state. The nature of the self-interested bargaining that characterizes these negotiations is reflected in the following descriptions, the first from the interviews and the second from a published source: The annual plan is made in the commissariat through the collaboration of the director with the commissariat. This is why the director is away from the enterprise so much of the time. He reports to the commissariat with all his material on the productive possibilities of the plant. Then the struggle begins. The commissar tries to raise the plan and the director to lower it. Say the director can produce a thousand planes. The commissariat tries to get him to produce twelve hundred. The director tries to have the plan set at nine hundred. This is how the director seeks a safety factor so that he can fulfill his plan. Each one knows that the other is playing a game and there is bargaining between them. The director has his figures and the commissar has his own figures and the bargaining is based upon them. (Informant 25.) The director of the Moscow Electrode Plant, Comrade Zaitsev, before the norm revision took place, "haggled" with the chief administration for every percentage, trying to show that an increase of norms by factures not available in smaller cities, to be brought home to eager families. The period seems to have much of the spirit of an annual convention of a trade association. On the other hand, there is a great deal of trepidation among those officials who have reason to expect a chastisement for poor performance or a demotion. Much, apparently, depends upon the character of the minister or the head of the chief administration.

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35 per cent could not be achieved. A decisive correction to these unfounded conclusions was made by the workers themselves, who began to overfulfill their tasks 40 to 50 per cent, and at the end of the year succeeded in overfulfilling their norms by almost 100 per cent. However, Comrade Zaitsev has still learned no lesson from this. Even now, while preparing for the revision of norms, he is still "haggling" with the chief administration." The actual level of a plan target in any single case depends upon a number of factors. The upper limit to the production plan is set by the enterprise's officially sanctioned insistence that the plan must be "realistic"; and if the ministry representative insists that the plan be set at a level higher than that, the plant official has the right, which he apparently exercises when necessary, to protest to higher authority. The director and the accountant go to Moscow only for the annual report. It is usually the chief of the planning department who goes to show that the proposed plan is impossible. Sometimes the chief engineer goes. They discuss the plan with the chief of the planning department of the chief administration or the ministry. In special cases they may discuss it with the director of the chief administration. It depends upon how interested the chief administration is in the plan of the plant. Or they may discuss it with the deputy director of the trust, who is usually the chief engineer. If they are not satisfied, they may go to the director of the trust or even to the minister. (Informant 26. ) 4 2 The lower limit is set by the fact that the ministry has its own planned target and every concession made to one enterprise means that a higher plan must be given to another enterprise, which may not be able to fulfill it. Between these limits, the level of the plan depends upon the bargaining skill of the negotiators. But more important is that the bargaining process is heavily influenced by personal factors. The informants report a wide variety of advantages to be secured through personal influence. An enterprise can obtain a smaller planned target at the expense of another enterprise in the ministry which does not have as good contacts in Moscow, f Or "if you * Ind., January 9, 1940, p. 2. Within the enterprise a similar kind of bargaining takes place between the plant and shop officials: "In the office of Comrade Badiashkin, manager of the First Oil Field of the Stalin Oil Trust, a peculiar kind of trading is going on: 'Put some more people on my brigade,' demands foreman Manushakov. 'Put more on ours,' yell foremen Plokhoumov, Nazarenko and others. Hours fly by unnoticed during these heated quarrels. A visitor deliberately knocks at the door of the office. 'Wait,' says the secretary, 'the manager is distributing the daily oil-production schedule among the foremen of the oil fields . . . " ' Ind., April 15, 1940, p. 2. I "I would suggest [to the ministry planning officials] that it would be better that another factory be given a certain task, or that the work would be easier

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have a friend who is chief of the planning department of the trust or the commissariat, you can use your influence with him to concentrate on the more advantageous items in your plant and to require the other plants to concentrate on the less advantageous items." (Informant 316.) Or if some difficult cost-reduction task has been assigned to the ministry, the heaviest burden will fall on the enterprise with the least "ZIS," the fewest "connections." (Informant 396.) For the negotiations are not in the spirit of "arm's length" bargaining, but are described in the interviews in terms such as the following: If you have good relations with the chief administration this can help you in many ways. It would not help much in getting rubber, but in regard to other things such as small details or spare parts, you would be able to get these things more easily. But here, too, there are limits. You may also be able to avoid having to fill difficult orders, and your plan may not be as high. Your annual report may not be inspected too closely. If the chief of the trust is a friend of the director, the firm can get many privileges which would add up significantly in the enterprise. The firm could get away with excessive use of materials. It may be allowed to keep excess reserves. (Informant 26.) It is not only in dealings with the ministry that personal influence is important, though it is perhaps most important there. A former manager of a meat procurement trust modestly ascribed his success in procuring meat not to his organizing ability but to his "connections" with the district Party committees whom he kept well supplied with beef. "And they all compelled the collective farms to deliver the cattle . . . We did the same thing with State Bank officials." (Informant 516.) If a construction chief is on good terms with the client "the representative of the latter may automatically sign the work 100 per cent fulfilled without checking it too closely." (Informant 450.) The plant of Informant 311 often received its gypsum allocation orders quite late, "but we had good and regular relations with the supplier and we never had any difficulties getting this material." There are many things which a customer can do to reciprocate favors done by a supplier. If a supplier happens also to be a customer, his orders will receive special attention: "For example, you will want very much to fill the order of an iron and steel plant which supplies you with iron. This improves your relations with him and helps your supply." (Informant 388.) Two hard-pressed firms may agree to tolerate each other's violation of agreements; in construction, complains a writer, "clients and contractors usually do not present each other with formal complaints for violafor another factory to do. All this is done privately. The director also conies to Moscow for this purpose. After it was all arranged, we would all go out and have a drink." (Informant 384.)

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tion of rules and conditions . . , " 4 3 Various other concessions may be granted to a seller in order to cement a good working relationship: We ourselves had no right to apply pressure directly upon our suppliers. Also, we were not able to change suppliers, because the number of them was limited. We always tried to have good relations with our suppliers. We might, for example, give them advances of money and so forth. Because if they didn't ship us the materials on time and we applied pressure through our chief administration, then bad relations might arise. (Informant 450.) Although the principal dimensions of the plan are usually set by negotiation between the higher officials, the details are worked out in a large number of separate negotiations between representatives of the enterprise and the ministry officials in charge of the separate functional branches of planning.1* These minor ministry officials are responsible for particular segments of the activity of the enterprises, and if planning is somewhat less than perfect, the interest of their own departments, which is the interest they seek to further, may coincide neither with the interest of the enterprises nor of the ministry.44 Because they have detailed information which is not known by the higher ministry officials, they are sometimes in a position to help enterprises in ways about which the higher officials may be quite ignorant: For example, once our financial plan was 20,000 rubles short of what we needed. I informed my director and we both went to the commissariat to ask for the funds. They said they could not grant it. Then the director said, "I shall go to the commissar himself!" The commissar listened to the director and then asked the chief of his planning department why he did not give us the funds. The chief said that he simply did not have them. Then the commissar said, "You see, if we do not have it ourselves, how can we give it to you?" After this the director went back to the factory and I stayed in Moscow. I went to the Moscow airport, where the chief of the planning department was a good friend of mine. I asked him to show me his control figures for the new year. Even though we were in competition with him he showed me his figures. They had received 100,000 rubles more than they needed. Then I went back to the arbitrator, who is the lowest official in the planning section of the commissariat, and I told him about this. He said, "How did you find out about this?" But I said, "Never mind, I need 100,000 rubles." And he gave it to me. * "In Moscow I go to the responsible arbitrator, say, the man who is in charge of overhead costs. He wants to lower some of the items, and we argue and finally decide upon a certain sum, usually the sum he had set. Then I go to the materials department. Then I go to the personnel department. In this way I get each one of the individual figures confirmed and put them together into the whole plan. Then I present the plan to the chief of the planning department of the commissariat." (Informant 316.)

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Then I went home and told my director about it and he laughed. This money came from a general fund, and was not taken away from the Moscow airport. But what is significant is that neither the commissar nor the chief of the planning section knew about these funds, but the lowly arbitrator was able to do it for me. (Informant 316.) There are reports of similar cases of enterprises aided through the office of a minor official in other organizations, such as the State Economic Committee and the State Bank. Because of the power in the hands of these officials, their favor is courted by the plant officials who have to negotiate with them, which puts them in an enviable position with regard to obtaining gifts and favors. "Say some employee of the State Planning Committee makes things easier for a certain director. The director commissions him to write a paper on the improvement of labor conditions in the plant. He pays him 500 rubles for it, although the paper was never written." (Informant 396.) At the same time this "bureaucracy" kindles resentment and frustration in proud directors who must reckon with lowly officials. "The reins are held so tight that there is no initiative," was the peevish remark of a former director. "It all depends on administrative clerks." * The significance of the personal factor is further reflected in the importance ascribed by the informants to the "letters" from important people which are necessary in order to get things done. An engineer who had been sent on a special mission to obtain some crucially needed materials states: "When I went on the mission I had a whole pile of letters. I had a letter from the director of the plant, from the Party secretary of the plant, from the chairman of the trade union committee, from the district Party committee which was signed by the industrial secretary of the committee, and I had a letter of reference from the local power station. All these letters which the director obtained for me gave me a strong backing and allowed me to proceed courageously." (Informant 16.)

Finally, the importance of personal influence is reflected in the role assigned by the informants to the vigor of the individuals involved in making a decision. If a director wished to undertake an investment program "much depends on how well he is able to show that his demands are important." (Informant 609.) He may, for example, start a construction project without authorization, using some free funds he happens to have. Next year he applies to the State Economic Commission for funds, * Informant 396 T h e remark that there is no initiative is rather curious since the statement followed the description of a rather remarkable bit of initiative. The informant related an incident in which a supply agent had got into serious trouble trying to purchase a used car for his enterprise from, of all things, the Japanese consulate. What really bothered the informant was the need to go through troublesome minor officials in order to get anything done in the formal channels

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arguing that it would be a shame to leave the job scarcely begun. (Informant 485.) Important economic decisions may be made on the basis of the caprice of a powerful politician or the career considerations of an insecure official. (Informant 403.) "A new commissar would be appointed and then he would order his planner to reduce prices somehow, although maybe only five or ten rubles. He does this because he wants to show that he is a good administrator." (Informant 114. ) 4 3 The decisions which emerge from the negotiation process may be strongly affected by the disposition of strategically located officials,46 and the character of an entire ministry and its enterprises may bear the stamp of the personality of a strong minister. If these observations do indeed reflect the spirit of the system, then one must beware of judging the nature of management from those official documents which catalogue drily the "rights and duties" of the director and other officials. The real power of the director depends in large measure upon his personal influence, and as Granick has observed, authority "resides in the man rather than solely in the post he holds." 4 7 The powerful director with independent Party and ministerial influence is a formidable character, and in the context of the Soviet economic system, his personal contacts may well be crucial to the successful operation of the enterprise.* * "If the plant is asked to do the impossible and the director is not a good one, he will not be able to defend his plant. But the man about whom we have just been talking will gather his staff, will go with them to the highest organs, and insist on the interests of his plant. If he does not get satisfaction in the chief administration, he will go to the ministry. It is in the interests of the engineers that the director is powerful in Party circles, that he is not a man who can be chased around. W e look to the director to promote our interests, to push through for us at the ministry and to defend the interests of the plant." (Informant 3 8 4 . )

INBUILT CONTROLS MANAGEMENT

OVER

XIII

The picture drawn in preceding chapters of the practices of management lays heavy emphasis upon unlawful activity and evasion of regulations at all levels of the enterprise. The next pressing question is "how can this be?" How does one explain that in a totalitarian regime, sturdily propped with all the murky paraphernalia of a police state, managers go blithely about hoarding materials, engaging in blat, and systematically evading the intent of regulations? A complete statement of the problem of economic controls would have much to say on technical matters. The technical problems of organizing and regulating economic activity are not peculiar to the Soviets, as American experience in antitrust legislation and wartime allocation of resources has shown. The interpretation to be presented, however, deals not with matters of technique but of motivation. For there are forces at work in the system which, quite apart from technical matters, motivate control officials to refrain from carrying out in full measure the control functions with which they are charged by the state. The nature of these forces may be seen by considering some of the major agencies of control over management. CONTROL OFFICIALS ON THE MANAGERIAL STAFF

The director bears full responsibility in the eyes of the state for the policy of his enterprise. That is the first line of state control. But while the director sets policy, it is his managerial staff that executes it, and the state has seized upon this fact for its second line of control. Certain officials of the managerial staff have been endowed with special control functions over their particular spheres of activity. If the director issues an order injurious to the state's interests, he may be called to answer for it; if the officials execute the order, they may be called to answer for it as well. The reasoning is that the officials are thus forced to defend the state's interests if the director seeks to ignore them. One official placed in this unenviable position is the chief accountant. All monetary transactions pass through his hands, and all reports of plan

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fulfillment, especially the crucial annual report, are prepared by him. No contract may be entered into and no wage payment made without his signature. Very few manipulations of accounts can go on in the enterprise without his knowledge. Because of his strategic position, he is charged by the state with the responsibility of refusing to execute illegal orders issued by his superiors and to report such orders to higher authorities.1 A second official endowed with a control function is the chief of the quality-control department. His technical responsibility is to see that the quality of output meets the standards, but his legal responsibility is to see that subquality output is not falsely labeled as standard and sold as such. He is required to control, as it were, not only quality, but also the director. And finally there is the chief mechanical engineer, who is in charge of the maintenance of plant and equipment. The proper execution of his duties requires the devotion of a certain portion of the time and resources of the enterprise to activities which do not yield immediate output. When time is running out and resources are scarce the immediate problem of plan fulfillment looms larger than the longer-run problem of maintenance. Since he is responsible under law for the proper use of equipment, he is expected to defend the state's long-run interest in this respect against the encroachments of the more production-oriented groups of management. The way in which the three officials are persuaded by the state to carry out their control functions is the usual one. Five to eight years' imprisonment is the criminal liability of the quality control chief for knowingly tolerating subquality production.2 For "breach of financial discipline" the chief accountant is liable under the criminal code of the RSFSR. 3 The legislation on maintenance of equipment states only that "all managerial officials, and particularly the directors of enterprises . . . bear full responsibility for the proper care of all machines, equipment, structures . . . ," but makes no reference to criminal sanctions.4 To appreciate the difficult position of these managerial officials, one must emphasize the realities of Soviet economic life as set forth in the preceding chapters. Those realities are such that few enterprises could function successfully very long if they did not transgress, from time to time, some of the multitudinous legal constraints upon their actions. This is not to say that every enterprise breaks every law every time. It means only that enterprises often get into difficult situations because of the pressure of the plan, and often the only way out short of underfulfillment of plan is to violate some of the regulations under which they are supposed to operate. In this sense, violation of laws and regulations is necessary to successful performance. The proper execution of their functions would

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thus put these officials in the position of threatening the performance of their own enterprises. The chief accountant is the "closest assistant of the director and at the same time he is the guardian of the interests of the socialist state" runs the official formulation. 5 As the closest assistant of the director, he must arrange the overpayments of wages and find the funds to finance the vital activities of the tolkachi. Where his active participation is not required, his "silent agreement" is equally vital if such manipulations are to occur.6 But when, as the guardian of the interests of the state, he begins to exercise his numerous official control functions, such as "the matter of cost of production, then the department of production organization, the labor and payroll department, the planning department, and others appear to feel that he is interfering in matters which do not concern him." 7 The basis of potential conflict is pointed up more sharply in the case of the quality-control chief: Here are two contradictory tendencies. The director and the chief engineer are responsible for the plan in the first place, and only in second place for quality. The chief of the department of quality control is primarily interested in quality and only secondarily in the plan. Here their interests may conflict. When the director has difficulties, he cannot, to be sure, say that he desires to reduce quality. But he says that the department of quality control holds up plan fulfillment. (Informant 524.) Faced with large quantities of poor output which, if rejected, would threaten plan fulfillment, quality-control people are charged in the press with "a gentle approach," "corrupt liberalism," controlling production "at a discount," "forgiving" departures from specifications, being mere "registrars of spoilage." 8 Numerous descriptions such as the following testify to the deluge of demands made upon the quality-control people by the production officials:9 In the "Communard" Plant, for example, they continue to remove incompletely assembled machines from the assembly line. Hundreds of combines with parts missing have already piled up in the yards of the plant. And every day there are more and more. The department of quality control tries to protest against this worthless practice, but the production leaders, especially deputy chief engineer Comrade Vorob'ev, give orders to the foremen over the head of the department of quality control to continue taking unfinished combines off the assembly line. There is about the same attitude toward the department of quality control in the Rostov Agricultural Machinery Plant. Here, they systematically "shove" rejected parts into assembly. Formally, parts may be

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sent from the assembly shop to the conveyer line or the warehouse only with the permission of the department of quality control. In fact, many foremen, with the connivance of plant management, send "deficit" parts which have been rejected by the department of quality control to the assembly shops, and even send whole lots of such parts. The position of the chief mechanical engineer is somewhat less widely understood than that of his two colleagues. The essence of his problem is that the allocation of machine hours and other resources to prophylactic maintenance requires a certain amount of "abstinence" from production. This is perfectly rational from a long-run point of view but may be ruinous in the short run. Because of the short tenure of office of the director, his horizon is predominantly short run, especially as regards the effect of poor maintenance upon the useful life of equipment. Thus, because it is possible to increase current output at the expense of maintenance, the mechanical engineer is under pressure from the director and the production personnel similar to the pressures upon the quality chief and the chief accountant. The neglect of maintenance is a standard form of simulation, in which the principal criterion of performance is achieved at the expense of another sphere of proper management.® The demands made upon the chief mechanical engineer are of three kinds. The first deals with the schedule of repair work. "Proizvodstvenniki (production officials)," stated Informant 384, "hated this rigid schedule. They felt they knew intuitively the condition of their machinery and they did not like this schedule. Sometimes a perfectly good machine would be stopped for inspection and repair." The consequence of this attitude is the demand for postponement of maintenance work until the shop has caught up with its production schedule: 10 At first some shop commanders often asked to have the planned maintenance work postponed, put off until some other day. May they forgive us for not meeting them halfway in this matter. Almost always such requests indicate a desire to re-insure themselves, to have some extra maneuverability "for any eventuality." The chief of the gas power shop, Comrade Klimenko, repeatedly came to us for permission to deviate from the repair schedule for this or that air blower. "Let's put it off until tomorrow," he would say. "Tomorrow it can be done with no pressure." 4 "The results of repair work do not constitute an organic part of the production program by which plan fulfillment is evaluated. The manager therefore does not bear the same responsibility for the fulfillment of repair work as he does for the fulfillment of the production plan and the capital construction plan." B. Smekhov, "Planirovanie remonta osnovnykh sredstv" (Planning the Maintenance

of Fixed Capital), Planovoe khoziaistvo, no. 10, 1940, p. 57.

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If postponement of maintenance work were an occasional matter it would not make much difference. But emergencies have a habit of recurring,* as the familiar monthly phenomenon of "storming" demonstrates. Indeed, there is something closely akin to a periodic movement here. "Storming," it is pointed out in the press, "leads to the fact that at the end of the month the equipment is not stopped for maintenance; all stoppages for maintenance are postponed until the beginning of the next month." 11 Because so many tired machines are shut down at the beginning of the next month, the plant falls behind its production schedule in that month too, and has to resort to storming once more. This periodicity can be broken only if the enterprise succeeds in building a sufficient safety factor into its production target so that in one month it can catch up on its delayed repair work and still fulfill the production target without storming. But wherever storming is indicated, the mechanical engineer can expect to be pressured into postponing maintenance work. Since a machine torn down for cleaning, inspection, or repair is a machine not producing output, the mechanical engineer is also under pressure to shorten the duration of repair jobs:12 The maximum time that a machine might be stopped for repair was 18.5 days. This time period had to be reduced because very pressing production tasks were being fulfilled on this machine, and it was working two shifts. After consulting with Comrade Pospelov, the chief of the repair shop, and with Comrade Nemukhin, the mechanical engineer in that section, we resolved to overhaul the machine in five days, but at the conference of the repair brigade this period was reduced to three days. The whole spirit of the drive for more output is to reduce time losses for repair. Premiums are offered for repairing a machine in less time than the norm provides, and are withheld when the norm is exceeded.13 Honors are accorded the stotysiachniki, the "Hundred-thousand kilometrists," drivers who run their trucks that far without undergoing a capital overhaul.14 Glowing public notices report the boiler repair job which took only eleven days instead of twenty-nine, and the overhaul of the petroleum cracking plant which was reduced from six months to two weeks! 15 * "The question would be raised that if a certain machine is stopped for inspection the plan could not be fulfilled. The director would present the question to the assistant minister. Does the latter agree to a ten-day delay? The assistant minister curses over the telephone, and says that we are destroying discipline. But if he sees that the equipment is very important for production and that our output is important, then he will permit this. The chief mechanical engineer curses also. Sometimes the delay in the repair schedule may occur several times successively." (Informant 3 8 8 . )

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Informant 388, a former high official in a large enterprise, considered this catastrophic. On certain expensive machines, he reported, the inspection time since 1928 had been steadily reduced from one week, to a day, and then to two hours. "In 1940, on some schedules, the stoppage was for ten to twenty minutes. This was not enough time for a real inspection of the parts." * The attitude the mechanical engineer takes to this pressure is revealed in the following incident: 16 Despite a record short time of seven days (instead of fifty-eight days according to the norm) the machine was overhauled perfectly. The high-speed method of repair fully justified itself. It would seem as if this method should be widely introduced. But, having shown a model performance of high-speed repair in the case of machines that had broken down, the department of the chief mechanical engineer considers it inexpedient (?) to apply this method in the case of dayto-day work on the maintenance of equipment. The deputy chief mechanical engineer, Comrade Bomshtein, affirms that the method is, according to him, inexpedient, expensive, involves too great a drain of energies, and so forth. The judgment of Comrade Bomshtein is in direct contradiction to the facts, which testify to the expediency and profitability of the method of high-speed repair of equipment not only under extraordinary circumstances but also in daily practice. It is only necessary to do away with the conservatism of people who are afraid of difficulties and want to work in the old ways. It is interesting to note that the old norm of fifty-eight days for repair was based upon one-shift work. Part of the record job of seven days was due to the fact that the repair operation was spread over three shifts a day. One may also infer that in view of the emergency nature of the repair, many more people had been put on the job than were usually used under the old norm of fifty-eight days. The propaganda and mobilizing effect of the difference between fifty-eight days and seven days is vitiated, therefore, if such facts are explicitly stated. One tends to feel that Comrade Bomshtein's conservatism may have had some justification. The third demand made of the chief mechanical engineer by the pro* He then reported: "As an expert in spoilage I once had the following experience. It was in the X Electric Plant, and the chief mechanical engineer suspected that the bearing installed by the factory was not well made. He thought that the correct metal had not been used. I was called in as an expert. It was a very large electric plant and it had a Party secretary from the Central Committee. The director gave me only fifteen minutes to stop the machine. I was not even permitted to raise the cover. I could only look at it through the inspection window. I saw the bearing on only one side, and I was only able to check temperature. I checked whatever I could, and gave a report saying that on the basis of a superficial inspection the bearing was of sufficiently good quality. I was not able to make any statement about the metal. Fifteen minutes after the machine was started up again the bearing burned out."

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duction personnel is that he release his men and resources for direct production work instead of maintenance work.* Because of the relatively poor development of the specialized services of maintenance, and because of a reluctance to be dependent upon other enterprises for spare parts and repair work, most directors strive to obtain as much equipment as they can for the purpose of taking care of all maintenance and repair work within the enterprise itself. A prewar Soviet study comparing the labor force in a Soviet iron and steel plant and an equivalent American plant found that the Soviet plant has almost four times as many people engaged in maintenance work as the American plant. 17 A large stock of equipment is also available in the repair workshops for the use of the maintenance personnel.18 Under the constant pressure for higher and higher production, the production personnel often cast longing glances at the men and machines of the chief mechanical engineer: If the other shops underfulfilled their plans, we would often give shop no. 4, the repair shop, the job of producing part of the output. This work would be ascribed to the actual production shop. This was done almost every month. It was done under the pretext of keeping the machines in the repair shop operating when they were not being used for repair jobs.. As long as this was actually done, then it did not harm the repair program. But one's appetite grows during eating. They began giving production jobs to more and more machines in the repair shop. At the same time the mechanical engineer wanted to fulfill his repair program. He would fight with the chief engineer who wanted to take away his lathes. Sometimes the chief engineer would compromise. I, as engineer of the production-planning department, also had to compromise. We would give shop no. 4 production orders, and we would free it from some of the current repairs. (Informant 388.) That the "appetite grows during eating" is indicated in the press as well. "In the Molotov-Gorkii Automotive Plant the machine repair shop in the first quarter fulfilled 72 per cent of its work on orders which had nothing to do with the repair of equipment. In the second quarter this * Similar demands are made upon other departments of the enterprise which are not engaged in the most direct production work For example, "In the experimental shop of the Urals Car Plant they produce not test models but closed freight cars, which are part of the production program. In the Kolomensk Plant, the experimental shop, in which special experimental installations have been built, is loaded to 85 per cent of capacity with the production of screens, the experimental shop of the Mytishchinsk Plant also doesn't carry on its own work." (Mash., June 2, 1938, p. 2 . ) Similar reports appear with respect to the design engineers (Mash, September 8, 1939, p. 2 ) . This willingness to sacrifice the services of such personnel may be related to a point made earher that the departments which are least directly connected with production are stripped of the best and most skilled engineers and workers, who are then placed into direct production.

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figure was raised to 89.6 per cent and in the third quarter as high as 95 per cent." 19 Similarly, we read that funded materials allocated for repair purposes are used for basic production, and in the Red Etna Plant repairshop facilities are used for filling the orders of the department of capital construction. 20 The demands on the mechanical engineer show, in a microcosm, many of the same consequences as the demands made by the state on the production personnel. In the "assortment" selected for repair there is a tendency to favor the more "advantageous" jobs over the more difficult — "It is characteristic that not one of the electric power systems has begun the repair of that equipment which is in the greatest need of repair. They repair the equipment which requires only the adjustment of small defects." 21 There is simulation in the reporting of repair work done — ". . . there has taken root a system of granting premiums for fictitiously shortening the duration of repair of equipment." 22 More important, there is simulation in the quality of the repair job.* Moreover, the remedies suggested are the same; one plant official boasts that "in order to prevent simulation and deception by repair mechanics" his plant put a controller over the shoulder of the repair worker, and then, indeed, a controller over the shoulder of the controller.23 As in production, hasty work leads to costly duplication. 24 Successive postponements of regular maintenance work lead to an aggravation of easily remediable troubles, 25 and "only actual breakdowns compel some sort of healing of the wounds in the basic means of production." 26 Often in the end more maintenance work is required rather than less, as is suggested, for example, by reports that around 1950 over 12 per cent of all industrial equipment underwent capital overhaul annually, about 12 per cent underwent medium-scale repairs, and about 100 per cent underwent minor repairs; during the year around 6-7 per cent of all equipment was undergoing repair of some sort.27 The large volume of maintenance work further reflects upon the volume of output because of the time lost in stoppages due to breakdown. Complaints about the number of breakdowns of equipment are a prevailing theme in the industrial press.28 PRESSURES O N THE CONTROL OFFICIALS

Caught between the demands of the state and law on one hand, and the self-interested demands of their seniors and colleagues on the other, the three control officials can, if they would, choose to carry out the demands " " 'Usually,' writes our correspondent in Cheliabinsk, only a most superficial inspection of equipment is carried out, and in the reports this figures as "current maintenance." In the turret lathe section, for example, the whole "current maintenance" of the polishing machine consists of the substitution of one hydraulic pump for another. Meanwhile, even a superficial look at the machines is enough to show that they are seriously in need of repair.'" Mash., February 21, 1939, p. 1.

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of the state. But the pressures brought to bear upon them are enormous. Foremen, engineers, and shop chiefs "spend a lot of time pushing rejected output into production, or in proving that spoilage is not spoilage." 29 If the quality-control officials resist, "Cries are raised throughout the plant: 'You are interrupting delivery, you'll have to answer for it, we'll complain to the chief engineer and the plant director!'" 30 There are occasional reports of threats of violence: "Brigade Leader Vasil'ev even tried to beat up Comrade Shustov, the quality inspector of the first machine shop, who was conscientiously trying to carry out his duties." And "Shift chief Voronov unceremoniously informed the quality inspector, Miss Kostina, who in his opinion had rejected too many pieces, 'I'll throw you out of this shift. . . ! " ' 3 1 Similarly, there are reports of the "persecution" of uncooperative chief accountants,32 and of the war between the mechanical engineer and the shop chief. "The latter always tries to work the machines faster, but the mechanical engineer is afraid of wear-out and breakdown. He demands more repair and maintenance, but the shop chief will not permit it." (Informant 610.) It is clearly of little avail for the control officials to turn for support to the director or chief engineer. A case is described of a chief of a qualitycontrol department who reported that a foreman had forged the signature of a quality inspector and shipped a rejected product to a customer. The quality chief demanded that the foreman be fired and prosecuted for a criminal act. "But Director Comrade Riabtsev reasoned differently. He limited himself to an oral 'reprimand.'" 33 In such a situation the director can do little else but support the foreman, for the foreman had acted in full accord with the principles of management. If the director had permitted the foreman to be fired for having passed off subquality output as acceptable, other production officials would have reacted in a way which could hardly have been to the advantage of over-all plan fulfillment. If the managerial officials could not count on the director's support when they risk breaking laws in order to fulfill the plan, they would react in a way similar to that of the workers of Mariupol:34 Why does it take so long to make steel in Mariupol? The commanders of production, not excluding shop chief Comrade Shvarts, frankly admit; "Re-insurance." In order to avoid responsibility for the possible output of spoilage some foremen and steel workers deliberately drag out the smelting process and try in every way to dump it out of their hands into those of the next shift. Many foremen and steel workers give it very little gas for fear of burning the crown, and as a result they produce cold smeltings. Thus, one finds that the production officials are as likely to report their recalcitrant colleague to the director as the other way round. To the

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director anything slowing down production may well appear as "sabotage": Say poor clothing has been produced because the materials used were of poor quality. Also, the workers have been made to work faster. The department of quality control rejects the clothing. Then they call the director. The director accuses the department of ruining his production. He says, "What nonsense! Do you realize it is counterrevolutionary, that you are preventing the plan from being fulfilled?" Thus the director can put pressure upon the department of quality control. (Informant 396.) It is likely, however, that such threats are not the usual case; they are the reserve ammunition of the production-oriented personnel. The normal pressure is of a subtler kind. The director has the legal power to deprive his staff of premiums, within limits defined by regulations, 33 but more important is his informal power of adding considerably to the incomes of cooperative subordinates. 36 Regulations such as that requiring that only the chief administration may award premiums to the chief accountant 37 are difficult to enforce and easily evaded by an enterprising director. "With the silent agreement of the chief accountants," the press reports, "many managers indulge in all kinds of illegal surpayments," a pie in which the recalcitrant official is not likely to share. 38 Coming late to work is a breach of discipline, even for managerial officials, but "in the Economizer Plant in Leningrad, Director Comrade A. A. B'ern arbitrarily ordered that no reports should be made on the arrival at work and leaving of the chiefs of departments, their deputies, officials of the department of quality control, shop chiefs and their deputies, and other employees; this action itself was a breach of labor discipline." 39 In innumerable little ways the director can make an official's life easier or harder, depending on the latter's willingness to cooperate. Moreover, the official's career depends in large measure on the attitude his directors take toward him. It is true that, formally, the chief accountant's "advancement and premiums depend on his ability to maintain financial discipline." 40 But in the real working of the system it is the "shrewd" chief accountant, the one who knows how to do the things necessary for the successful operation of the plant, who knows how to cover up the actions of a vigorous director, who knows how to make a middling performance look good in the reports, it is this accountant who will earn the recommendation of the director and the chief administration too, and it is he who will probably earn the large income, one way or another. Former Soviet citizens like to relate the anecdote of the director who interviewed a number of chief accountants for a job. "How much is two and two?" was his crucial question. "How much do you need, Comrade Director?" replied one candidate, and he got the job.

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In daily contact with his colleagues on the managerial staff, the control official cannot insulate himself from their feelings toward him. Reading an official commendation of a chief accountant for reporting that the director had been distributing premiums illegally, one cannot help wonder what the accountant's life in the factory must have been like thereafter.41 In the public discussion of these matters one again perceives the strong desire to "live peacefully." . . many chief accountants, evidently not wanting to spoil their relations with the plant management, either approach their jobs formally, or even cover up violations of financial, managerial, or contractual discipline."42 For, despite the ever present danger of prosecution, in the reality of Soviet economic life the man who seeks to avoid trouble feels that the best course is to go along with his immediate superiors and his colleagues even in their unlawful actions, rather than take the unpopular course of informing on them to the state.43 It must be forthrightly stated that some accounting officials close their eyes to evasions and violations of financial and economic laws. Limiting themselves only to carrying out their accounting and report-drafting functions, they do this in order to live peacefully, bothering no one and quarreling with no one, counting on being accepted for this reason as a man of peaceful disposition. The control official is not without his defenses if he wishes to resist these pressures and inducements. If driven to the wall, he is in a position to get management into a great deal of trouble, and management is well aware of this. It is for this reason, as Informant 610 stated, "people always say 'y° u have to be on good terms with controllers.'" The official may denounce the director and expose his unlawful activities to higher Party and government officials, though this would be an extreme step. The state has sought to support his independence of the director by certain administrative measures. Chief accountants are now appointed, dismissed, or transferred by the ministry, not by the director, although the director may recommend. Similar regulations have been introduced for the chief of the department of quality control.44 In the case of the chief mechanical engineer a somewhat weaker approach was used, the introduction of a schedule of maintenance to which the shop chiefs are obliged to conform. And finally, the aforementioned criminal sanctions are designed not only to support the control officials but also to compel them to assert the state's interests. In the prewar period there was a considerable debate over the proposals to remove the control officials from the direct jurisdiction of the director and chief engineer. Some of the vigor and excitement of the controversy is reflected in the testimony of Informant 610, who had been an

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active participant in the debate and still felt compelled to justify his position. "I protested categorically against the system in which the department of quality control was located within the apparatus of the chief engineer or the production department," he remarked heatedly. "This leads to the fact that the person or organization which does the controlling is responsible to the very person whom he is controlling." More interesting, however, is the statement by Informant 388, which reveals the self-interested motivations of the participants: Just before the war it was proposed to make the chief mechanical engineer and the chief electrical engineer independent of the director of the factory. This movement took place in tiie spring of 1941. The purpose was to eliminate the pressure upon these people from the chief engineer and the director. They were to be appointed by the minister and removed only by him. Q. What was your personal view of this arrangement? A. If I were chief of the equipment department, then I would have said yes. And also if I were chief of the complaint department, then I would have also said yes, because I saw so much spoilage and breakdown. But if I were chief of the production-planning department, then I would have said no, because I would have lost all power and influence over the machinery of the enterprise. I could not have controlled the use of the machines. This is why the proposal was not adopted. The whole controversy, however, seems to miss the point. It is true that under the proposed change the chief accountant or the chief of the quality-control department need not fear arbitrary dismissal by the director, but this was never his real fear anyhow. What draws him gradually into collusion with production management is a combination of his personal dependence upon plan fulfillment for his income and his career, and the need to live in some sort of harmony with the people with whom he had daily work and social contact. It is not dismissal that he fears but the political discrediting or worse by the director or chief engineer, with the possible connivance of even higher officials whose own careers are tied to the successful performance of the enterprise. If he has worked in the plant for some time, he has probably already compromised himself by a number of unlawful actions or deliberate oversights, which makes it difficult for him to presume to report on the director. The way in which he is gradually drawn into complicity with the rest of management is conveyed in the following statement: Sometimes the molds were badly made, and this resulted in a certain part being too heavy. Therefore the final product will weigh fourteen tons instead of ten tons. I have to explain this error, but I cannot say that it was due to bad work. I must say that tests show

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that this added strength is necessary. The director will call in the chief design engineer to confirm this or everybody will get into trouble, and he is too small a man to object. If he should refuse to do it, the chief engineer and the director will remember this and he will never get a premium again. If he ever gets into any minor trouble, they will make it very hard for him. The chief design engineer often gets into trouble, because his work is difficult and experimental, and he makes many mistakes. Therefore he must be on good relations with the director, else they will "bury him" one day for one of his inevitable mistakes . . . This mutual relationship is called krugovaia poruka. It is very hard to free yourself of it. You can get out of it only if the minister transfers you to another factory. (Informant 388.) The term krugovaia poruka, which we may feebly render as "mutual involvement," is the key to the process. It is a theme which was repeated by a number of informants in the context of the problem of the operation of controls. The notion is that all are united in the common need to fulfill the plan and all are sucked into complicity in the unlawful actions necessary to that end. THE WEB OF "MUTUAL INVOLVEMENT"

The web of "mutual involvement" is a set of personal relationships which vitiates the effectiveness of the control officials within the enterprise. The concept helps explain the wide prevalence and persistence of the various forms of managerial behavior. One might formulate a proposition in the form of the statement that in the "typical case" the accountant, quality chief, and mechanical engineer are dominated by the director and the production-oriented management. But more insight is gained by recognizing the existence of a number of possible "typical" relationships, of which the web of mutual involvement is but one. The advantage of this formulation is that none of the evidence need be declared "special cases," but all can be classified within one or another "typical" situation. At one extreme is the case in which the director is powerful and efficient and the three control officials have full faith in his ability to support them, and to provide them and the enterprise with all the benefits of regular plan fulfillment. The chief accountant knows that the director takes as many or more chances than he, and that he will make every effort to cover up for both of them. The chief of the quality-control department knows that the director is experienced, and perhaps important in Party circles, and none of the customers are likely to risk an engagement with him over quality for fear of losing their source of supply. The mechanical engineer may grumble a bit about overworking the machines, but the director is highly valued in Moscow and a word from him will silence the grumbles. As far as legal prosecution goes,

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all are aware that in order to get anywhere one must take chances and nothing succeeds like success. Regular plan fulfillment closes many an investigating eye. Before a legal action can be taken someone must find out about it and have an interest in reporting it, and they know that few people will risk the antagonism of a powerful director. They therefore became the full accomplices of the director and the production officials in the activities which make successful performance possible. This kind of relationship is a vital asset to the director — "A director values a docile chief accountant very highly" (Informant 90) — a n d is the basis of the common practice of directors taking their chief accountants with them when they are transferred to new enterprises. Probably the more common "typical" situation is one in which the officials lend qualified support to the director. Most of the evidence points to this kind of relationship. The officials usually succumb to the pressure of krugovaia poruka, but refuse to remain defenseless. The chief accountant insists that other people co-sign compromising documents: "Many people are required to sign a statement and take responsibility upon themselves," said Informant 485. "Actually," said Informant 90, "the number of signatures may get as high as eleven. This is called re-insurance.'" A quality chief finally succumbs to the pressure to declare certain rejected shafts as acceptable, but only after the chief engineer promises that they will be improved within four days. (Informant 388.) Or the quality chief refuses to certify that a certain product satisfied the blueprints but does not press the point if the blueprints themselves are "adapted" to fit what had actually been produced. 45 The mechanical engineer insists on lodging "protests" to cover himself in case of trouble, but goes no further in resisting the imposition on his maintenance schedule. The director, not fully trusting his officials, maintains a constant pressure upon them to support his demands, and is careful to distribute premiums properly and to tighten the web of mutual involvement. When a small group of officials have succeeded in establishing this atmosphere of cautious mutual confidence, the system of krugovaia poruka flourishes and life is easier for all. The managerial group support each other in their strivings for plan fulfillment and on occasion for their personal advantage. 46 But this relationship has strong elements of instability, for a loss of confidence by any one of the parties may readily be communicated to the whole group and destroy the basis of mutual support. One of the officials may get nervous, and then an unsettling period of considerable uncertainty and agitation ensues. "The department of quality control works like this: today, say, it freely passes faulty production, closing its eyes to spoilage, but tomorrow it sharply reverses its position, it rejects pieces severely, holds up a whole line

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and sometimes even the plant. But this severity is changed again into a liberal attitude toward the producers of spoilage until the next unexpected outburst of zeal." 47 Or the chief accountant may detect signs of the waning influence of the director with the chief administration, and, fearful of an impending crackdown, will refuse to countenance further unlawful manipulations. Such a situation is intolerable. "The war between the director and the chief accountant is relatively common, but . . . it cannot endure very long." (Informant 90.) The most common resolution is suggested by such statements as — "In one year four chiefs of the quality-control department have been replaced." 48 It is true that certain officials cannot be fired without permission of the chief administration, "but in fact, if the chief accountant disagrees with the director, he can be fired on some pretext." (Informant 26.) The firing of timid and uncooperative officials and their replacement by more suitable persons is part of the process of social selection which has been called the principle of survival. How this process is related to the web of krugovaia poruka is described by Malenkov: 49 The chief defect is that some administrators select personnel not on the basis of political and work qualifications but on the basis of family relations, friendship or neighbor status. Not infrequently officials who are honest and competent, but alert to and intolerant of defects and therefore disturbing to the peace of mind of the management, are ousted under various pretexts and replaced with individuals who are of dubious merits or are even wholly unfit for the job but compliant and pleasing to certain administrators. As a consequence of such distortions of the Party line in the selection and advancement of personnel, there emerge in some organizations close coteries of people bound together by mutual protection and placing the interests of the group above the interests of Party and state. An official may, of course, refuse to be fired without fighting back. He may denounce the director, and, if he can show that his dismissal was due to a refusal to carry out illegal orders, then the director may get into serious trouble. But such a course is a dangerous one. The usual situation is one in which a series of small conflicts leads to the point at which both recognize that they cannot work together, and the chief accountant agrees to be dismissed quietly. "It is easy for accountants to leave their jobs, because accountants are required to do many unlawful things, and if an accountant refused to do an unlawful thing, the director would be very glad to release him. They usually part as friends." (Informant 311.) The observation that "they usually part as friends" points to what is undoubtedly an important feature of the web of mutual involvement.

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The informants frequently emphasized that "the personal element often plays an important role in the quarrels between the shop chiefs and the department of technical control — the dispositions of the individuals and their personal relationships." (Informant 610.) A strong-willed mechanical engineer can stand his ground in a situation in which a weaker-willed person will take the path of least resistance.* Consideration of the role of personal relations may help avoid some of the semantical connotations of the harsh word "conflict." For people who work side by side in the factory form friendships, which serve to mollify the particular relationships in which strains occur. Referring to his conflicts with the chief of the quality-control department, Informant 190, a former production official, remarked, "He must defend his own responsibility that the product conform to the blueprints. Nevertheless, we were friends outside the job . . . I did not get angry with him when he refused to pass on something which we produced, although I did swear at him." And in the press we find the managers of a plant chastised for failure to exercise their authority over subordinates:50 In their action one can fairly often see a fear that they might accidentally offend one of their friends, of whom there are many in the enterprise. Another section chief would long since have been dismissed from his job for manifest incompetence in the job assigned to him, but he is not just a section chief but also Petia, or Kolia, or Vasia. And so, instead of the legal administrative measures, there is a friendly admonition to a point of comedy reminiscent of the immortal monologue of Krylov's cock. The personal relations growing out of the work situation reinforce the common awareness that all benefit from plan fulfillment and from the unlawful actions which may be necessary to achieve that end. Occasionally some nonconformist, motivated by personal antagonism or fear of imprisonment or career considerations, may smash the delicate web of krugovaia poruka and bring the state down on them all. But normally the impasse is smoothed over quietly. There appears to exist in the unfolding course of Soviet economic life a tendency for the " For example, an informant who had been a mechanical engineer struck all those who interviewed him as a forceful person, and there is no reason to discredit as boasting the following statement he made: "I would come to an agreement with the shop chief on the date on which the faulty part would be changed, depending upon his production schedule. He might want the date postponed. I checked with the person who did the original inspection to find out if the machine would last that long. W e then set a particular day so that I would know that when the repair crew came to work the machine would be idle and ready for repair. This date was final. It could not be delayed except with my permission. Nobody would help him, not the director and not the Party. This was my power under order 13 of the Commissariat of Heavy Industry of 1932. This order had been passed on my initiative." (Informant 4 0 3 . )

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fearful or overdiligent officials to be forced out. It is the same process of selection as was noted in connection with the survival of the type of manager who is willing to take risks. In the process the more timid often withdraw voluntarily from the race for the more responsible jobs in industry, or are forced out by the combined pressures of their colleagues and superiors. To be sure there are always a number of officials still feeling their way to success who have been able to resist these pressures, and perhaps successfully to survive one or two tilts with a director. Some may go a long way acting the part of the "eye of the state," especially if they have some independent support outside of the enterprise. But usually such persons will be forced out somewhere along the line, leaving the field clear for another chief accountant or quality-control chief who sees his place in the comfortable krugovaia poruka of the managerial group. The very laws which require them to defend the interests of the state serve, therefore, to displace from their positions the very persons who seek to defend those interests, and to replace them with persons more willing to conform to the informal relations necessary for successful performance.

C O N T R O L BY T H E

MINISTRY

XIV

When the pressures upon the chief accountant, mechanical engineer and quality-control chief are appreciated, it is not difficult to understand why they are in a poor position to exercise control over management. But they are only a second line of defense of the state's interests, a sort of afterthought in the system of controls. What of the ministry, the direct arm of the state, standing outside and very much above the enterprise? What would happen, for example, if an embattled chief accountant sought the aid of the ministry in combating the violations of the director? This has indeed often been tried, and with various consequences. One type of consequence is of special interest, that which befell a certain Comrade Popov. As chief accountant, Popov had resisted the irregular financial manipulations of the director and finally notified the ministry, which ordered an audit of the enterprise's books: 1 The audit, in fact, did show many outrageous things, but the consequences were quite unexpected. According to the documents of the audit, the chief accountant, Comrade Popov, who had fought so actively against these abuses, received (and justly) a reprimand for the disclosure of certain deficiencies in accounting practice; but the plant management, which had sanctioned the abuses, was given only a warning. The people who had been irked by Comrade Popov could now say, with some justification, "Aha, he notified' himself right into trouble!" The unfortunate Comrade Popov failed to understand that the officials of the ministry (or its division, the chief administration) are often as annoyed by the embarrassing interference of a naive chief accountant as is the director himself. While little is known, unfortunately, about the way in which power is wielded at these higher reaches of authority, there is sufficient evidence for believing that the performance of the ministry itself is measured by the consolidated performance of all the enterprises for which it is responsible. For example, a resolution adopted at the Eighteenth Party Conference warned a number of industrial commissars that if the performance of their commissariats

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did not improve they would be removed from their posts and also excluded from membership in the Central Committee of the Party. 2 Ministries and chief administrations are often criticized for the poor performance of their enterprises and for failure to provide aid or to exert sufficient pressure upon them. 3 Since the careers of ministry officials are dependent upon the successful performance of their enterprises, they too are under strong pressure to support those unlawful activities of the enterprise which may be necessary for success. In the eyes of the enterprise officials, the senior organization is not part of the state, but is subject to the same forces as is the enterprise itself. "The trust," said Informant 320, "is in the same difficulty as the factory, only on a larger scale. They do the same things in larger quantities." The ministry, too, is caught between high targets and shortages of supplies, and therefore often engages in the same unlawful activities as enterprises, and for the same reasons. With respect to the safety factor, one reads that "The Commissariat of Heavy Machinery, for example, quite unembarrassedly presented a statement of requirements in 1940 which was three times greater than its actual consumption of electrodes." 4 With respect to hoarding, the editor of the State Planning Committee journal charges that chief administrations all too often "proceed, evidently, from considerations of holding on, 'for a reserve,' to materials which are not needed by their enterprises, not taking account of the state's interests." 5 Indeed, cases are reported in which chief administrations put obstacles in the way of individual firms trying to unload hoarded equipment which the chief administrations wished to preserve. 6 And again one finds that curious linking of the desire for a "quiet life" with such unlawful activities as the acquisition of a safety factor. A chief administration had deliberately reduced the plan of an enterprise which had underfulfilled its previous year's plan. "The plan is drawn up with the end in view of creating an 'easy' life for the managers of the chief administration too." 7 Another chief administration was censured for having deliberately failed to inform the State Planning Commission that with a little more equipment its plants could expand output greatly. "The managers of the Chief Administration of Metal Products prefer another more peaceful way out. 'The State Planning Commission plans according to our existing production capacity, and we don't have much to say about it.' " 8 More to the point, the ministry can often be counted on to aid the enterprise actively in the latter's search for a safety factor. "The chief administration also wants all its plants to fulfill their plans and will not try to give plants higher plans than they can fulfill. On the contrary, the chief administration itself may go to the ministry if it feels that its

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factories cannot fulfill their plans." (Informant 26.) In violation of the ratchet principle, ministries may set the output plans of their enterprises at levels lower than the actual output produced in the preceding period * — sometimes, indeed, over the protest of the enterprise. 9 Ministries may "connive" by helping their enterprises avoid such production tasks as subcontracted orders, which do not help build up the percentage of plan fulfillment. 10 Many officials of chief administrations and commissariats to this day do not approach this matter from an all-state point of view. Often they try to receive as much as possible from enterprises of other "agencies" [commissariats] and to place as few as possible subcontracted orders with their own enterprises. Subcontracted orders are considered of secondary importance. Enterprises dissociate themselves from subcontracting in every way, and if this doesn't succeed, they lag in fulfilling them. Officials of the chief administrations and commissariats often connive in this. If an enterprise could improve its performance record by obtaining a different assortment plan from that proposed, the director may go to the ministry to try "to have the assortment changed at the expense of those items which he thinks will be difficult to produce." (Informant 485.) If the plan has not yet been officially approved, such "maneuvering" of assortment is quite lawful; 11 but even after the plan has been approved, the enterprise may hope to persuade the ministry to change the assortment plan to conform to what had actually been produced. "Often," said Informant 384, "we had already deviated from the assortment plan, and we went to the ministry just to try to have it formalized. Our ministry was always helpful whenever it could be." In the published reports of such cases one can sometimes glimpse the sense of dependence of the senior organization (in the following case a republican oilproduciDg combine) upon the successful performance of the enterprise (in this case the trust): 1 2 Comrade Rustamov, manager of the Kergez Oil Trust, is speaking. "Very recently I was ashamed to show myself in the Azerbaizhan * "The Lenin Ore Trust was supposed to deliver 2,100 tons of scrap last year, but only delivered 1,257 tons. The sluggishness of the trust was fully rewarded: in 1941 the chief administration reduced the planned delivery to 1,200 tons. But the Chief Southern Construction Administration carries on with a special lack of ceremony. According to last year's plan, one of its construction projects was supposed to have delivered 550 tons of metallic scrap, but it overfulfilled the plan by two times. In 1941 the heads of the construction project entered into a contract with the Chief Administration of Scrap Iron to deliver 1,300 tons. But the chief administration (of the construction project) did not agree; it submitted its own plan in which the annual task was reduced to 350 tons. By March 10 the construction trust had already delivered 292 tons." Cher, met., March 22, 1941, p. 3.

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Oil Combine for we had fulfilled last year's plan only 52 per cent. But now the whole collective has recovered its spirit . . How was this sudden change brought about? In the opinion of the manager of the trust it is basically the result of the improvement of the oil-extraction brigades. Previously all four brigades failed to fulfill their plans, and now only two are lagging. In fact, the "secret" of this success is something quite different. "We have to give the trust a breathing spell," stated the deputy chief of the Azerbaizhan Oil Combine, Comrade Popovin. As a result of this decision the daily output for the Kergez Oil Trust was planned for the first quarter of this year at one half the size of the 1939 plan. It is therefore not surprising that by pushing its output up just a little bit, the trust immediately began to "overfulfill" the reduced program and thus enter into the ranks of the "advanced." If the enterprise management is naive, such plan reductions can get the ministry into trouble. This happened in the case of the Chief Administration of the Refrigeration Industry, which managed to get a very low plan for an enterprise, but which the enterprise overfulfilled 789 per cent! 13 Active aid by the ministry extends to many other aspects of plant operation. Ministries may set the target for cost of production for enterprises at a higher level than the cost actually achieved in the past; 14 they may "adopt narrowly departmentalistic positions in trying to preserve their excesses of labor power in the enterprises . . ." 1 5 They may set for their enterprises "a productivity-of-labor target for 1951 which was lower than the productivity actually achieved in 1950," thus allowing the enterprises some safety factor reserve.16 Enterprises may be encouraged in their informal procurement activities,17 and in their efforts to prevent sub-quality production from interfering with plan fulfillment.® From time to time exposures appear in the press which reveal the great lengths to which ministry officials will go in giving unlawful aid to their enterprises: 18 The trouble is that some officials of ministries and plants, striving for plan fulfillment in quantitative units, often forget about quality. One may judge the attitude of officials of the Ministry of Agricultural Machinery toward the problem of quality from the following examples. Some time ago Comrade Pontikov, a plenipotentiary of the Ministry of Agricultural Machinery, was visiting the Tashkent Agri6 "That is why every time Construction Trust No 3 has put into commission a new house with doors, floors, and windows of poor quality, Chief Engineer Comrade Golden awaits with equanimity the members of the State Acceptance Commission. He knows full well that no matter how authoritative the Commission members happen to be, Comrades Amanov and Popov [Minister and Deputy Minister of the Turkmenian Ministry of Urban and Rural Construction] will nevertheless help the trust get the work passed." Trud, February 5, 1955, p. 2.

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cultural Machinery Plant. The quality inspector of the Ministry of Agriculture informed him about the large quantity of rejectage, of the violation of technological discipline, and of the feeble state of quality control. Instead of carefully analyzing the situation and indicating measures for eradicating the rejectage, Comrade Pontikov authorized the plant to ship to purchasers a lot of machines which had been rejected by the quality inspector of the Ministry of Agriculture. . . . The experience of the quality inspectors of the Ministry of Agriculture showed that the poor quality of welding is one of the most widespread defects in machinery and equipment. This is because many plants do not manage to meet the technical specifications for welding work which had been confirmed by the Ministry of Agricultural Machinery in 1949 (the so-called departmental norm VN 521-49). It was natural to expect that the ministry would aid the plants, organizationally and technically, to improve the technology of welding work and raise its quality to the level required by the technical specifications. In fact this never happened. The ministry found an "easier" way. It simply confirmed new technical specifications (departmental norm VN 521-50) which relaxed considerably the demands upon the quality of welding work, to the detriment of the strength and long life of the machines. PASSIVE AID BY THE MINISTRY

Perhaps more important than the active aid provided to the enterprise by the ministry is the passive aid. Even if the ministry did not deliberately set low targets for the enterprise, the latter could make its own safety factor in various ways. But it is important for the enterprise to know that the ministry will not raise too much trouble if it finds out about such activities. More than the ministry's active support, it is the expectation that the ministry will take a benevolent view of the unlawful activities of the enterprise itself that explains the wide prevalence of such activities. In the absence of such a benevolent passive attitude by the ministry, the scope of managerial evasions would be considerably reduced. Although there are stern limitations to the knowledge which a ministry can be expected to have of enterprise activities even under the best of circumstances, there is little doubt that it is aware, or could be, of many of the unlawful activities. But when these activities are instrumental in helping the enterprise fulfill its plan or break records, then the ministry is strongly motivated to overlook their unlawful character. In the interviews an expression frequently used is that the ministry will "look the other way." "If the plan is overfulfilled but too much was spent on wages or too much supplementary materials used, then the minister will look the other way," is a typical statement. "But

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if the plan is underfullilled and there is an overexpenditure, then it would be bad." (Informant 388.) That this theme is a well-known aspect of the relationship between controllers and controlled is suggested in the following amusing feuilleton in Izvestiia entitled, "Looking the Other Way": 19 It is a good thing that at that point the authorities became interested in the work of the masonry shop, because although the shop managed to produce many items, it could not deliver them to the construction sites. All of the items turned out to be faulty, hastily produced and certain to fall to pieces like the balcony slab already mentioned. It appeared from the investigation that the Trust for Moving and Dismantling Buildings, under whose jurisdiction the masonry shop operated, looked the other way so as not to embarrass its charge. It also turned out that Zotov, director of the masonry shop, was looking the other way so as not to see the idleness of Ivanov, his chief engineer, who in turn looked the other way, not wanting to interfere with Novochenko, head of the inspection division, who himself . . . And so it goes on and on." * Thus one reads of inflated statements of requirements presented "with the silent assent of the head of the chief administration," of the misappropriation of funds "with the permission of the chief administration," of the "connivance" of ministry inspectors in the hoarding practices of enterprises. 20 In such cases the ministry does not itself engage actively in an improper action, but "looks the other way" at its enterprise's vital transgression. "The ministry remains silent about these actions because it too is interested in reserves and in the reputation for achieving high productivity." (Informant 90.) Periodic audits by the ministry are one of the principal formal techniques whereby control may be exerted over the enterprises. If the ministry seriously desired to make full use of this technique, it might cut down considerably on the extent of unlawful activities by enterprises. Possibly because of the reluctance of ministries to devote too much of their resources to a careful and regular audit of enterprises, audits often tend to be very infrequent. Criticisms of auditing practices of chief administrations in the press refer to audits taking place only once in two or three years, 21 to regular underfulfillment of the planned number of audits, 22 and to the understaffing and poor " Since the Procurator became interested in the case because someone had almost hurt himself due to the faulty construction, the article goes on to say: "Today the director accuses Chief Engineer Ivanov, who accuses Chief of the Inspection Division Novochenko, who accuses . . . They all pretend not to realize their own responsibility for the lamentable results of their looking the other way."

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quality of the auditing personnel. * Neglect of auditing makes it difficult for ministries to detect unlawful practices if they wish to, and facilitates "looking the other way" when that is desired. But even when the results of audits show irregular practices, there are strong indications that the ministry nevertheless often chooses to smooth the matter over or suppress the results. "The head of the Chief Administration of Quality Steels, Comrade Sheremet'ev, did not unmask and punish the real persons guilty of mismanagement and the violation of financial discipline," in his orders on the basis of the audits of the enterprises "Kaganovich — Red October" and "Stalinsk." 23 As the aforementioned chief accountant Comrade Popov learned, the ministry may even take a dim view of the over-scrupulous plant official, especially, and this is more to the point, when the irregularities involve some manipulation which successfully simulates plan fulfillment.24 This is a lesson of life which the young engineer does not learn at the Institute, and for many the lesson, when it is taught, is one of the hard blows of growing up. Thus the young quality-control engineer, Comrade Chernozhukov, "with tears in her eyes, laid her papers on the desk of Comrade Liatkovskii, the chief of the department, and stated that she considered her work absolutely useless and that she would do it no longer. It turns out that all her reports on poor-quality output of the combine were countermanded by the ministry, and the rejected products were sent on to the construction project. The producers of spoilage laughed up their sleeves at the young engineer and at her futile efforts to bring them to account." 2 5 It is true that the ministry is rather free with reprimands and warnings. An audit showed that Director Comrade Lipukhin of the New Moscow Plant was guilty of "violating the procedure for handling accountable funds." Among the charges was the fact that "a number of premiums, in particular a premium of 925 rubles to Chief Accountant Shramenko, was illegally given out, and so forth. The chief administration limited itself to a reprimand to the chief accountant." 26 But a warning or reprimand can be interpreted in many ways. Just as it is part of the silent understanding between the chief of the department of quality control and the director that the former will file "protests" even when he permits spoilage to be accepted, so the chief accountant * "Many trusts, uniting twelve to sixteen enterprises, have no permanent auditors. It often happens that some of the auditors are 'borrowed' from neighboring trusts . . . Because of an insufficiency of experienced auditors, Chief Accountant Comrade Klimenko of the Budenny Coal Trust authorized that audits be carried out by some technical officials of the financial group, who didn't even know the elementary rules of auditing." Then follows a description of the deficiencies in audits, long delays in making the reports, as much as thirteen months in just making the audit, failure to detect obvious embezzlement, virtually no analysis of the efficiency of economic activity. Ind., June 11, 1940, p. 2.

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of the enterprise recognizes that the chief administration must issue warnings when an illegal action is disclosed. But if he feels that the chief administration is nevertheless disposed to lend its silent support to the enterprise, he understands that this warning is but a part of the window dressing: 27 Here is a striking example. On September 29, 1938, the Chief Administration of Heavy Machinery completed an audit of the Old Kramatorsk Plant. On January 5, 1939, there appeared an order of the chief administration. In it the chief accountant of the plant, Comrade Erofeev, was reproved for a whole series of violations: illegal withdrawals of working capital, giving to managerial officials of the enterprise apartments and special services under illegally privileged conditions, giving out special drafting jobs to private individuals, and so on. Comrade Erofeev was most sharply warned that if anything like this occurred again in the future he would be most severely punished. This threatening order hardly inspired any fear in him. Last year (in the audit of 1937) he received exactly the same warnings for exactly the same violations. Such warnings are part of a subtle language whereby ministry officials communicate their interests to their enterprises. For the latter, it is extremely important to know what the ministry officials are really emphasizing, and to make their decisions accordingly. When asked how he would decide upon which products to concentrate, Informant 388 replied, "It depends on the ministry. If we know that the ministry considers value important, then all the shops will try to fulfill the plan in money terms." Many small cues form the language whereby the enterprise officials know what they should or should not do. Malenkov reported an incident in which two firms had unlawfully exchanged funded materials. One of the directors informed the head of his chief administration about the action, to which the latter penned the following statement: "I agree, although it is not legitimate. I forbid this to be done in the future." Malenkov observed, "It is said that the plant managers, encouraged by this statement, immediately resumed various exchange operations." 28 Even when official published instructions by the ministry incorporate the intent of a state campaign, the fine print often communicates the real interest of the ministry. The Commissariat of Machinery was under pressure for greater production of spare parts by its firms:29 Finally, on September 25, 1938, the Commissariat of Machinery issued order 766 requiring that the production plans of machine-tool enterprises include special spare parts plans. "However, there is one point in this order," writes Comrade Khokholev, "which reduces this important beginning to nothing. This point requires the production of

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spare parts only in those cases in which the purchasing enterprise is not able to produce parts with its own resources." The judicious distribution of premiums is another part of the ministry's double language. An enterprise which receives its premiums for having overfulfilled its plan, even though it has failed to meet some of the secondary criteria of performance such as the labor plan, understands that plan fulfillment is of greatest importance to the ministry. Thus, for example, in the second quarter of 1949 the Red Presnia Plant fulfilled its plan by 107.9 per cent and the managerial and engineering-technical personnel were paid premiums to the extent of 38.4 per cent of their monthly salary. But the overfulfillment of the plan was achieved at the expense of an increase of the size of the labor force to 106.9 per cent of plan. During the same quarter for all the enterprises of the Chief Administration of the Clock Industry, the number of workers came to 108.8 per cent of plan.30 Plant management will not necessarily be dissuaded from this concentration on production-plan fulfillment even though the ministry happens, at that same time, to be publicly proclaiming to all managers that the labor plan must be fulfilled. The public proclamation may be for the record, but if the ministry sincerely wanted the labor plan adhered to, even at the expense of plan fulfillment, it would merely have withheld the premium. In the following case, for example, the enterprise had been engaged in a rather amazing spree of plundering plant resources, to the extent that "people quite forgot how to distinguish the state's pocket from their own." Since some of the chief administration officials had been carefully cut into the spoils, it is quite unlikely that none of them knew what was going on:* On December 12, 1939, Director Shushar, Chief Engineer Falik, Party Secretary Trebach, and Trade Union President Bakutin triumphantly reported to the commissariat the fulfillment of the annual plan ahead of time. The plant managers received quite solid premiums, but a checkup showed that their report was pure simulation. Simulated plan fulfillment is better than underfulfillment, and the premiums were paid. Until the public disclosure of these activities by ° Ind., July 10, 1940, p. 2. "In order to protect themselves against anything unexpected, they first of all began to establish good relations with all those who might discover their transgressions. The representatives of the former Chief Administration of Mining Machinery who visited the enterprise fell into an atmosphere of touching sympathy and cordiality. In 1937 the enterprise spent several thousand rubles on free meals for guests from the chief administration. Chief Accountant Kondakov of the Chief Administration of Coal Machinery received in May of last year 20 (I) twelve-day entry passes to rest homes, which cost 5,220 rubles."

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the ministry's auditing department, the plant had good reason to believe that the chief administration would lend its silent assent to this simulation of plan fulfillment. PRESSURE BY THE M I N I S T R Y

Emphasis upon the ministry as a source of aid and support for the enterprise is not meant to obscure the fact that the ministry is also the principal source of pressure upon the enterprise. It is through the ministry that the state's drive for higher production and cost reduction is communicated to the enterprises. It is the ministry that applies the ratchet principle to the enterprise, for its own targets are subject to the same principle applied from above. Since the careers of the minister and of the ministry officials who are charged with the administration of state orders depend upon their success in carrying them out, they do exert a considerable pressure upon their enterprises. When the ministry plan has been confirmed, or when a general order, such as one requiring a given percentage increase in the labor norms, has been issued by the state, the ministry has to distribute the tasks among its enterprises in such a way as to assure execution of the state order. These demands, originating at the highest levels of the state, are the principal kind of pressure exerted by the ministry upon the enterprise. Sometimes the intensity of the pressure may be increased by the ministry. This happens when the ministry, seeking a safety factor of its own against the possibility of underfulfillment by some enterprises, engages in the practice of "clearance planning." Or it may happen when a new minister, eager to demonstrate his uncompromising devotion to the state and thereby advance his own career, engages in an unsolicited demand upon his enterprises for a large cost reduction or increase in output. In such cases all enterprises, interested primarily in their own plan fulfillment and premiums, find their interests in direct conflict with the ministry. If an enterprise seeks to evade its share of the common burden, it cannot expect the cooperation of the ministry. The attitude of the ministry in any particular case may usually be explained by asking whether the interest of the ministry is served or not. For example, if the concealment of production resources by the enterprise helps the ministry obtain a lower plan, the ministry has a direct interest in supporting this striving for a safety factor. This is the kind of situation dealt with in the preceding discussion of the ministry as an aid to the enterprise. But if, after the ministry plan has been confirmed, the concealment of resources by one enterprise results in another enterprise having to assume an excessively high plan which it is likely to underfulfill, this brand of safety factor is detrimental to

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the ministry as a whole. The root of the matter is that enterprise A is concerned primarily with the interests of enterprise A, whereas the ministry is concerned with the sum of the interests of enterprises A, B, and C, which together make up the output of the ministry. The ministry is willing to let A have a lower plan, but it also wants to be sure that all the enterprises in the ministry are in a good position to fulfill their plans. "The enterprise tries to reduce its plan in order to fulfill it and earn a premium. The ministry tries to increase the plan in order to have a balance in case other enterprises underfulfilled." (Informant 524.) The ministry may not care if A has concealed a quantity of vitally needed spare parts, but it does desire to know about these spare parts in case other enterprises happen to need them urgently. * The ministry may tolerate subquality output by the enterprise, but not if it is sold to another enterprise in the same ministry which thereby suffers from it. Because of the conflict of interests in this particular respect, the ministry is motivated to act as a controller over the enterprise to a certain extent. For while the ministry may support those unlawful activities of the enterprise which help its own record of fulfillment, it nevertheless wants to be privy to what is going on so that it will not be "fooled" without its knowledge and consent. ". . . the commissariat, not trusting the statements of requirements of the enterprises and fearing lags in its work, prefers that the 'reserves' remain with it." 3 1 The enterprise is therefore often at pains to deceive not only the state but the ministry as well. The man in Moscow "does not know all the details of the job," and the enterprise can often take advantage of this ignorance to foster its own advantage in a way which may be detrimental to the ministry. (Informant 202.) It is in the unearthing of such activities that the ministry acts as a controller. And it is in the rectification of such activities that the ministry often appears in the literature as a source of pressure upon the enterprise. When the ministry seizes the concealed inventories of one enterprise in order to give them to another which is in dire need, this action looks like the exertion of pressure to the first enterprise, but is an evidence of ministry aid to the second one. Even in the exercise of its legal rights to exert pressure upon the enterprise, the ministry must sometimes reckon with the informal power of resistance by the enterprise. For if the ministry, seeking to help one enterprise out of difficulty, should make use of its legal right to confiscate some of the excess resources of another enterprise, the * "If I get twenty boiler tubes and only use ten, the commercial director has to tell the chief administration about these ten extra tubes. Thus in an extreme case Moscow can have this tube used for another factory." (Informant 481.)

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latter may use this as an excuse in case it fails to fulfill its plan. "But the commissar would not like to take something from one enterprise and give it to the other if the first enterprise objects. In this case, if the first enterprise happens to underfulfill its plan it might protest and say that it underfulfilled because things were taken away from it." (Informant 26.) If the ministry has forced the enterprise to assume an excessive plan, the enterprise may, on occasion, fight back by ascribing its underfulfillment to poor ministry planning.32 In the following case, the enterprise sought to absolve itself of guilt for underfulfillment by reporting to the press that the ministry had been systematically cutting off its sources of supply: 33 Perhaps the most decisive factor in the lagging of the enterprise is the role of the Chief Administration of Agricultural Machinery. Preoccupied during the last few months with harvesting machines, they have in every way avoided all problems dealing with the plants which produce seeding machines. By an order of the chief administration we were deprived of castings for which we had subcontracting arrangements with other enterprises in our chief administration. The absence of castings is now holding back all the fabricating and assembling shops. Finally, pressure upon some enterprises may be explained in particular cases by the political conditions of the moment. The ministry, like the enterprise, must constantly sense the political climate for indications of what can be gotten away with and what cannot. If a campaign against hoarding is currently raging and an enterprise is foolish enough to engage in hoarding to an extent that it is likely to attract attention, then the ministry can no longer pretend not to notice it. Or, if the ministry has recently been accused of laxity, and if the preceding minister had been removed because of it, then the ministry is quite likely to carry out its supervisory duties rather diligently for a time. Or it may be that the nature of the enterprise's deception is such that there is a very great likelihood of its being detected and exposed by bodies outside of the ministry. In such cases the ministry is likely to act as a vigorous controller. Only if the enterprise manager is a shrewd observer and knows when to enlist the support of the ministry and when to deceive it can he count on the ministry's benevolent support in his unlawful activities. THE " F A M I L Y

CIRCLE"

It is important to emphasize that plant officials do not identify the ministry with the original source of pressure, but recognize that it also is under pressure from above. Enterprise and ministry are seen as part of a typical hierarchical pattern: "There is a constant conflict between

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the chief administration and the factory over the supply of materials and the planned cost. There is a similar conflict between the chief administration and the ministry. The higher organ always tries to reduce supplies and costs, and the lower organ tries to raise them." (Informant 185.) The original source of the incessant demand for higher output is thought by the informants to reside in the Presidium (formerly the Politburo) or Central Committee of the Party. The minister is seen as merely carrying out directives.* "If there is no special pressure upon the commissariat, and if the plan satisfies the government, then the commissar will sign it because he also wants the plan fulfilled." (Informant 388.) Plant officials are aware that the ministry often realizes that the high plan targets received from above cannot be achieved, but "nevertheless it [the ministry] gives a high plan for fear of being charged with wrecking." (Informant 90.) As in the case of conflicts between plant officials, there is a full appreciation by the informants of the difficult position of ministry officials: The administration of the trust is often very angry with the planning department of the ministry because the planners know that we cannot fulfill the plan. But they are not courageous enough to quarrel with the higher-ups and, therefore, they send these plans down to us and let us take the blame. (Informant 202.) The interview testimony contains many indications of the awareness of a basic identity of interests between enterprise and ministry. One informant began a statement with the words, "Suppose some commissar of the Politburo tells our commissar to change something in the plan." f "Our" commissar is apparently one of the "we," who stand in opposition to the "they" in the Politburo. "You have a system of krugovaia poruka," stated Informant 26, "and this goes up to the commissar himself." Very large enterprises have attached to them a resident personal representative of the assistant minister. Stated Informant 388, a former official of such an enterprise: * "The director always goes to the ministry trying to get a realistic plan with realistic qualitative indices, financial plan, and so on. It is very important to get a realistic plan. But the State Planning Commission and the commissariat have orders from the Central Committee of the Party to reduce costs by so many per cent next year. The director can do this only by raising productivity and, therefore, he must be harder on the workers. So the director slaps the faces of the workers. He tries to argue with the ministry but is easily squelched. They tell him that the directives of the Central Committee must be fulfilled." (Informant 396.) f Informant 384. There may be a difference in the attitude of plant management toward commissars who are members of the Presidium (Politburo) and therefore identified with the state, and toward commissars who are lower in the Party hierarchy and therefore directly responsible to the Presidium for their own careers.

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The representative was mostly a control agent. But we usually worked closely together with him and our interests were not opposed. They could not be opposed because if we got into trouble, so did he. If anything like this manipulation [the sale of a machine in exchange for admission tickets to a health resort] was arranged, the resident commissariat representative had to be worked into it. He would get an admission ticket to the sanitarium out of it. The feeling of identity of interests is enhanced by the personal relations between officials in enterprise and ministry. State policy encourages the interchange of personnel at all levels from shop to ministry.34 The interchange undoubtedly smooths the way for blat and strengthens the expectation of ministry support. "The planning department in the factory often talks quite freely to the commissariat," stated Informant 384. " W e may have been co-workers with them before. In this case they may require a smaller plan from us." And in the press one reads that "in our chief administration we know the LeninDnepropetrovsk Pipe Plant quite well, including the details of the plant technology. In the apparatus of the chief administration there are quite a number of former officials of the plant." 35 To the extent that it is within his power, "a director always tries to have his man in the commissariat." (Informant 405.) Officials in ministry and enterprise are, moreover, the same kind of people. Gone are the days of ideological conflict between the Red Directors and their bourgeois engineers. Since the great purges of the thirties the leaders of industry have become more homogeneous socially, and one hears remarks oddly reminiscent of "the old school tie." "Also, you must remember," stated Informant 105, "that in recent years the director and chief engineer may have known each other from school days. True, they may not have taken the same courses, but they may have been to the same school. Thus a better understanding exists between them." Such ties remain after one friend is promoted to the ministry. And there are many proud references to professional colleagueship. A young engineer held the view that, despite the laws on compulsory assignment of institute graduates to their first jobs, the old gentleman in the ministry may listen sympathetically to problems of a young man. "The feeling of colleagueship is very widespread in the Soviet Union. If you ask for a different job for family reasons or because you desire to study further, the ministry will very often act." (Informant 25.) The informant had personally managed to secure a change in assignment on this basis. The "family circle" relationship is not confined to people at one level but includes different levels. In the case of an inspection by the trust management, "the plant may make an arrangement with them.

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Often the trust is at fault and therefore will not raise the issue . . . Trust and plant management, they are one family. They will try to settle the issue among themselves." (Informant 396.) It is felt to be extremely important not to allow word of an unlawful activity to spread beyond one's own administrative hierarchy, for as long as it is kept within the family it can be smoothed over. Thus the highly successful Director Pankratyev had long been overfulfilling plans by falsifying reports. The matter eventually came to the attention of authorities outside of the plant-chief-administration family, and a critical report was filed by a Party committee. "The report turned out to be not to the liking of Comrade Tarasov, head of the chief administration, or to that of Pankratyev. Tarasov sent a second commission which tried to tone down the first commission's report, but did not succeed in whitewashing the mill management." 36 If the matter could have been kept within the group who form the web of "mutual involvement," it could have been easily smoothed over. But while such personal relationships create a predisposition for ministry support of the activities of the enterprise, such support is no sure thing. For any number of reasons the ministry may be unwilling or unable to "look the other way," and the enterprise may get into serious trouble. Officials in the ministry may have conflicting interests, and any one of them may balk and frustrate the objectives of the enterprise. An uncooperative chief administration official was fired by the head of the chief administration for reporting that one of their own enterprises had been issuing false information. The official took the unexpected step of bringing the matter before the courts and destroyed the whole neat working relationship. 37 In another case a chief administration official had succeeded in persuading Deputy Commissar Comrade Sedin to lower the chief administration's production plan. "But on January 9, Comrade Notkin [of the commissariat planning department] wrote the chief administration that the 'deputy commissar refused to lower the production plan' and the official was ordered 'to justify the need for lowering the plan.'" 3 8 Uncertainty dogs the steps of the Soviet manager. For the purpose of the present study, however, it is only necessary to indicate that the ministry often lends both active and passive support to the unlawful activities of the enterprise. It is this fact that helps explain the wide prevalence of those activities in the economy. As to when the ministry will and when it won't cooperate, perhaps the best summary is the remark by Informant 90 that "the factory succeeds in deceiving the ministry most often in those cases in which the ministry itself has an interest in being deceived." In his novel, The Thaw, Ilya

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Control by the Ministry Ehrenburg captures the full sense of krugovaia flections by the Director Ivan Juravliov:39

poruka

in these re-

Whatever his opponent said, the factory was in good standing — not a single stoppage in six years. True, the Deputy Head of the Ministry had told him that in using the money earmarked for the workers' dwellings to build the foundry, he had acted outside the law, but Ivan thought, "That's only for form's sake. The Ministry, like myself, is interested only in output."

PARTY A N D TRADE CONTROLS

UNION

XV

The functions of the secretary of the plant Party organization have been the subject of considerable debate over the years, and the official policy has varied from period to period.1 One consistent function of the Party official, however, has always been the strictest enforcement of legality in the enterprise's activities. This function was re-emphasized by Khrushchev at the Nineteenth Party Congress:2 "We must expose deceivers, bring them into the open, punish them severely and rid ourselves of them. At the same time it is the duty of Party organizations to train Communists in the spirit of truthfulness, honesty and strict observance of the interests of the Party and state." On the other hand, the main criterion of the performance of the Party secretary in the eyes of his Party superiors is the successful performance of the enterprise. At the center of his attention "must stand the matter of securing the fulfillment of the state plan. The measure of how Party work is being carried on in enterprises — well or poorly — is above all the results of the production work of the enterprise, the intensity of socialist competition, the improvement of the qualitative indicators of the enterprise's work, the mobilization of internal reserves." 3 If the plan is not fulfilled or if things are going badly, "it can definitely be said here that the Party committee is not carrying out its rights of controlling the activities of the plant administration, is not deeply involved in production matters." 4 Add to these dual functions of the Party the facts of Soviet economic life, and we have the now familiar pattern of the web of "mutual involvement: We had a Party secretary who was appointed by the Center Committee. He was usually between the hammer and the anvil. He was responsible for the fulfillment of our production program, and he was always eager to send a good telegram to Moscow . . . It was of great advantage to the Party secretary to be able to send a good telegram, and therefore he did everything possible to help us fulfill the plan. Sometimes he would "look the other way" at some manipu-

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lation of ours so that we could carry it out in order to fulfill the plan. (Informant 388.) As in the case of the control officials on the managerial staff, there is no single "typical" relationship between Party secretary and director. At one extreme are cases in which "Secretary Golovkin of the Party committee of the chief administration stamps as O.K. any anti-Party action of his boss." 5 On the other hand there are cases of sharp conflicts, often over personal matters of authority or privilege. Informant 524, a former director, reported that once when he took charge of a plant he found that the Party secretary had quite dominated the previous director, so that "it was really difficult to say who was the director . . . Before my arrival many workers came to her with their complaints. She was in charge of the distribution of living space." When the informant insisted on asserting his authority over housing and other aspects of management, "she felt that I was actually putting one-man control into effect by taking everything into my own hands. She lost the authority she had before." On a particular issue such as the production of subquality output, the Party secretary may happen to differ from the managerial personnel in the political implications of the activity at that moment. Genuinely honest Party members, such as our informant who would have nothing to do with blat (see Chapter XI), constitute a very discomfiting thorn in the director's side. There are also those more self-seeking persons who are apt to try to make a name for themselves by a brilliant exposé of the plant management. But there are powerful obstacles in the way of a Party secretary who seeks to swim against the tide of mutual involvement that flows in all channels of economic life: But the Party secretary is on the spot in another way. He must also carry out the Party ideas, and he worries about his Party career. This is because if he once creates a scandal and informs on someone in the factory, then it is true he may be raised in rank, but there are other consequences . . . If he discloses one of these unlawful operations some time and creates a big scandal, then he may be raised in his job. But everybody in the Soviet Union will know that he had informed on his director. Then the whole body of producers will look upon him as an informer. If he gets a new job in a new factory or ministry, everybody will be afraid of him. Then he will not be able to find out what is going on in the plant. Nobody will have any confidence in him, and they will all just say that everything is going fine, and some day there will be a check and his head will fall together with the director's. Therefore the Party secretary, like the resident ministry representative, tries not to have trouble with the director. (Informant 388.)

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That the reputation for being a trouble-maker does indeed follow a man about is suggested by Ehrenburg in The Thaw. The director muses about his putative enemy, the chief design engineer, "Something tells me he's up to no good. He's always been a busybody, in the Urals he tried to sink Sapunov — he failed to pull that off and they slung him out — now he wants to take it out on me." 6 The pressures on the Party secretary to fall in with management are supported by more positive inducements. Although fulltime Party officials in economic organizations are paid from Party funds, and are indeed forbidden to receive pay from their enterprises, they are apparently strongly tempted by the abundant premiums which their managerial colleagues earn each month. Thus, in the Kalinin Artificial Fiber Combine, management arranged for four shop Party secretaries to draw pay under fictitious occupational titles.7 Even at as high a level as the ministry one reads of a secretary of a ministry Party organization occupying a fictitious post of "deputy minister" and drawing the corresponding pay. Other Party officials were also on the payroll of the ministry and accepted apartments in new houses built by the ministry. Thus they "closed their eyes" and "preferred not to mar their relationships with the ministry officials." The minister himself had arranged for these payments and privileges, "and by thus corrupting them, tied their hands." 8 Self-interest and various inducements, supplemented by fairly close working relations with management, create a predisposition for the Party secretary to identify with the firm — to think of it as "we." Although he is often depicted as standing somewhat outside the social life of the managerial group, "it is only human that people develop loyalties to their plant. Therefore the Party secretary also gets used to the plant and the people and tries to help." (Informant 25.) Said Informant 70, "there is no doubt that the Party secretary was loyal to the plant and even developed a certain plant patriotism. This is easy to explain. Various plants are competing with each other and he is interested in the good performance of his plant. Comparing the Party secretary with the director in this respect, I would not say that there is much difference between them." From plant patriotism, a concept which enjoys official sanction, it is not a great step to the "family circle," that set of relationships which is of such great value in facilitating the successful performance of the enterprise. It is with this in mind that Malenkov inveighed against "industrial executives [who] with the connivance of Party organizations, submit deliberately inflated applications for raw materials and supplies and pad output reports when they do not fulfill production plans." 9 While the involvement of the Party secretary in the success of the

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enterprise does vitiate some of the control functions the state desires him to carry out, it does not render him useless as a spur to production. There are many more or less lawful ways in which the Party secretary can aid the enterprise in its problems of procurement or production. He can use Party contacts for facilitating the quest for materials. "When we went out to get some material," stated Informant 70, "the seller may tell us that our Party secretary had already talked to him, or had notified him that we were coming through Party channels." Most of all, his very dependence upon the performance of the enterprise makes him a rather successful source of pressure upon management at times. "Before the plan is confirmed, the Party secretary aids the director in trying to get as low a plan as possible. Once the plan is decided upon, the Party secretary now brings pressure to bear on the director in order to get the plan fulfilled." (Informant 25.) In the Party secretary's dependence on enterprise performance lies part of the explanation of the phenomenon, often noted in the sources, in which he assumes direct managerial functions and encroaches upon the proper sphere of management. 10 For the Party secretary, especially if he has some technical competence of his own,41 will not stand by and merely report and recommend changes in what he considers to be poor managerial practices when such practices might result in underfulfillment of plan. Plan fulfillment is as important to him as it is to the director, and if he happens to be a strong-willed person, he will interfere in order to assure that his plant will succeed. That involvement in the success of the enterprise is indeed the cause of the tendency toward interference by the Party secretary may be seen by comparing him to the head of the "special section." Most large enterprises are required to have such a department, nominally part of the enterprise administration, which is in fact directly responsible to the local authorities of the secret police. The special section is charged primarily with the defense of the enterprise against sabotage or other actions of political opposition. The head of the "special section" bears no responsibility for the successful performance of the enterprise, and one never hears of a tendency by the special section to take over the job of management. But with the Party secretary it is otherwise; his career does depend upon plant performance and he therefore does sometimes encroach upon management. The motivation is the same as that which causes him to collude in the unlawful activities of management. * "The director is the only one-man boss. But on all important questions he consults the Party secretary. Since the late thirties the Party secretary has participated in the solution even of technical problems. But no rule can be established about his influence. This depends upon his personal qualities. His influence increases with his technical competence." (Informant 485.)

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Factory and Manager in the USSR THE LOCAL PARTY COMMITTEE

When the plant Party secretary falls into the web of mutual involvement with the plant management, he violates all the rules of Party discipline. How does the Party react to such behavior? To the plant Party secretary, the Party is not an abstraction but a group of people, and indeed, a very small group of people. When the plant Party secretary worries about the Party, it is not the Central Committee he has in mind but his immediate boss, the local (county, district, or city) Party committee and its secretary. When the plant Party secretary condones some vital act of simulation by management, [he] is in a delicate position. If he knows about such deals and does not report them to higher Party organs, then he may be reprimanded for lack of vigilance. But if he does not allow such things to be done, then he will be considered stupid because he disrupts production. Even at the district Party committee they will say that he is not a good Party secretary. Therefore an intelligent Party secretary closes his eyes to things like this. Only a stupid one sticks his nose into everything. (Informant 16.) Like the plant Party secretary, the officials of the local Party committee are dependent in large measure on the successful performance of the enterprises within their jurisdiction. Their experience and their reading of the press repeatedly reminds them that the work of a Party leader "is evaluated according to the results of the work of the enterprise." 1 1 If the enterprises within their jurisdiction make a poor showing, they will be held to account by their own Party superiors. Aware of the local Party committee's interest, the plant Party organization must often support the transgressions of a good director because "it has to report to the county Party committee and it wants to report that the plant works well." (Informant 384.) Thus one reads of a local Party committee sanctioning a director's efforts to secure a safety factor in the production program, 12 and dragging their feet in attacking a director charged with illegal activities. 13 When enterprises were lagging behind plan fulfillment, a county Party committee ordered its city and district party committees to organize special "days of intensified coal output," a euphemism for the muchcriticized practice of "storming." 14 In accounting to his own superiors, a local Party official "loved to boast a little in his reports." 1 5 An influential and successful director is a great asset for an ambitious local Party official, though if too influential the director may well dominate the local Party authorities. Thus a Pravda correspondent criticizes a plant Party secretary for failure to halt the illegal activities of his director: "He did

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not want to spoil his relations with this man of republic-wide stature.'" In this case both the director's superior (head of the trust) and the county Party secretary endeavored to quash the proceedings against the director. 16 In another case a director of a machine and tractor station had been harshly criticized in a Pravda feuilleton (May 26, 1954) for feathering his own nest at the state's expense. It was later reported that the entire shipment of Pravda issues of May 26 into the district were held up somewhere, and did not appear in the district until several days later. It is strange, writes the correspondent, that neither the local Party committee nor the local post office officials "have found the persons directly responsible for this 'strange incident' or drawn the proper conclusions." 17 The ingenious director was finally dismissed and reprimanded by the county Party committee, but he had marshaled a considerable body of local support in his behalf. Hence the local Party committee, in pursuing its own interests, contributes to the process of selection which tends to force the uncooperative official out of power. Said the informant who, as a newly appointed director, had collided with his plant Party secretary: Since the plant was working better and better, I always had the support of the district Party committee. They even knew about my [irregular] deals with the collective farm. But they appeared not to notice them and never talked about them to me. Since my plant was the largest in the district it was important for them that it worked well; this increased their importance. They even proposed to remove the plant Party secretary, knowing that I had bad relations with her. But I refused. I knew that she could do me no harm. Furthermore, she had been there a long time and she knew the plant and the people. And then she realized that she had made a mistake. On the other hand, I could not know how my relations would shape up with a new man. (Informant 524.) Again, it must be emphasized that the relationship of plant management to the local Party committee varies considerably from case to case. If the director happens to be a poor one, he may well find the Party committee quite hostile and eager to force him out. One reads of cases in which the local Party committee is regarded as a place to be feared. Informant 70 reports watching his director work for days over a report he had to deliver to the county Party committee. "We asked him why he had worked so much, for it would take only a few minutes to report; he answered, 'If you only knew what hell I have to go through when I have to present this report!'" On the other hand, Informant 16 remarked that "the district Party committee was an organization where officials from different enterprises and institutions met informally and could settle things in a friendly manner." 18 Furthermore, the interests of the indi-

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vidual enterprise and the local Party committee do not always coincide. Like the ministry, the local Party committee is responsible for a number of enterprises, and if one engages in an activity which may be to its own advantage but to the detriment of a number of its neighbors, it will meet with opposition in the local Party committee. Through the plant Party organization, the local Party committee has pipelines of information out of the firm which do not pass over the desks of management, and it uses this information for defending its own interests when they conflict with the narrower interests of the enterprise. The following case illustrates the embarrassment which this uncontrolled channel of information may cause for the plant management: If there is a sudden breakdown in some other firm in our district, it may take too long to repair if it goes through regular administrative channels. Then the Party takes a hand. The director calls the Party secretary. The Party secretary goes to the secretary of the district Party organization, who calls the Party secretary of our plant to find out if we can do the repair. Our Party secretary does not go to our director at first, but goes directly to the Party secretary of the shop itself, to see if the job can be handled. This is called "operation tying-up-loose-ends." If he finds that the job can be handled, then he calls the chief engineer. The chief engineer says, "This is impossible, the factory is already filled up with work." But the Party secretary says he has already been to the shop and he knows it can be done as overfulfillment of the plan. The chief engineer calls the shop chief and asks why he gave the Party secretary this information. He says, "You made a fool out of me!" Sometimes a big scandal occurs because of this, but the Party secretary would do it anyhow because the secretary of the district Party organization is very hot about it. (Informant 388.) In this illustration one can see several of the conflicting forces at work in the relationship between plant management and Party. The management of the plant which needed the repair job immediately looked to the district Party organization as a source of aid and support. But the management of the second plant, interested only in its own plan fulfillment, saw in the order an extra burden and found itself the object of pressure by the district Party organization. The plant Party secretary of the second plant was caught between the demands of his superior in the district Party committee and his desire to help his own enterprise, but since the district secretary was "hot about it," he had little choice. Sometimes a conflict between plant management and the local Party committee blazes up into a bitter contest for domination. One has the feeling that such a state is highly unstable, and is likely soon to be ended by the removal of one or the other feuding officials. The reports of such

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intense conflicts bring to the fore the human elements in the operation of the economic system that are so easily forgotten in analytical discussions: 19 When the trust, having no free space, refused to allocate space to the city retail trade organization for a store, Comrade Gordeev, Secretary of the District Party Committee proposed as a form of punishment that the city trade organization deprive chief engineers and mine managers of the special right to buy in the stores, which are assigned to miners; this was carried out. And presidium member Comrade Kurdiukov (the former President of the City Executive Committee) went even further and proposed the exclusion from school of the children of the Deputy Mine Manager Comrade Desiatov for the reason (so he said) that he did not provide better apartments for teachers. The head of the trust referred to above probably enjoyed the patronage of a strong official in the ministry or Party, which put him in a position to resist the demands made upon him. It is relevant to point out that the Party committee involved was the city Party committee. Such resistance is unlikely if the demand were made by the secretary of the county (oblast') Party committee, who has been called "for all practical purposes, the real boss" of the county. 20 By his refusal to accede to the demand of the city Party committee, the director of the trust put himself in a vulnerable position with respect to the use of unlawful practices in his business affairs. He may have to forego certain unlawful actions which would have benefited the enterprise, for fear of disclosure by the vindictive local Party committee. But even the feud between Party and management may not obliterate the areas of mutual advantage in which the Party committee, for the sake of its own record with its superiors, may have to support the enterprise: W e were all linked together in life. We were the enemy of the district Party secretary. W e were suspicious of each other, but practical life made us work together. In the last analysis we were all subject to the Politburo, he even more than I because he was in the Party. (Informant 384.) The awareness of all being "linked together in life" is the basis of the phenomenon of mutual involvement, which permits the enterprise to engage in its unlawful activities for the sake of plan fulfillment with the expectation that the Party will often support it if it can. THE TRADE UNION AND "MASS PARTICIPATION"

Of the many functions performed by the trade unions, the two most closely associated with control over management are the detection and

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criticism of managerial deficiencies and the offering of suggestions. Together they form part of the activity known as "mass participation," the organizational weapon with which the state seeks to overcome the tendency toward "bureaucracy" in management. In simpler words, the encouragement of nonmanagerial personnel to maintain a vigilant attitude toward management, to criticize it when necessary, and to take the initiative in offering and pushing suggestions for improvements in technology and organization, is designed to keep management on its toes, to force it to show greater initiative instead of relaxing into the "quiet life," and to prevent or expose actions which are harmful to the state. The role of the trade union in organizing mass participation is closely related to the dominant role of the Party. For the trade union, like all official Soviet institutions, is an arm of the Party, and the policies of the trade unions are determined by the Party members among the leadership whose primary responsibility is to the Party. Strictly speaking, it is the Party which is charged by the state with mobilizing mass participation, and in the enterprise the Party carries out this commission through the trade union.21 In carrying out its particular function of control over management, the trade union leadership in the enterprise is in a position similar to that of the Party secretary, but weaker. The indications are that the trade union chairman is considered easy for management to dominate and, if not to dominate, to remove. Soviet novels frequently depict this relation and show the director forcing through measures which benefit production at the expense of the interests of the workers. 22 Senior managerial officials, one reads, disdain from attending trade union meetings.23 The testimony of the informants almost unanimously relegates the trade union chairman to an unimportant place with little real power where he can be easily outmaneuvered: Suppose we are discussing the collective contract. * We are sitting in a long, big room, at one end the representatives of the unions, at the opposite end, facing them, we the management. We argue violently against each other, the unions defending their point of view, we ours. Once in a while the Party secretary gets up and drops a hint to adopt some middle way . . . Here is an example. There was a controversy over the planting of trees around the workers' barracks. The trade union chairman insists that trees be planted near every barrack. We object, saying it is too expensive. The trade union chairman says that they have made concessions on so many points, and they will not make any more concessions. I whisper to Popov [the Director] to agree, since we will not get the money anyhow . . . * The contract between management and labor which specifies wage rates, conditions of labor, and various obligations assumed by management and labor

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However, we do get the money. We use this money to build a square in front of the kindergarten. When the final report is presented, the Labor Inspectorate praises us for overfulfillment. However, the chairman of the trade union hears about it and protests. After some investigations and discussions he is removed. And the Party secretary leads the campaign against him. The trade union chairman is accused first of presenting an unrealistic plan, then of not preserving the authority of the trade unions. (Informant 384.) To the extent that the trade union chairman is under the domination of the director and the Party secretary, he is not likely to threaten managerial performance by his resistance to or disclosure of unlawful activities. More often than not, he is likely to be drawn into the web of mutual involvement himself, especially if the enterprise is one in which the director and Party secretary have worked out a modus vivendi. However, the organization of mass participation does lead to circumstances which present a potential threat to management, quite independently of the role of the trade union chairman himself. For example, the standing invitation to masses of workers to participate in managerial functions by presenting "rationalizing" suggestions and organizing Stakhanovite movements creates certain headaches for management. Since the rationalizers act with the encouragement of the regime, it is a ticklish matter to hold them off without risking denunciation as being "conservative" or involved in "red tape." Furthermore, these rationalization proposals may bring to the fore some safety factor measures which the management would prefer to be held quietly as a "reserve." Both the interviews and the literature contain much evidence that managers "try to keep off rationalizers and inventors as bothersome people," that they "manifest an inadmissible penny-pinching attitude" toward paying premiums for suggestions, and that they often give a token twenty-five or thirty rubles just to get rid of the over-eager workers.24 Another manifestation of mass participation is Stakhanovism. A clear demonstration of the net positive or negative results of that dramatic movement has not yet been presented by western students, and perhaps never will be because of its numerous peripheral effects. Undoubtedly it had marked positive benefits for many individual enterprises. But the evidence also indicates, and this is more to the point of the present argument, that the movement met with considerable opposition by a substantial portion of managerial personnel. Stalin remarked in the early days of the movement that "to a certain degree the Stakhanovite movement was conceived and began to develop against the will of plant management, even in a struggle with it. Management, at that time, did not help the Stakhanovite movement but opposed it." 25 The opposition of management could hardly have been based upon

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the increased labor productivity, where an increase occurred. It was based rather on the disorganizing effect of the movement on the total production process. The sporadic outburst of Stakhanovite measures in certain shops and not in others led to disproportions between shops, or between sections of the same shops. The rhythm of production was interfered with, overwork of machines led to breakdown, and overwork of men led to increased subquality output. Sudden increases in the demand for certain materials to keep the Stakhanovites busy aggravated the already trying procurement problems, and the large overfulfillment of certain targets led to the imposition of plans which were too high or which removed all of the carefully husbanded safety factor. To be sure, all these consequences did not develop at all times in all plants, but the evidence is quite convincing that there was enough here to have aroused the opposition of large groups of managerial personnel. It was primarily the fact that management did not maintain full control over the movement, that in many cases there was true "mass participation" in the sense that sporadic Stakhanovite movements developed from below, within the shop or section, often without the advice of the more cautious plant engineers. Such movements sometimes got out of hand or proceeded quite far on an ill-advised basis before management could take them in hand. In the informants' descriptions, sporadic Stakhanovite drives are frequently ascribed to young workers who "in order to show themselves a hero . . . want to make a name for themselves and beat the older workers." (Informant 388.) It is important to note that the Party and trade union have a very special interest in promoting various forms of mass participation, for the volume of mass participation is one of the secondary indicators of their performance. Conflict with management is often averted by a compromise in one particular form of simulation which former Soviet citizens delight in expanding upon. With management's help a Stakhanovite "show" is. put on, one young worker is selected for the starring role, and he is set to work on the best machines, provided with the best materials and aided in every way to break a production record. Similarly, a large number of rationalization suggestions are formally accepted and paid for, which satisfies the Party and trade union, and most of them are filed in the waste basket, which satisfies management. The former can report great successes in stimulating mass participation, and the latter can keep mass participation under control. CRITICISM A N D CONFERENCES

It is quite another matter when mass participation takes the form of criticism and conferences. Such forms of mass participation pose a real threat to management by the possibility of disclosure of its inefficiency

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or its unlawful activities. Production conferences are organized by the trade union at various levels — section, shop, or plant. Many informants considered the small production conferences, especially when they were limited to engineers and technical personnel, to be a valuable aid to management.* Production problems are discussed seriously and people speak freely because the group is small and the discussion is confined to technical matters. Such conferences provide management and the state with a considerable supply of unpaid technical labor which is devoted to the improvement of the plant's operation. The Stalin Automotive Plant held 1,027 technical conferences in the first half of 1939.26 The enterprises of the armaments industry held about 93,000 conferences in 1943 and 1944.27 A related form of mass participation is the "social inspection of equipment," in which large numbers of workers and officials give their free time to a detailed examination of the condition of equipment and state of technique. 28 It is highly likely that management derives considerable benefit from these manifestations of mass participation, both in terms of the training of personnel and in concrete unpaid labor. But many conferences are also called for the express purpose of manifesting enthusiasm and exhibiting vigorous "criticism and self-criticism." Such meetings are usually larger and have a more political tone. T o the extent that criticism is "planned," and certain workers and engineers are instructed by the Party or trade union to criticize specific things, the conferences are kept under control. But the indications are that such conferences sometimes get out of hand, and developments embarrassing to management may ensue. Sometimes out of ignorance, sometimes out of the desire to push himself into prominence, someone may take the floor and upset the plans of management. T h e interviews show a considerable amount of uneasiness about what may transpire at a general conference: All the workers, all are called to the production conference. And then begins the so-called "counter-planning" in a very crude form, which very quickly ends in a fiasco. They read off the plan. Here, our chief administration has given us such and such information, such and such indices, of course w e have to meet them, w e all understand that this has to be done. Thus, the agitation proceeds further. This w e have to do, w e have to fulfill and overfulfill. " I hope that some of the workers" — this is said by some engineer or a representative of the Party organization — "will bring forth counter-proposals." N o w everyone wants to manifest his "activity." Some "butterfly," some milkmaid, gets up in her place and says, " I think w e should promise " The informants distinguished between the sobrante and the soveshchanie, the former referring to a rather large meeting with heavy political overtones, the latter referring to a smaller conference devoted primarily to technical problems. The latter was often considered valuable to engineers and management.

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Comrade Stalin to overfulfill by 100 per centl" She takes no account of materials, no account of supply, nothing at all, but she just blurts out 100 per cent! Then a second stands up and says, "We should all promise 100 per cent and I personally promise 150 per cent!" In short, it piles up higher and higher, and the engineers and economists scratch their heads. Nevertheless, this is called "counter-planning," a manifestation of the new socialist morality and higher socialist enthusiasm. All this goes up to the top and there, you understand, there is confusion, downright confusion, a complete muddle. (Informant 610.) 29 The production conference also provides a public forum for the airing of conflicting views when such conflicts have not been resolved in private. The chief accountant who has been pushed too far in the direction of unlawful activities by the director and who feels that it is his neck or the director's, may take this occasion to make his last stand. The shop chief who has been underfulfilling his plan takes this occasion to throw the blame on someone else, on the senior management or on one of the other shops or on the purchasing department. A group of workers may take the conference as the opportunity for attacking an unpopular official. Often the tension is heightened by the presence of a high official of the Party or the ministry, or a Pravda correspondent. It takes only one ardent young communist, motivated by altruistic or career goals, only one out of hundreds or thousands of plant personnel, to see in the presence of this high official his opportunity to disclose the concealed equipment, or the falsified output data. Under the highly politicized atmosphere in certain compartments of the life of the plant it is not unlikely for this one "trouble maker" to appear. It is the production conference which provides this person with the principal forum for his ideas. Since he speaks the words of the state and defends the interest of the state, it is not easy to silence him. The political circumstances at the production conference are such that the man attacking the enemy of the state speaks with a voice amplified many times, whereas in the absence of this public forum he could speak only with the voice of one. The temptation is great, which is as the state means it to be, and ardent people fall under the temptation sufficiently often to have caused the large production conference to become a source of great unrest to management. While the production conference is the most dramatic forum for criticism, the press also provides an outlet. A prominent function of the Soviet press is to encourage the malcontents and the ambitious to report on the inefficient and irregular practices of their supervisors. Many a smoothly working system of mutual involvement has been exposed by some person who, for whatever reason, often for having been fired, has

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written a letter to the press. Furthermore, newspapers maintain special staffs to check up on the conditions disclosed in such letters, even when the letters are not published. Since the newspaper is judged, to a certain extent, by its diligence in bringing the guilty persons to light, it has an interest in fostering the writing of such letters.30 Newspapers also conduct sudden and unadvertised inquiries into the conditions in various enterprises, often on the basis of the letters of criticism received. Such investigations, called by the colorful term "raids," are often conducted at night, with the planned collaboration of the Young Communist League members in the enterprise who really know their way around the plant. The write-ups of these raids in the press are often devastating to the management, mostly on the grounds of inefficiency, but also for unlawful activities.31 Party and state organs maintain special bureaus to receive and act upon complaints and accusations. An unwelcome but probably inevitable consequence is the problem of anonymous letters and slander. "Cases are known in which officials have been dismissed from their jobs or transferred to other work merely on the basis of anonymous complaints against them," states a Party organ. With "slanderers terrorizing honest Soviet people," plant management has cause to be concerned. 32 That the institution of criticism often gets out of hand, not only for management but also for the Party officials who are supposed to stimulate it, is clear from the intensity of the campaigns against the "intolerant attitude toward criticism" shown by many managers. 33 Such campaigns repeatedly bring up illustrations of the following kind: 34 Director Comrade Sarkisov has an intolerant attitude toward the criticism of him and- toward the people who express this criticism. The following incident involving the former chief of the transport shop, Comrade Eldikov, is typical of this. During a discussion at a meeting of the plant Party committee of the article, "The Spoilage Producers of Liuberets," published in Pravda, Comrade Eldikov forthrightly and in true Bolshevik manner described how the director himself had given orders to load freight cars with unfinished and defective machines. In his concluding speech Comrade Sarkisov unequivocally threatened Comrade Eldikov. The secretary of the plant Party committee, in whose presence this took place, did not think it necessary to call the director to order. Is this not the reason that Comrade Sarkisov began immediately to carry out his threat? He created such conditions that Comrade Eldikov had to quit the plant. Whatever may have motivated Comrade Eldikov, his insistence on criticizing the director for an unlawful action that was necessary for plan fulfillment brought down on him the wrath of the director and the Party

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USSR

secretary. H e had refused to fall into the web of mutual involvement and the usual technique of forcing him out of the plant was adopted." All would have gone well and the affair would have been quietly hushed up, if not for the agencies of mass participation, in this case a letter to the press. In this sense mass participation creates an area of plant life over which management does not have complete control, and therefore does act as a deterring factor in unlawful activities. 0 Very often intolerance of criticism is associated with the forced dismissal of the criticizer. And very often the criticizer is a young enthusiast. All these elements are contained in the following incident: the article begins with the words, "The laboratory managers of the Mytishchinsk Carbuilding Plant do not tolerate self-criticism, and try m every way to rid themselves of the young specialists whom they consider 'jittery' and 'unruly'." It describes how a certain sample of output had been declared acceptable by the chief of the laboratory, although it contained a harmful excess of phosphorus. A young specialist in the laboratory caught the "error" and reported it, expecting to receive a premium for his vigilance. Instead, the laboratory chief obtained a new and corrected sample, gave it to an outside chemist to analyze, and showed the report of acceptance. The young chemist protested, was transferred to another shop, and finally dismissed from the plant on false charges. The officials of the chief administration know about this but did nothing against the laboratory chief Mash., February 17, 1939, p. 3.

OTHER C O N T R O L S MANAGEMENT

OVER

XVI

The organs of local government have direct jurisdiction only over the smaller enterprises in their areas. For example, the industrial department of the district government (executive committee) is a sort of "ministry" for most of the service and small manufacturing enterprises within the district. But the district executive committee also has certain responsibilities for all enterprises in its district, including the all-union enterprises. One such responsibility is for regional planning. The district plan consolidates the plans of all enterprises, not only those directly run by the district executive committee, but also those large ones which are run from Moscow. THE LOCAL GOVERNMENTS AND THEIR PLANNING COMMISSIONS

The frequent use of the word mestnicheskii — localistic or provincial — in the glossary of Soviet self-criticism suggests that the local governments too have interests which at times are at odds with those of the federal government. "A decisive struggle is also necessary against all 'localistic' inclinations which favor the interests of the individual districts against the interests of the national economy," runs the typical editorial attack. 1 How local interests reduce the effectiveness of control over enterprises is indicated by Informant 405, who had been an official of a local planning commission, a department of the local government: The relationship between our planning commission and the factories was purely formal. We simply got our figures from them. We knew that enterprises rarely do not lie. We could check this, for example, by comparing output against raw materials. But the head of the planning commission did not want his workers to question too much, or else they might show that the plan was underfulfilled, and he would be responsible along with the heads of the enterprises. The technique of "not questioning too much" is perhaps the most important way in which the self-interest of the planning commission works to the advantage of the enterprise. But there are many other ways in which the commission's involvement in the performance of the enterprise

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leads to support of the enterprise's illegal actions. For example, the planning commission provides the statistics on the basis of which the interregional labor recruitment program is decided upon. Accordingly, "some county planning commissions, instead of securing the interests of the state in the organization of labor recruiting, have tried to understate the labor resources available to them, inflating in every way their need for labor power." 2 Like the enterprises, planning commissions draw upon a considerable arsenal of techniques of simulation for achieving a good record of performance or concealing some manipulation of their own.3 Since the planning commission provides the data which form the basis for crucial high-level decisions, a judicious treatment of the information given to it by the enterprises may help or hurt the enterprises in its area. 0 The unwillingness of the planning organs to come into conflict with enterprises and ministries, which they would have to do if they took their control functions seriously, is expressed in the charge that the planning organs try too hard to "live peacefully" with the ministries and other agencies.4 But while the planning commissions and other departments of the local government strive to live peacefully with other organizations to the extent that their interests coincide, their interests, in fact, appear at times to be at loggerheads. When a city executive committee demanded that a trust turn over to it a new building for use as a dispensary, the trust refused, recommending that the old dispensary be renovated instead. The executive committee responded angrily by a resolution to close the dispensary down entirely.5 Familiar problems of public administration arise, such as complaints by local executive committees that enterprises are polluting their rivers, and ruining the fishing and bathing areas, but the ministries refuse to install purification plants.6 More serious conflicts arise over production matters, such as the safety factor. A ministry's desire for a safety factor transcends geographical borders and leads to the shifting of resources from place to place; but such shifting may meet with the vigorous protest of the local government which finds its resources shifted to enterprises of the ministry located in other areas. Hence, when the all-union Machinery Rebuilding Trust tried to ship idle equipment out of Kursk County to other places, "the presidium of the Kursk Executive Committee adopted a resolution for0 For example, attention may be diverted away from enterprises underfulfilling plans merely by failing to include them in an itemization of plan fulfillment. "Before 1933 we never changed a figure given to us by an enterprise. After 1933 we still didn't change figures but we used to omit the figures of all mines which fulfilled less than 100 per cent. W e would just give the total output of the territory, plus the reports of all mines which fulfilled 100 per cent." (Informant 4 0 5 . ) The informant stated on several occasions that there was no direct falsification of statistics in the planning organs, but that there was a large amount of falsification by the enterprises themselves.

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bidding the shipment of machinery outside of the county. This machinery is still standing in Kursk, and is idle." 7 Local planning commissions sometimes collide with ministries' efforts to keep the plans of their enterprises low.8 The fact that these instances often center about construction-projects and building-materials enterprises suggests that local governments are deeply interested in local economic development.9 Thus, for example, a ministry building a new factory in a certain area sought to save its capital by importing bricks and building materials from neighboring areas. The local government insisted that the ministry invest in new brick kilns and building-materials enterprises within the area.10 When a ministry lagged behind its schedule for building an enterprise and large power plant which was supposed, at the same time, to provide power to the city, the stiffest opposition to the delay came from the city government which bombarded the ministry with protests and finally wrote a letter on the subject to Izvestiia.11 In the matter of economic development the local government is apparently willing to tackle even the highest state bodies, although in a quieter but effective way. For example, a decree of the Plenum of the Central Committee in 1931 forbidding any further construction of large enterprises in relatively overdeveloped cities such as Moscow and Leningrad was largely ignored; building somehow continued to go on in these cities and in other large industrial centers such as Kiev, Kharkov, Gorkii, and Sverdlovsk.12 In this case the interest of the ministries in external economies probably coincided with the pressures of the stronger city governments for increased economic development. But while the interests of the local government and its planning commission sometimes conflict with those of a ministry or of some of the enterprises located in its territory, it is most important for the present argument to note that self-interest is a major determinant of the local government's attitude. This greatly weakens the planning commission's effectiveness as a control over the unlawful activities of enterprises. Other factors also contribute. Planning is one of those auxiliary economic services which tends to be relatively neglected. Because of the greater prestige and pay in industry, planning commissions complain that "the most capable and strongest economists" have left for better jobs.13 The level of education of those who remain is extremely low. In the Kazakh Republic only 19 of the 202 district planning commission chairmen, and only 24 out of 180 senior economists, had a higher education in 1953.14 The State Planning Committee is urged to print more "popular brochures" since the technical planning literature is too difficult for the district planning commissions.15 The turnover of planning commission chairmen is high and the commissions greatly understaffed.18 Finally, the authority of the planning commissions is greatly under-

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mined by the attitude of production personnel toward planners. Throughout the interviews there runs a note of disdain by the "producers" toward the planners. "Government planning only interfered," said an engineer informant, "and they are not specialists . . . Proizvodstvenniki (production men) feel superior to government employees." (Informant 384.) Other engineer informants relate tales of the inefficiency of planning organs and of the ease with which they pulled the wool over the eyes of planners. From the side of the planners one gets a similar picture. The Mordovian State Planning Commission complains that "the district planning commissions are looked upon as a superfluous and irksome link in the apparatus of the district executive committee." 17 The president of the Tadzhik Republic Planning Commission complains that up to 1955 his commission's hardest task was to obtain data from the republic's Central Statistical Administration, for the planning commission was not even on the list of organizations to which the statisticians were required to submit certain vital kinds of data. 18 And Informant 405, who had worked in a planning commission, indicated that large factories refused to cooperate with his office and that the local planning commissions had very little influence. When asked what kind of influence he thought they should have, he remarked plaintively, "Ours was the economic general staif. We should have been able to have influence, to check on production, to check on assortment. But the planning commission was limited to paper figures." Hence, even when conflicts of interest between local government and enterprises motivate the former to act as a controller, the poor quality of their planning personnel and the low regard in which they are held by the producer-aristocrats impede their effectiveness. THE STATE BANK

The State Bank is the financial agency with which the enterprise has the most frequent and regular relations. All the purchase and sale operations of the enterprise pass through the State Bank's system of clearing accounts, and twice a month the enterprise draws cash from the bank for the payment of wages. The bank is therefore in a strategic position to detect unplanned and unlawful activities. The state has taken advantage of the bank's position by requiring it to perform certain control functions over the enterprise in addition to its normal banking functions.19 The bank, moreover, has no direct interest in the enterprise's plan fulfillment, for its own performance is not dependent upon that of the enterprises it services. More than any of the control agencies discussed thus far, the bank is divorced from the web of mutual involvement. Wage payments are one of the principal areas of plant operation which the bank is required to control. Once the enterprise's wage plan is con-

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firmed by the ministry, a copy is deposited with the State Bank and the latter is required to refuse payment of wages in excess of the planned amount, except to the extent that the production program was overfulfilled. For several reasons this system has failed to result in the kind of control desired. For one thing, a provision of the regulations designed to achieve flexibility makes it possible for enterprises to overdraw wages by amounts up to 10 per cent if such overdrawing does not occur in successive months. The consequence is that in the course of the year the enterprise can overdraw its planned wages by as much as 60 per cent, leaving it considerable leeway for exceeding the planned wage bill. 20 But the weakest element in wage control is that the bank, after refusing to pay any wages in excess of the authorized amount, usually takes no further action against the enterprise to compel it to put its wage affairs in order, other than to report the condition of the enterprise to the ministry. In practice, what often happens is that the enterprise sends an urgent appeal to the ministry to transmit funds to the bank so that the enterprise account may be reopened: 2 1 On the desk of Comrade Mikhail'chenko, Chief of the Department of Labor and Wages of the Chief Ural Coal Administration, is a telegram which has just been received. It is the manager of the Egorshin Coal Trust, Comrade Pliachenko, who is calling for help: "Bank giving 34 thousand less than needed stop please increase wage fund stop details follow in letter stop Pliachenko." . . . Pliachenko always has promised that "details will follow." Nevertheless matters somehow have never gotten down to "details." This situation reflects the pressure upon the ministry to lend support to its enterprise. For no matter what the difficulty into which the enterprise has fallen, the ministry itself can no more afford to let the enterprise stand idle for lack of funds than the enterprise itself can afford it. Far from supporting the bank's efforts at wage control, the ministry itself often joins in the simulation practices of enterprises: for example, by reducing enterprise output plans without arranging for a corresponding reduction of the wage plans. Thus, an electrical machinery plant received from its chief administration in October 1939 a plan 31 per cent smaller than its September plan, but the planned wage bill was reduced by only 10 per cent. 22 Aware of the ministry's involvement in the success of the enterprise, management can virtually blackmail the ministry by "the drawing up of threatening 'express-telegrams' of the following kind: 'Production is about to stop.' 'Send money.'" 2 3 In the longer run, of course, the ministry can get rid of a troublesome director, but in the short run it must come through with funds. In fact, if the director usually succeeds in overfulfilling his production plan, the ministry is more likely to tolerate financial aberrations, for one can never

¿34

factory and Manager in the USSR

be sure that the next director will be as successful in plan fulfillment. Hence, the demands for funds are usually satisfied out of the ministry's working capital.24 When this happened, said Informant 384, "we received the money two or three days later . . . Thus we would get permission to continue, and our account would be reopened." A writer in the bank's journal states that one of the main defects in wage control is the "vicious practice by ministries and central organs of mechanically covering wage overpayments by poorly operated enterprises."25 And a high banking official complains because all that bank control over wages amounts to is that "in the course of the year five, six, or even a dozen telegrams are received from the head of the chief administration with recommendations to 'improve the organization of labor,' 'strengthen control,' 'institute an investigation.' But this doesn't help matters one whit. Every overexpenditure will be paid all the same, but it will not be done all at once but only after a certain amount of red tape." 26 The ministry's support in evading bank control supplements the enterprise's efforts in its own behalf. There are many reported instances of deception of the bank officials. The Dynamo Plant in Moscow once reported to the bank that it had fulfilled its plan 110 per cent, and thus obtained an overplan quantity of wages. Later it reported an "error" of 23 per cent, the actual fulfillment having been only 87 per cent.27 Typical of the attitude toward bank control is the remark of Informant 384 that if the plan were underfulfilled and the wage account closed by the bank, "the director would take along some zhulik (scoundrel) planner to show that the plan had really been fulfilled when in fact it had not." The techniques of covering up unlawful wage payments are many, for "control was very difficult here and . . . the administration was constantly working to find the best way to conceal these expenditures" (Informant 320) —for example, by drawing wages to be paid to persons who actually are ill and drawing social security, or who had been discharged at the beginning of the month.28 Such activities are particularly feasible if the director can say, as one high informant explained, "I had a very good accountant." (Informant 516.) In addition to its control function over wages, the bank is also responsible for the operation of the system of interfirm clearings. If a firm has overpurchased materials, or failed to market or receive payment for a sufficient quantity of production, its clearing account must be closed by the bank. This action is supposed to compel the enterprise to put its finances into order. Usually the bank will indeed close the account, for failure to do so would force the bank into extending credit to the firm. And yet here too bank control appears not to be very effective. The application of such sanctions seems hardly to affect the production work of the firm. Consider the plight of the Caliber Plant, which had piled up great

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surpluses of materials inventories and unsold merchandise, and had a large volume of payments overdue from customers:29 Constant indebtedness to the bank and chronic failure to pay bills led to the fact that the clearing account of the enterprise was regularly closed. "We are always working with a closed account," say the officials of the Caliber Plant. "During the four and a half months of the current year our clearing account has been open only four times, and even then not for a whole day but for a few hours." It would seem that an enterprise in this predicament would rapidly begin to underfulfill plans and soon be under new management. Yet in this same quarter the enterprise fulfilled its market-output plan 103.6 per cent and its gross output plan 110.1 per cent! One more major area of bank control to be mentioned is the granting of short-term credit. Many enterprises make relatively little use of credit for seasonal fluctuations, sometimes deliberately, in order to evade bank supervision. But the chief factor here is that "The Bank has only been interested in assuring itself that the goods were actually shipped, and thus that the loans had proper security behind them." 3 0 Beyond its concern for the security of the loan, the bank did not display great interest in examining the wisdom or the legality of the shipment. In the crediting of inventories, the bank is supposed to check that the enterprise does not overstock one material and finance it out of funds earmarked for another material. But such detailed control is extremely difficult to exercise, and in practice, despite some notable exceptions, banks have limited themselves to checking that the total inventories of enterprises were within the planned limits, without looking into the composition of the total inventory. Since the limits themselves are established by the benevolent ministries, this form of control also does not prove as effective as desired. The essence of the matter is that the bank prefers to have as little as possible to do with controlling enterprises, and prefers to restrict itself to keeping its own books in order. Under the pressure of its regular banking work and such checking of the regular reports of enterprises as is necessary to its own security, the bank has relatively little time to devote to looking for unlawful or uneconomic actions. It is significant that the right to grant "unplanned credit" to enterprises, which could conceivably have given the bank a larger say in the decisions of management, has never really been utilized to this end by the bank. Recent credit regulations designed to increase the bank's control over illiquid enterprises fail to take account of its traditional resistance to departing too far from its strictly banking functions (see Chapter XVII). The bank's approach to control over enterprises is what official policy

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terms "formalistic." That approach has its disadvantages too, as far as enterprise management is concerned. Some enterprises in the Tatar republic once managed to locate certain unplanned sources of materials. The unit prices of the materials were somewhat higher than those from the planned source, but transportation costs were very much lower so that a considerable saving could have been made. But the bank stuck strictly to the letter of the plan, and refused to assent to a purchase at a unit cost higher than planned. As it turned out, the planned shipments from the more distant original source never did arrive. 31 In other cases, rigid controls over portions of the plan, such as the wage plan, sometimes lead to an uneconomic substitution of less closely controlled factors of production for labor. On balance, however, management prefers the bank to adhere to its "formalistic" approach rather than have it intrude into the more intimate business operations of the firm. Finally, the fact that enterprise officials had regular and frequent relations with the bank officials is relevant to the question of bank control. On the one hand the bank officials become more familiar with the operations of the enterprise, and they are therefore in a better position to check up on the enterprise if they wish to. But this same factor of frequency of contact has a negative effect from the point of view of control. Years of personal contact between enterprise and bank personnel, supplemented by little gifts, pave the way for such relationships as blat. "It was very important to be on good terms with the bank official who dealt with the enterprise," stated Informant 311. "The official would often be provided with gifts from the enterprise, such as theater tickets." Informant 516, who had been head of a meat collecting agency, had little trouble with the bank because he "always sent some meat to important people there." Personal relations cultivated in this fashion can go a long way to smooth out an enterprise's financial difficulties with the bank: If I go to the bank I always bring along a little bottle of cologne for the girl with whom I must deal . . . Say we have no money in the wages account. The bank is not permitted to transfer funds from one account to another. But if I am on good relations with the girl in charge of my account I can suggest to her that she make a slight error, and that she put some of the construction wage money into the production wages account. If we are on good relations and she knows me well, and if I have brought her gifts, then she might do it. Usually no one else will ever find out. (Informant 114.) But this kind of informal association is not what is meant by the web of mutual involvement. That relationship exists when an official is dependent, because the way in which his occupational performance is measured, upon the very organization over which he is supposed to exert control. Although bank officials may benefit from the blat which they enjoy be-

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cause of their special positions, their job performance is not measured by the plan fulfillment of the enterprises which they service. Indeed, because the bank is not part of the web of mutual involvement, and because its regular and frequent contact with the enterprise endows it with some familiarity and intimacy with enterprise operations, one might expect the bank to be a fairly successful controller. However, the bank's very independence of the performance of the enterprise also reduces its practical interest in the performance of the enterprise. The bank has, in effect, withdrawn from control in all but those aspects which are vital to its own banking problems, and this withdrawal seems to be generally accepted. "The State Bank" concludes Granick, "has mainly concentrated its attention on making sure that its loans had proper security behind them. In practice, there was greater disapproval of any bank meddling' in economic administration than of its permitting financial discipline to go unenforced." 32 THE TAX COLLECTOR

In addition to the State Bank, the financial organs of government are required to exert control over the financial operations of enterprises. It is primarily as the collector of the sales tax and profit tax that the financial organs gain access to the enterprise's books. The tax collector is the finance department of the local executive committee, acting as fiscal agent for the USSR Ministry of Finance. The finance department has a tax revenue target which is computed on the basis of the planned tax payments of all enterprises in the territory, whether they are all-union or local enterprises. 33 Failure to collect the planned tax revenues would upset the budget and the finance department would be called to account. It is because of its interest in budget revenues, primarily taxes, that the finance department checks on the activities of enterprises. "For that," said Informant 427, a former official in a finance department, "we had to control the whole activity of industry, to see that they fulfilled their plans and showed it in their reports." But like the State Bank, the finance department's purpose in controlling enterprises is not a direct interest in control, but is rather an interest derived from its primary preoccupation with tax revenues. As for the function of general control over enterprises, Izvestiia editorializes that the Ministry of Finance "has not been able to invest supervision and checkups with proper importance . . ." 34 There are many indications of the finance department's tendency to focus primarily on those features of control which directly affect its own interests. 35 Since the sales tax, which is quantitatively the most important source of budget revenue, depends on the volume of sales, "the center of gravity of the work of the tax collecting apparatus is checking the volume of sales and the accuracy of the tax rates used and the computations

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made; at the same time one of the most important factors in price formation, cost of production, falls outside of the field of vision of the financial organs when they check up on enterprises." 3 6 Similarly, the department exerts a much closer supervision over those enterprises that pay larger taxes than over those that pay less, regardless of the relative proportion of financial irregularity involved. Since heavy industrial enterprises pay a very small proportion of the sales tax, and since much of the profit tax which they pay is left with them for the financing of investment, on balance, such enterprises provide relatively little revenue for the budget.37 Accordingly, the financial organs exercise little control over such enterprises, by contrast to the light industrial enterprises that provide the bulk of the revenue. On the other hand, where tax revenues are involved, the finance department does oppose the unlawful activities of firms, and to this extent is a successful control agency from the state's point of view. If the financial safety factor that an enterprise has sought to build into its financial plan is detected by the finance department, the latter may be motivated in its own interest to remove the slack and to demand that the enterprise pay the full amount of taxes for which it is liable, or reduce the magnitude of the requested subsidy. If the ministry would like to postpone the tax payments by an enterprise suffering financial difficulties, the financial organ, less interested in the performance of the enterprise than in the fulfillment of its own revenue plan, may well exact a compulsory tax payment through the State Bank. 38 That it is indeed the interests of the finance department which govern its control operations is further indicated by official efforts to channel these interests in such directions as to benefit the state. Thus, a Soviet economist proposed that "in connection with the aim of creating an interest by the local financial organs in profit-tax payments, it is necessary to provide that a certain percentage of profit-tax payments which normally go into the republican and union budgets, should go into the local budget." 3 9 It was felt, apparently, that if the local government could share in the tax payments of enterprises on their territory which were not within their jurisdiction, their finance departments would be more strongly motivated to maintain financial control over such enterprises. In summary, neither the State Bank nor the finance department are drawn into the web of mutual involvement with the firm since their own performance is not directly measured by the performance of the firm. The very lack of direct interest causes them to restrict their control operations to the narrowest matters which impinge on their own affairs. Within this compass they do take the action necessary for protecting their interests, such as closing a bank account or exacting tax arrears from a firm's bank account. Often, in such cases, the firm is extricated from

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its difficulty by its ministry, and if the settlement is satisfactory to the control agency, the latter will not usually pursue the scent of illegality into the ground. As a final point, note may be taken of a curious dilemma in the use of financial controls. One of the major functions of such controls is to forestall the misdirection of resources into uses contrary to the interests of the state. Designation of a maximum wage bill, for example, is intended to prevent the enterprise from inefficient use of labor. The ultimate sanction for such controls is the threat of production stoppage due to the bank's refusal to honor the enterprise's wage request. But it is clear to all concerned that the actual implementation of this threat punishes not only the enterprise management but the state itself. The bank might be quite within its rights in refusing to honor an unauthorized payment order, but if the consequence is that the state loses a few days' output because of the stoppage of production, the bank would be in an uneasy position. As one banker expressed the difficulty, "The control work of banks must not interfere with the work of construction organizations. Its purpose is to help builders and not to set up obstacles." 40 Financial sanctions therefore constitute a threat, the invocation of which entails undesirable consequences for the state, the enterprise, and the financial control agency. Such a threat can rarely be put into effect. For this reason financial controls are considered of secondary importance when management weighs its alternatives. POLICE AGENCIES OF CONTROL

The agencies of control discussed thus far perform certain economic services, and their control responsibilities are superimposed on these service functions. The final group of control agencies to be described briefly here provide no economic service. Their function is purely one of control. More than any of the other control agencies, they are quite independent of the performance of the enterprises with which they have contact, and they therefore have no conceivable motivation for becoming part of the web of mutual involvement. The major function of the Ministry of State Control is to police all other economic organs which are charged with the execution of the decrees of the Council of Ministers. It is the economic enforcement arm of the Council of Ministers. The ministry "maintains control over the expenditure of monetary funds and material valuables, as well as over the regime of economy, controls the fulfillment of government decisions by economic organizations and enterprises, and conducts a struggle to strengthen state discipline." 4 1 The ministry maintains a network of inspectors throughout the nation who have broad powers to subpeona the reports and records of any enterprise or organization that arouses its sus-

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picions. The activities over which it maintains control vary from the over consumption of materials to the plundering of enterprise funds.42 It may operate on its own initiative or it may receive direct orders from the Council of Ministers to investigate a particular ministry. It may issue a reprimand to an offender, compel the dismissal of officials, impose fines or turn serious cases over to the courts for prosecution.43 It is the agency to which all other control officials and agencies, such as the chief accountant and the financial organs, are required to communicate their discoveries of unlawful actions. The police agencies, such as the Ministry of State Control and the secret police, are strongly reminiscent of the traditional Russian institution of the Inspector General. The consternation of Gogol's characters at the impending visit of the Inspector General is no less striking than the references to the Ministry of State Control in the testimony of the informants : "But when the Ministry of State Control makes a decision, this will be carried out. Furthermore it co-ordinates its activity with the Ministry of State Security. Everybody trembles before an inspection by the Ministry of State Control." (Informant 396.) When the Ministry of State Control strikes, and this is apparently the proper word, there is no longer any thought of blat or krugovaia poruka. Other control agents can, in varying degrees, be "buttered-up" and worked over, but the Ministry of State Control is beyond the reach of such activities. Nor can the mutual involvement of firm and ministry provide the usual protection, for the Ministry of State Control is above and outside of both.44 There is no doubt that as far as motivations are concerned, the agents of the Ministry of State Control have the least interest of all in the fate of the particular firm they happen to be investigating. On the contrary, they may have a positive interest in exposing corruption, for this is probably closer to the criterion by which their performance is judged by their superiors. That criterion apparently suffers from the same problem of simulation as do other performance criteria in the Soviet economy. Thus, a high Party official notes that "in the USSR Ministry of State Control there has taken deep root the vile practice of a striving after a large number of investigations, which has resulted in a dissipation of effort and in the weakening of real control." 45 While the motivation and the power are there, one important element lacking in the ministry's ability to control is knowledge. Unlike the other control agencies which are either involved in the fate of the firm or have business dealings with it, the ministry lacks familiarity with the details of the firm's operation. With all its resources, which may be assumed to be ample, the ministry is obviously unable to maintain a constant check on all enterprises. It also apparently suffers from lack of experienced person-

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nel, perhaps in part because a police career is hardly attractive to trained engineers. Thus, the Ministry of State Control in the Karelo-Finnish Republic did not have in its employ a single expert in the timber industry, the dominant industry of the republic. An agent of the ministry described his impotence in investigating a dairy enterprise, an industry about which he knew nothing at all. "They twisted me around their fingers . . ." he lamented.46 The ministry makes up for its lack of knowledge of enterprise activity by the fact that other control agencies are required by law to report their findings of irregularities to it. It also extends an open invitation to the population to write letters informing its agents of unlawful practices, and such letters, declares the Minister of State Control, are often his "signals of the violation of socialist laws, of state discipline, of abuses and mismanagement." 47 But the actual situation with regard to control comes close to a neat epigram: those with knowledge lack motivation, and those with motivation lack knowledge. In a sense knowledge corrupts motivation, for knowledge is gained from participation, participation leads to krugovaia poruka, and krugovaia poruka vitiates motivation. If little is known of the Ministry of State Control, even less is published on the special section. The special section is the agency of the secret police within the enterprise. Only the largest and most important enterprises are reported to have a special section, but the official table of organization of iron and steel plants shows that even the smallest plants in this industry are required to have this section.48 The head of the special section reports to the industrial department of the local office of the secret police, but on the formal level the special section is a regular part of the plant administration. The function of the special section is to keep watch over activities in the enterprise which are serious from the point of view of production, especially when there is a suspicion of sabotage. The ordinary deficiencies and evasions of management are not of primary concern to the special section, although it is supposed to keep a dossier on all key employees in which such actions are recorded. The special section steps in when serious disorders occur, such as the breakdown of equipment, fire,* or an unusually large underfulfillment of plan. * "We had an anti-fire brigade on our project. One of its officials drew up a statement of charges against me, stating that on my construction project the roads and the buildings were in poor condition, and that in case of fire the fire-fighting apparatus would not be able to drive through. He drew up this statement in front of me. About a week later I was called to the special section. The chief of the special section gave me a note which said that I was invited to report to the city office of the Ministry of the Interior, to a certain agpnt. I had to appear on the next day at 11:00 P.M." (Informant 202.) The fact that the story ended here probably means that nothing came of the affair.

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Suppose some accident has happened in the shop. Immediately he runs to the chief of the special section, even before going to the chief engineer. He comes to him and explains: "You see, a mistake has happened. But it really wasn't my fault. I just made a mistake." He explains, he excuses himself and debases himself. Now, if the chief of the special section is an experienced man, if he knows the plant intimately, well, he will clap him on the back and will say in a friendly manner, "Well, that can happen to everybody, that's not so bad. Now, it's good that you came to me, because I would have found out within a half-hour anyhow." (Informant 105.) The special section's sources of information are mainly secret informers within the plant who are induced, by various means known to secret police all over the world, to report all information seen or heard which bears upon the loyalty and economic activity of anybody in the plant. If the Ministry of State Control evokes the dread of the Inspector General descending upon the enterprise from outside, the special section looks rather like an Inspector General in permanent residence. By virtue of his location in the enterprise and his permanent staff of informers, the head of the special section has access to information which no other control agency possesses. In the special section there exist all the requirements for effective control, knowledge plus independence. Indeed, as in the case of the Ministry of State Control, there may well be a positive incentive to uncover evidence of antistate activities which would not ordinarily come within its purview. About the head of the special section Fainsod writes,49 his own vigilance as a secret police agent tends to be measured by the number of spies, saboteurs, and criminals whom he has discovered and exposed. The natural tendency of the secret police to magnify its indispensability may easily lead to a situation in which every accident is transformed into an act of sabotage and every error of judgment is identified as the plot of a spy or wrecker. The dread of the special section is indicated by the images it evoked among the informants. The office was "locked behind an iron and soundproof door" (Informant 70), when people are called there "their knees are trembling" (Informant 105). In an interview conducted by one of the interviewers with Informant 524, a former plant director, the following exchange occurred, as recorded in the interviewer's notes: Q. Was the head of the special section subordinate to you? A. Administratively, yes. Q. Administratively, as distinct from what? A. Administratively, as the chief of the department of quality control was subordinate to me. I could not tell the head of the

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special section how to handle his secret papers. For that he had instructions from the Ministry of State Security. But administratively he was my subordinate. I could punish him for breaking labor discipline. Q. Could you, as director, have any influence on what and whom he should investigate? A. Yes, I could do that too. Q. How? A. [after a minute of embarrassed silence] Let us talk about something else. Clearly there are some important relationships involved in the position of the special section which the available information is not sufficient to bring out. It is more difficult in this case to explain why the system of controls fails to root out the unlawful actions which are an integral part of managerial behavior. The special section has the knowledge, the motivation, and the power to destroy any official who engages in any of the activities described in earlier chapters. To be sure, there are indications that the secret-police officials are not above accepting little gifts, but the general opinion of the informants is that this is the exception rather than the rule, for they are extremely well paid. "Though the directors find it expedient to cultivate the heads of their special sections, 'family relations' with them are not easily achieved." 50 A possible answer, none too satisfactory, is that the secret police are resolved to devote themselves exclusively to important matters and not to get involved with little details of blat and simulation. In their dossiers they record all the information they obtain about such activities, but it is not used so long as the manager runs his business well. When it is decided that a certain manager is to be attacked as dangerous, all these materials are brought out in evidence. 51 Until then the evidence just builds up in the dossier. It is probably also true that much of the illegal activity may not become known to the special section because people have a keen ear for informers. Furthermore, although the special section is located within the plant, it is not a participant in plant operation but only an observer. And finally, perhaps, there may be a conscious awareness that cracking down too hard on the unlawful practices of management would cause the system to be so rigid that it would freeze up and stop producing. But the real answer can be little more than wondered about. OTHER CONTROL AGENCIES

The legal system is responsible for the prosecution of managerial officials charged with statutory crimes. Usually charges are brought by other control organs, such as the Ministry of State Control, which discover the crime and hand the case over to the Procurator for prose-

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cution. But the Procurator himself may initiate an investigation into irregularities which run counter to the law. Many of the cases reported in the press of the prosecution of managerial officials are the reports of court proceedings. But the important issue in assessing the wide pervasiveness of unlawful actions is how the actions are discovered in the first place. In this regard the Procuracy and the courts do not play the most important role. Once the transgression has come out into the open, once it has slipped out of control of those who are involved in the web of krugovaia poruka, then the legal system takes over. Without the supporting system of state controls, the legal system would be ineffective. A hearing before the State Arbitration Commission, an administrative tribunal for adjudicating commercial disputes among economic organizations, is sometimes the occasion for the disclosure of a transgression. If irregular acts are uncovered during an adjudication process, the commission is required to turn the matter over to the courts. Adjudication therefore presents certain hazards to plant management. But most of the litigation before the commission deals with genuine disputes. There are many other agencies which carry out minor control functions of various kinds. Many of them appear to be ephemeral, coming into being as a response to a certain need and then dying a quiet death when the need has been fulfilled. It is perhaps an indication of the bureaucratic nature of the system that one notes a tendency to "reach for another controller" when a job has to be done. If machine tools are not being economized, for instance, someone advocates setting up an inspection commission. If hoarding is excessive, another suggests sending in an inspector.* Many of these proposals are translated into action, which increases the number of control officials who come knocking at the doors of the enterprise, and which adds considerably to the paper work of management. But many control agencies carry out the standard kind of technical inspection necessary in all industrial systems. Thus one finds references to the Boiler Inspection, the Electric Power Inspection, the State Petroleum Inspection, and the State Mine Inspection. Most of these numerous inspectorates evoke the same comments of bureaucratic interference that one might expect to hear of a busy executive in an American enterprise. Very little is heard of them as a * "An inspection commission must be established under the Chief Tool Administration in order to check upon the correctness of the expenditure norms for tools, and on the length of time they are used. This inspectorate must see to it that there is a maximal and rational utilization of tools and that they are properly reconditioned" Mash., February 12, 1939, p. 2. "One of the chief tasks of a State Controller in enterprises should be to check on statements of materials requirements. A complete check on all statements of requirements can hardly be carried out, nor is it necessary. But in enterprises with large excesses of supplies, such a check is certainly expedient . . ." Sitnin, in Planovoe khoziaistvo, no. 12, 1940, p. 42.

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factor in the control over the unlawful activities of management. By the time one reaches down this far in the barrel of control organs, the story has already been largely told. But there is one more aspect to the problem of control which deserves mention in this context. This is the phenomenon which may best be described as the "avalanche effect." THE "AVALANCHE" EFFECT

In considering the problem of the effectiveness of control, emphasis was placed on the personal involvement of the control agent in the performance of the enterprise. While that consideration brings some order into the picture, it is obviously not the whole story. It has been shown that for a variety of reasons, personal and situational, officials who might be expected to support management because of their involvement in its performance do in fact oppose management and expose unlawful actions. We may push a step further toward the explanation of these variations by considering one final factor which plays a role in determining the attitude of a control official. This factor is the position of the enterprise on the spectrum of performance ranging from "successful" to "lagging." Quite apart from the short-run benefits of successful performance, there are certain other advantages which strengthen the position of the successful enterprise. Because of these advantages the successful firm has a better chance to continue being successful, and because the advantages are denied to the lagging firm, there is a tendency for the latter to be catapulted faster into total failure. If the lagging firm could avail itself of the advantages accessible only to the successful firm, it could perhaps pull itself out of trouble and become successful too. But the very fact of having begun to lag means that the advantages are denied, and things go from bad to worse. Success breeds success and failure accelerates failure. It is therefore extremely important for the enterprise to avoid approaching the critical point at which it passes from successful to lagging, for, once having passed this point, it tends to go downhill at an accelerating rate. 9 The factors which create this "avalanche effect" are associated with the attitude of control officials toward the enterprise. As long as the enterprise is successful, the officials who share the positive benefits of being associated with it continue to lend it such support as is within their competence. The ministry officials, who judge all things, "even • The awareness of the existence of such a critical point is suggested by phrasings such as the following: "If the plan is underfulfilled the enterprise passes from 'successful' to lagging,' and if the plan is overfulfilled, the enterprise passes from 'lagging* to 'successful.' (Informant 90.)

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the state of labor discipline in the enterprise . . . by the figures on the fulfillment of the production plan," 5 2 either fail to notice or look the other way at minor deficiencies. The chief of the quality-control department, knowing that the ministry is interested primarily in plan fulfillment, looks the other way at the inclusion in total output of production of marginal quality. The Party secretary does not report the excess capacity he knows to be concealed in shop no. 3, and even the careerbent young communist hesitates to expose the acts of simulation by a director held in high regard by ministry and Party. The very state of success enables the enterprise to continue in those practices of management which are necessary for success. But consider now the enterprise that has begun to teeter on the edge of plan fulfillment. Serious production or procurement difficulties have caused it to underfulfill the plan in several months, but by "borrowing future output" and including it as part of present output it has been able to simulate fulfillment. Ministry officials, eager to report ministry plan fulfillment, have closed one eye to these actions, but to the extent that they know what has been going on, have begun to get worried. The required support is still forthcoming in the expectation that the deficit output will be made up in the following month. But production difficulties continue to mount up and there is insufficient safety factor in any month to repay the borrowed output and still fulfill the current month's plan. Accordingly, borrowing is resorted to in the next month, and in the next again, and each time the magnitude is greater. After several months the deficit has mounted to the point at which there is no realistic possibility, short of outside aid, of making it up. As a Soviet commentator sees it, "an official, in order to avoid the usual punishment, begins to deceive and dissemble, at first over trifles, but then gradually becomes involved in all kinds of machinations and in the end ruins himself as an executive." 53 Something occurs to prick the balloon, perhaps the clamor of desperate customers for output reported but never delivered: Sometimes a representative is sent by the chief administration of the ministry. The plant has reported overfulfillment and overfulfillment, but nothing has been shipped out. In this case someone ends up in a concentration camp. But the falsification had been encouraged by the fact that the ministry is also interested in fulfillment. (Informant 405.) It is partly due to the conditions of operation in the Soviet system that cumulative falsification involves enterprises in such difficulties. But once in such a position, or getting into it, specific Soviet conditions tend to accelerate the plunge into failure. Most important, perhaps, is

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the fact that persons ordinarily part of the web of mutual involvement are no longer willing to risk complicity in unlawful actions if there is a real danger that the end is near and that all such actions will be discovered: In general, the Party secretary always tries to help the director, because both are responsible for the plant. The Party secretary helps the director until he sees that help is really necessary. When he sees that there is real trouble in the factory, then he tries to "get" the director. There is a constant war between them while the curves of production go down month after month. (Informant 25.) It is in the Party secretary's interest to be attached to a successful firm, but when it becomes clear that things have gotten out of hand it is better for the Party secretary to be on record as having opposed the incompetent director. It is possible that if the Party secretary were willing to cooperate a little longer, the firm might pull itself out of its trouble. But even if the Party secretary were willing to take the chance there are other agencies, such as the district finance department, whose attention has already been attracted, and the Party secretary is discouraged from taking the chance: The frequency of checking depends upon the quality of the accounting. Also, if there is regular plan fulfillment and there are not many changes in the plan, then the inspector checks only once every quarter. But if there is something suspicious, then he checks more frequently. (Informant 164.) Similarly, the successful firm counts upon the bank not going too deeply into its affairs as long as it is operating well, and therefore it can take greater chances in doing the quasi-lawful things that are necessary for success in the Soviet system. But once the difficulties grow so large that they cannot be concealed successfully, then the firm can no longer count on the bank's superficial checks: Although the bank controlled all aspects of financial operations, ordinarily they would only check to see that the sums involved were no greater than the planned expenditure, and they would simply pass on it without going into the details of the transaction. But if there were unusually large expenditures or an overexpenditure, then the bank would inquire into the details. (Informant 311.) Not only can the failing firm no longer count upon superficial inspection by control agents, but certain positive advantages given to successful firms are denied to it. A single successful firm may be of overriding importance to the success of the ministry. The Chief Diesel Administration once earned an overplan profit which "reached the solid

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figure of 4.2 million rubles. But this profit was the result of the good work of only one enterprise, the Kuibyshev-Kolomensk Plant. For the other enterprises of the chief administration there was an overexpenditure of 600,000 rubles." 64 Such successful enterprises are invaluable to the ministry for covering up the poor work of the other enterprises. 55 Partly as a reward, partly because of the greater influence which the director wields in the ministry, the successful enterprise may have easier tasks bestowed upon it. 56 There are many indications that the lagging enterprise is more likely to have its plan raised by the ministry than others, for a number of possible reasons — because the ministry tries to secure itself against underfulfillment by the poorly functioning enterprise, because of the better blat of the successful enterprise, or because the ministry is getting ready to dismiss the managers and is preparing the case against them.* In any event, the raising of plan targets at this stage accelerates the plunge into the avalanche of failure. Not only does incipient failure cause control officials to be wary of granting support to management when its unlawful acts are known to them, but it also attracts the attention of control agents who otherwise may not have become aware of such acts at all. f It is well recognized that the ordinary techniques of falsifying reports are usually discovered "if a more detailed analysis is made." (Informant 388.) The function of falsification is not to confound the most diligent auditor, but to avoid attracting any special attention which may lead to further investigation. Indeed, one of the major reasons given by informants for the importance of reporting plan fulfillment is the fact that underfulfillment leads to investigations which might otherwise not have taken place. "The frequency of visits [by the local Party committee] depended upon how work was proceeding." (Informant 524.) "If the plan was not fulfilled, an inspection might be called to find out the cause." (Informant 400.) "The Workers and Peasants Inspection may not check on us for thirty years, but if any supicion is aroused they may come and check suddenly." (Informant 384.) As long as the plan is being fulfilled the control officials are too busy elsewhere to • "If you work well their attitude toward you is good, and they may even reduce your plan a little. But those who work bad, their plans will be raised." (Informant 384.) In a similar relationship, between enterprise and shop management, an informant stated, "When I was chief production engineer, if I received a plan of one hundred, I gave sixty-five to one shop and seventy to the shop whose chief was not very good so that in case he underfulfilled I would still be covered." (Informant 190.) f "In the first place, there is the absence of any striving by plant management to fulfill the spare-parts plan. This striving manifests itself only when fulfillment of the spare-parts plan begins to interest the district procurator, as happened last February, for example, or the city's Party committee." Mash., April 5, 1939, p. 3.

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bother much, but as soon as the enterprise begins to lag, they may begin to descend on the enterprise: Now, when the enterprise works well you don't see the Party organs or the special section. Then something happens. The enterprise stops fulfilling its plans, accidents are occurring, production becomes defective. Then these two organizations begin their work. (Informant 105.) The interviews suggest that managerial officials count on long bureaucratic delays in helping them avoid detection of irregularities. The feeling is that time is on their side, a feeling which must be strengthened by the relatively short tenure of office. When asked if a certain manipulation were not likely to be detected at some later date, Informant 16 replied, "Yes, of course, but this would have occurred a year or two later, and the chances are that no one would have noticed it." In the normally slow turning of the bureaucratic machinery many reports are lost in the shuffle, or do not come to light until the director has been transferred to another plant. As long as the enterprise is successful, management may continue to count on such delays. But once it begins to lag and special attention is attracted to it, dusty documents come to light which it had been hoped would die a normal and quiet bureaucratic death going through proper channels. Evidence which was no danger to the successful enterprise becomes a source of great danger to the lagging one. The fear of being catapulted into the avalanche of failure manifests itself in a widespread attempt to avoid any kind of special attention, either because of too outstanding achievements or because of overtly suspicious actions.* Thus a successful enterprise may choose deliberately to report underfulfillment once or twice a year so as not to attract the attention which comes of being too successful. Similarly, excessively high reported profit is to be avoided; "Profit is a two-edged sword. It is as bad to show too much profit as too little. Too much profit shows that the plan is too low. They become supicious of false calculations . . ." (Informant 388.) Managers who become widely talked about because of rocketing success submit to certain dangers of rumor-mongering. To be sure, there are some who are not deterred from pursuing a career for these reasons, but for many it is merely courting danger to become too outstanding: "It is also unwise to leap forward suddenly in fame. Other people begin to talk about him and to find pretexts for circulating * "These things are not always found out by the financial inspectors. But if the cost of a capital investment is too high, then the inspector becomes suspicious and begins to examine the profitability of the enterprise, and he checks on other expenditures and estimates, and on all costs." (Informant 164.)

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rumors about him. Therefore everybody tries to avoid bad relations with other people on his level." (Informant 26.) Although the evidence seems to show quite clearly that managerial officials are aware of this avalanche effect, there is no explicit reference to it, and it is therefore difficult to say just how the awareness of it affects decision-making. Does the avalanche effect inhibit or extend the use of unlawful methods by managers? Because of the avalanche effect the successful enterprise can engage in such actions with greater impunity, but its very success makes for less need to do so. On the other hand, for the enterprise in the impending shadow of the avalanche of failure the stakes are much higher. The further down it falls, the greater the danger of detection and the greater the need for unlawful measures if it is to halt the downward fall. Perhaps the increased need for falsification is counterbalanced by the increased danger of detection. If this is roughly the case as management sees it, the avalanche effect may have no appreciable influence on the extensiveness of irregular activity, but may only increase the tension in the decisions made by the enterprise approaching the avalanche of failure.

A C R I T I Q U E OF THE REFORMS

POST-STALIN

Since the death of Stalin in March 1953, the Soviet Union has been a land in ferment. Yesterday's gods are changing places with yesterday's devils, and a new regime is issuing new decrees at a rapid pace. The wave of reform has confronted scholarly research with its most difficult of tasks, the evaluation of change. 1 The signs of change are unmistakable; the extent of change is not as easy to discern. There is little doubt that the people are breathing more easily these days. But when tyranny grips a nation in as harsh a hand as Stalin's, even a moderate relaxation would be greeted with relief. The question of whether anything has been fundamentally changed remains. A bright new coat of paint over an oppressive old building would make life much pleasanter for its inhabitants, but it must not be confused with a basic remodeling. It is vitally important to consider whether the sense of "thaw" in Russia is an appreciation of a long overdue paint job, or of a basic reconstruction of the house inside. For the purpose of the present study, the problem is to evaluate the extent to which the wave of reform may be expected to alter the ways in which the manager runs his business. We are too close to events to attempt more than a tentative answer to this question. The paucity of detail makes it even more difficult to assess the significance of many of the changes. But with the findings of the present study as background, it is possible to obtain a sense of the areas of managerial activity on which the recent reforms impinge. DECENTRALIZATION C f AUTHORITY OVER ENTERPRISES

Most large consumer-goods enterprises have traditionally been organized into republican ministries of the "union-republican" type. These ministries are administrative arms of the republic governments, but take planning and operating instructions from a senior "union-republican" ministry on the USSR level. The USSR "union-republican" ministry deals primarily with the corresponding republican ministries, and the latter deal primarily with the enterprises.

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in the

USSR

Authority over most heavy industrial enterprises, on the other hand, has traditionally been more highly centralized. They have been under the direct supervision of USSR ministries of the all-union type. No republican ministries exerted authority over these enterprises. In a number of instances, the new regime has taken the unusual step of organizing republican union-republican ministries in branches of heavy industry. 2 For example, a Ukrainian Ministry of the Coal Indüstry has been established. In the past all large coal mines, whether located in the Ukraine or anywhere in the country, were under the direct authority of the central USSR Ministry of the Coal Industry. Now the central ministry has been deprived of this direct authority. While still responsible for the over-all planning of coal production, the USSR coal ministry can no longer issue direct orders to the Ukrainian coal mines. It can issue orders only to the Ukrainian coal ministry. Similar changes have been introduced in the petroleum, iron and steel, and non-ferrous metals industries. In evaluating the significance of the reform, it should be noted that thus far, only certain portions of certain industries have been affected. Of all the coal mines in the USSR, only those in the Ukraine have been removed from the direct authority of the central ministry. In the petroleum industry, only the oil fields in the Azerbaidzhán Republic have been affected. Nevertheless, the over-all process of decentralization has proceeded fairly far. Ry the beginning of 1957 about 15,000 industrial enterprises had been transferred from the jurisdiction of the central USSR government to the republican governments. Fifty-five per cent of all industrial production was produced by enterprises under the jurisdiction of republican councils of ministers, as compared to 31 per cent in 1953.3 In considering the effect of the reform on industrial management, it is useful to imagine that the process does not end at its present point but continues to the limit. Suppose that all Soviet industrial enterprises are removed from the jurisdiction of all-union ministries and placed under the control of republican ministries. 0 Ought we to expect significant changes in the activities of the managers? A possible locus of change is in the relations between directors and ministers. The informants distinguished two main types of ministers. Some are powerful Party figures in their own right, perhaps members of the highest Party councils. These men are close to the peak of their careers, fairly secure in their positions and able to make important decisions quickly and with assurance. The second type are men of * The administrative reform of May 11, 1957, which was decreed after the above lines were written, will involve a greater degree of decentralization than is postulated above. Enterprises will be administered not by republican ministries but by 92 regional "councils of the national economy." The analysis above, however, may shed some light on future relations between directors and heads of the councils of the national economy.

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lesser prestige and reputation, still a considerable distance from the top seats of power, less secure in their positions and more concerned over how "Moscow" rates their performance. The all-union ministries of the heavy industries have usually been men of the first type, the republican ministers men of the second. And indeed it required men of the first type to deal authoritatively with the ambitious and celebrated directors of the giant heavy industrial enterprises. If now these directors are subordinated to ministers of the second type, there is a distinct possibility that some directors might very largely dominate the ministers. However, the differences between all-union and republican ministers that have existed in the past reflected in part the priorities of their industries. The best men were put in charge of the most important industries, which were always in all-union ministries. If the heavy industries are now transferred to republican ministries, we may expect that these ministries will not be entrusted to underlings. The minister of an RSFSR Ministry of the Iron and Steel Industry, if one should be created, will undoubtedly be a man capable of dealing authoritatively with the director of the Magnitogorsk Iron and Steel Combine. Only the giant enterprises, however, have ever had any direct contact with ministry personnel. Most enterprise officials rarely have occasion to negotiate with anyone higher than chief administration officials. The normal day-to-day relations of enterprise to chief administration are not likely to be influenced greatly by the administrative changes at the top of ministry. It has been shown that lower-level government units sometimes tend to pursue their interests to a point of conflict with the interests of other government units. The new republican ministries in the heavy industries may be subjected to pressures by their republican councils of ministers and Party organizations, which may conflict with orders from their senior USSR ministry in Moscow. Perhaps in anticipation of such conflicts, union-republican ministries have been granted a limited right to make certain changes in their own plans after they have been officially approved. 4 Conflicts may arise, but there is no serious cause to doubt that in important matters the wishes of the central government will prevail. 5 The purpose of the decentralization is not at all to reduce the scope of economic activity under central government control. It is rather a design for improving the effectiveness of that control. It was felt apparently that direction of economic activity from Moscow had reached a point of excess and was hampering effective control over enterprises. Reasons of economy have also played a role. It is reported that in 1954 alone almost half of all chief administrations, departments, and other administrative organizations previously existing in the central govern-

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ment apparatus were liquidated. 6 In 1955, annual savings of six million rubles were expected from the reorganization. 7 Perhaps other gains of an administrative nature may be achieved. But there are no strong reasons for expecting this administrative reform to have an important effect on the problems confronting managers or on the ways managers cope with them. REFORMS IN P L A N N I N G

In the course of the postwar years the system of economic planning steadily increased the degree of detail in which plans were formulated. By 1953 the production and materials-allocation sections of the national economic plan contained over twice as many specific items as in 1940. The new regime found this degree of detail excessive and reversed the trend. The 1955 national economic plan contains only about a third the number of production targets and a half the number of allocated commodities as the 1953 plan. 8 It is important to note that the reform has not greatly reduced the range of commodities planned by the central authorities. The plan still covers all basic types of heavy and industrial production and all basic consumer goods. For most branches of industry, the physical output targets still encompass two-thirds or more of their total output. 9 The significance of the change is that commodities are now listed in the national plan in much less detail. All copper, for example, is still included in the plan, but only a few broad categories of copper are identified instead of a long listing of grades and sizes. The task of working out the detailed targets has been transferred from the State Economic Commission to the producing ministries. Apparently the ministry plans retain the full degree of detail. 10 In the same way, the degree of detail in the enterprise plan has been reduced. Formerly the ministry was required to approve officially, or "confirm," the full detailed technical-industrial-financial plan of the enterprise. Now only an abstract of the full plan, containing the principal indicators, requires official approval. The director himself officially approves the full plan. Again, it should be noted that there is no reduction in the scope of enterprise activities for which official approval is required. The official plan abstract still includes value of output, specific targets for basic products, labor force and wages, cost of production, planned supply of all basic materials, and other items. What has been omitted is much of the detail within each major target. 11 If these formal changes are taken at face value, they mean that certain forms of simulation necessary in the past are now excluded by definition; that is, since there is no target to be evaded, there is no

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evasion. Concretely, if the official plan abstract contains a production target for eighty pumps of type sixteen, then the enterprise is free to produce any varieties of type-sixteen pumps which it happens to find most advantageous. It cannot be criticized for this because the official requirement is simply eighty type-sixteen pumps. It is highly doubtful that decentralization of decision-making will be allowed to go this far. The pressures on the enterprise are too great to expect that it will not take advantage of this freedom in ways which the state will consider impermissible. Suppose, for example, that type-sixteen pumps come in a variety of sizes. Judging from past experience, managers may well find it expedient to concentrate on the production of one size, and produce very few of the other sizes. There would then be increased criticism of managers, who, "in the drive for value of output," take advantage of the state's liberal policy and produce easier products at the expense of those more vitally needed. To meet this problem it may once more be necessary to increase the degree of planning detail. Indeed, the persistent assortment problem was undoubtedly one of the causes of the increase in planning detail in the postwar years. The manager is now legally free to work out his own full detailed plan within the limits of the officially approved abstract. But there are indications that he will be bound to fulfill not only the broader targets in the official abstract, but also the detailed targets of the full plan. W e are told that a copy of the full plan "is deposited with the higher organization for control." 12 What, it might be asked, is the ministry to control if the manager is perfectly free to produce any combination of products within the limits of the broader targets? It seems likely that the details included in the full enterprise plan, if not officially binding, will in fact be employed in determining whether the manager has produced the proper assortment. It is also likely that the manager will be under informal pressure from the ministry to work out the details of his plan in a way which will enable the ministry to meet its own targets. In any case, the fact that the official plan abstract contains a considerable number of specific product targets means that the conditions fostering "violation of the planned assortment" still remain. Elimination of details has extended to the planning of materials allocation. As in production planning, there has been no considerable reduction in the range of commodities centrally allocated, but commodities are allocated in broader groupings. The central planning organ is also required to allocate commodities only to ministries, and not to the chief administrations and even enterprises, as it did in the past. 13 Now the ministries are authorized to distribute the allocated commodities among their own subdivisions. The new procedure makes the

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supply system somewhat more flexible and formally increases the authority of the ministry. In fact, however, the ministry enjoyed substantial authority in this sphere before. It was on the ministry's recommendation that the central planners used to distribute allocated commodities among the chief administrations and large enterprises. In summary, administrative improvements are the primary objective of the planning reform. "Neither the basic methodology of planning nor the underlying philosophy is greatly affected," is the conclusion of an American student. 14 The reform is better understood as part of the national campaign against excessive paper work than as an attempt to influence managerial behavior. Only incidentally does it impinge on the features of the economic system which shape the actions of managers. THE "PERMANENT CAMPAIGN"

A number of administrative changes have been made among the central planning organs, the arms of the USSR Council of Ministers. Instead of the single USSR State Planning Committee, which existed after the abortive amalgamation of economic agencies following Stalin's death, 15 there are now two major central planning organs. The State Economic Committee is responsible for the preparation of the annual plans, which are the operational plans guiding the economic life of the nation. The State Planning Committee is charged with drafting the five year plans and studying longer-range problems of economic development. The latter will have little direct effect on the operations of enterprises. The new State Economic Commission will bear about the same relationship to enterprises as the former central planning organs. 16 More interesting than the administrative reorganization of the planning agencies is the creation of two new committees of the USSR Council of Ministers. The committees were established in the middle of 1955 to cope with special problems the new regime has found particularly troublesome. The State Committee on New Technology is to "organize the introduction of advanced science, techniques and technology into the national economy." 17 The State Committee on Labor and Wages is to "intensify state control over the work of ministries and agencies, and improve their performance in the sphere of labor and wages." 18 The committees will thus have to come to grips with two deep-seated features of managerial behavior, the fear that new products and processes will increase the difficulty of meeting close plan targets, and the misuse of the piece-rate system to increase workers' pay envelopes by means of bonuses and supplements of various kinds. Little information is available on the methods the committees will use to achieve their objectives, but certain positive contributions can be

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foreseen. Organizational improvements, in the form of systematic planning of technical innovations and reformed wage schedules, will make it more difficult for managers to evade directives and to take advantage of the loopholes in complex wage systems. The glare of publicity and the multiplication of inspectors will exert increased pressure on managers to comply with the committees' orders. It is therefore to be expected that the committees' efforts will have some effect during the next few years. From the published discussions,19 however, it is clear that the approach is essentially the familiar "campaign" technique with a new departure in the establishment of high-level committees to give permanence to the campaign. The idea of a "permanent campaign" seems like a contradiction in terms, but it may produce some unexpectedly favorable results. If so, the future may witness the establishment of more such agencies; for example, a State Committee on Quality of Production, or a State Committee on Cost of Production. The past failure of campaigns to yield the desired results, however, has been due only partly to their impermanence. It has also been due to the fact that a campaign is essentially a way of exerting external pressure upon the enterprise. It does not attempt to change the basic features of the economic system which generate the practices under attack. In the case of the two new State Committees, there are no indications of an intention to root out the deep-seated causes of managerial resistance to innovation and violation of wage regulations. Judging from past experience managers will react to the new barriers by finding new ways of defending their interests. If forced to introduce more new products and methods, they may redouble their efforts to obtain reduced output targets. If certain loopholes in the wage system are plugged, chief accountants ("shrewd" is an adjective Russians like to apply to a good accountant) have in the past proven equal to the task of finding new ways out of difficult situations. Thus, the new committees may alter the details of enterprise operation but are not likely to change the principles governing managerial behavior. NEW ROLE OF THE STATE BANK

The stringent formal restriction on the manager's freedom to use his working capital conflicted with the state's objective of accelerating the introduction of modern technology. Legally, the manager may not spend more than 500 rubles, without special authorization, to purchase a new bit of equipment for improving a production process.20 This rigid regulation provides a convenient pretext for a manager who would rather not incur the risks involved in experimenting with new techniques. Now a new regulation is in force which deprives the manager

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of this pretext. The State Bank is authorized to grant a substantial loan to enterprises for the purpose of introducing a cost-saving innovation. The loan must be repaid within an agreed period of time out of the savings made. The loan is to be used for the financing of investment projects not included in the enterprise's capital investment plan. Information on the amounts and terms of the loan is sparse and contradictory. An article written in the middle of 1955 states that a maximum of one hundred thousand rubles may be authorized by a local branch of the State Bank, and five hundred thousand rubles by authorization of the central office of the bank. The loan may be granted if the lender is persuaded that the cost savings will be sufficient to repay it within one year. 21 An article published at the end of 1955, possibly referring to a later regulation, states that the maximum is a million rubles for most enterprises and two million rubles for large enterprises. The duration of the loan is two years in most cases, three in heavy industry. 22 The required period of recoupment of under three years means that only extremely efficient innovations could be financed under this program. It would seem that such innovations could easily be justified to the ministry and be financed under the regular capital investment plan. The prudent director may be expected to prefer working through the ministry, for the loan regulation contains the ominous note that the director himself bears responsibility for approving the cost-saving calculations and the estimated period of recoupment. 23 Financing through the plan, moreover, involves a free grant of funds, which is preferable to the burden of a loan. Criticism of the regulation has already begun to appear, citing as reasons for managers' coolness, the interest that must be paid and the difficult time-consuming process of obtaining the loan. 24 Despite these disadvantages, the new regulation broadens the financial maneuverability of management. A director who is motivated to innovate, and who can develop improvements which will repay their cost within three years, now has a source of funds not available to him previously. If the ministry, with a limited investment budget at its disposal, denies his request for a capital investment item, he can now turn to the bank for funds. In the spirit of the national campaign to innovate, and under pressure from the State Committee on New Technology, many managers will undoubtedly find it wise to show their zeal and borrow under the new regulations. For managers in difficult financial straits, these funds may provide a welcome relief when employed temporarily for purposes other than those for which they were ostensibly borrowed. The new loan program increases the role of the State Bank as a

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control agency over the internal affairs of enterprises. This is a role which the bank has in the past been reluctant to assume, as shown in Chapter XVI. In addition to the new regulation, the state has imposed another control function on the bank. A decree issued in August 1954 requires the bank to discriminate in its normal lending operations between the financially sound and the weak enterprises. 25 The bank must strengthen its control procedures by examining each enterprise's plan-fulfillment record, sales, profit, cost reduction, proper use of its own and its borrowed working capital, and its record of payment for goods received. Enterprises which pass the examination are to be granted more liberal borrowing terms. Enterprises which fail are to be handled in a new way. An enterprise found to be financially weak is to be informed of the bank's analysis of its defects, and to be required to take appropriate measures. The ministry is also to be informed so that it may assist the enterprise. If the enterprise continues to underfulfill its cost and profit targets and to lose working capital, the bank is to place it on a "special credit and accounting regime." It may then obtain credit only if the chief administration guarantees the loan. If the chief administration refuses to offer a guarantee, or is itself bankrupt, the bank must deny all credit to the enterprise. Then the enterprise, deprived of all help from the bank, must take action to help itself improve its work. If, after a few months on this "special regime," the enterprise improves its work, it may be restored to a normal credit position. But if it continues to work poorly after six months, the bank may declare it bankrupt, deny it any credit and even block its regular deposit account. It may also sell off the unfortunate enterprise's property (except its fixed capital) to other state enterprises and organizations. Finally, it may call in the Ministry of State Control. The contents of the decree have been presented in some detail to underscore its lack of realism. They reveal quite dramatically the essence of what has been referred to earlier as the dilemma of financial control. It is extremely difficult to imagine the bank putting a padlock, as it were, on a state enterprise and announcing that on Thursday next the bankrupt's property will be sold at auction. Certainly this would not be done if it interfered with the fulfillment of the ministry's production plan. Nor would it be done without the assent of the local Party organization, which would scarcely tolerate a threat to the fulfillment of its district plan. If the fault is really the ineptness of management, and the enterprise is potentially an economical operation, the managers will probably be dismissed long before the enterprise is completely bankrupt. There is

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little else one can do to punish honestly incapable people, short of bringing the law down upon them. It makes little sense to pretend that the state will tolerate the liquidation of a perfectly good enterprise, in order to punish its delinquent managers. On the other hand, if the enterprise is a net drain on resources and an uneconomic operation, it should have been shut down earlier. If it was poorly designed, or if its original sources of raw materials have vanished, there is little point in waiting until the bank declares it bankrupt before liquidating it. To liquidate an enterprise under these conditions, which are the only conditions under which one may realistically conceive of liquidation, is to admit that the trouble was beyond the control of management. The decree seems to assume that the manager falls into financial difficulties because he is lax, that he really knows better and can be forced to do better, and that the fear of the State Bank's "special regime" will make him see the light and mend his ways. Managers who fit this description will have had ample prodding to improve their work, if it is within their power, before the special regime is applied. Those who fail, and are subsequently placed on the special regime, are of three kinds. First, they may be incompetent and should be removed. Second, they may be faced with obstacles outside their control, such as unrealistic targets which should be reduced. Or third, they may be in charge of uneconomic enterprises which should be liquidated. The special regime will help in neither of the first two cases, and is a clumsy way of meeting the requirement of the third. THE SYSTEM OF SUPPLY

The broadest changes in this area have already been noted in the discussion of the elimination of detail. The possession of an allocation order continues to be the central focus of the enterprise's material procurement activities. Now it is no longer necessary to appeal to the State Economic Committee for a special allocation, for the ministry's powers have been somewhat broadened. But in the past, rarely did the enterprise have occasion to extend its manipulative activities to that high level. Most enterprises deal with their own chief administrations and occasionally with the ministry. The administrative reshuffling of functions at the top will have little direct effect on the operations of the enterprise. In the marketing of consumer goods, the wholesale trading organizations have been transferred from the producing ministries to the Ministry of Trade. The purpose is to enlist the efforts of the wholesalers in forcing producers to raise quality and to be more responsive to the demand pattern of the population. It was felt that the whole-

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salers, when responsible to the producing ministries, found it to their interest to cover up quality deterioration and assortment violations, presumably because of their involvement in the ministry's production problems. Now that they are part of the retail sales system, it is expected that their interest will be in forcing producers to turn out more marketable qualities and varieties of goods.26 The rationale is interesting for the important role it ascribes to selfinterest as the determinant of behavior. What it omits is the relative shortage of consumer goods and the monopolistic character of retail trade. The dissatisfied consumer must still buy the shoddy product today or find tomorrow that someone else has bought it. He can express his dissatisfaction not by taking his trade elsewhere but only by writing a blistering letter to the press. In the absence of a forceful consumer control over quality and variety, the wholesale trading organizations cannot be expected to exert a crucial influence over production-oriented ministries.27 Perhaps the most dramatic change in the supply system is the decree abrogating the 1941 law which made it a crime to resell or exchange commodities and equipment without authorization. The decree was signed in the Kremlin on May 13, 1955. Three days later an important conference on problems of management convened in Moscow, attended by a large number of the most important enterprise and administrative officials in the country. Since the decree must certainly have been welcomed by the managers, one would expect that it would have been announced at the conference with great fanfare. Curiously, the published reports of the conference give no indication that the participants were informed of the decree. The text of the decree appeared only in the next issue of the official gazette, on June 8.28 Very little public attention has been devoted to it since then. In view of the wide publicity attending the introduction of the 1941 law, the silent treatment of its abrogation is odd indeed. Perhaps the state was willing to forego the favorable propaganda value of the decree for fear that too much publicity might encourage managers to exceed the limits of the new liberality. The elimination of criminal sanctions for illegal exchange or resale of materials and equipment was followed by the decree of May 14, 1955, simplifying the lawful procedure for disposing of surpluses.29 Enterprises wishing to dishoard are now able to do so without having to overcome as many legal obstacles as formerly. The ease of resale, however, does not affect the motivations for hoarding, for the latter are the consequences of uncertainty in the system of inter-enterprise supply. Judging from the prewar literature, hoarding may indeed be encouraged by the greater ease with which surpluses may be sold or exchanged

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for more vitally needed commodities. Certainly the state will not tolerate an increase in reselling and exchange to the point of frustrating the priorities implied in- the centralized allocation system. It is possible that the new procedure marks another swing in one of the cycles of administrative reorganization that characterizes the Soviet economy. If the past is any guide, the new relaxation may lead to an increasing volume of reselling and exchange, to be followed after a time by a "campaign" against managerial "abuses" and by a re-tightening of controls, thus starting a swing in the opposite direction. The substitution of administrative for penal sanctions, however, may prove to be a truly significant step. This aspect of the reform is part of the last group of measures to be considered, those which alter the political atmosphere within which economic activity takes place. Unlike the administrative measures discussed so far, a change in the political environment can conceivably cut to the deepest roots of managerial behavior. The substitution of administrative for penal sanctions could, for example, lead to profound changes in the motivations of managers. It is in this area that the reforms of the new regime could potentially go beyond a new coat of paint and begin to move the walls of the house inside. THE P O L I T I C A L

ATMOSPHERE

One of the earliest acts of the new regime was the broad amnesty extended to large numbers of prisoners.* Among those amnestied were all persons serving prison terms for "offenses committed in an official capacity" and for "economic offenses." Trials in progress for such offenses were to be dropped, criminal records were to be expunged and electoral rights restored to people sentenced for these crimes. The decree further required that the laws be reviewed with an eye to the substitution of administrative and disciplinary measures for criminal prosecution for these offenses. It is easy to imagine the sense of relief managers must have felt on reading this decree. The "economic offenses" referred to presumably cover such actions as quality deterioration, exchange or resale of materials and equipment, hiring of workers who had left jobs without permission, falsification of reports, and abuse of authority or failure to exercise authority. Six months after the amnesty came another measure which has probably had an even greater impact on managers' lives. Officials in ministries and government agencies were required (or more properly, permitted) to give up the practice of working long into the early morning hours and coming to work after noon the next day. 30 The long-established system of night work was one of the most rankling * Izvestiia, March 28, 1953, p. 1.

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sources of dissatisfaction mentioned by the informants. Like many irritating features of Soviet life, a standard regime of night work was apparently the consequence of the personal whim of Stalin, perhaps his way of retaining an emotional tie to the conspiratorial years of the revolutionary past. Stalin and the Kremlin regularly worked late into the night and by the simple device of an occasional telephone call to a ministry or enterprise anywhere in the USSR, imposed on the whole corps of industrial and Party leaders the need to be present in case that phone call arrived. 31 A managerial official who quit work at 7:30 P.M. would b e accused of a "formalistic" attitude toward his work, complained a Party official in an article in Izvestiia, after the abolition of the practice. 32 The new order, requiring a strict nine-to-six day in ministries and government agencies in Moscow, made a reasonable family and social life possible for the first time for government and enterprise officials. The amnesty and the working hours measure undoubtedly contributed strongly to the sense of "thaw" in Soviet life. The effect on the more prosaic aspects of managerial behavior, however, does not appear to be as great. There are no indications that the amnesty decree and its promise of reduced criminal sanctions spurred managers into increasing unlawful or irregular activities. Perhaps this should not have been expected immediately, for the criminal laws remained in force and managers apparently were still being prosecuted under them. 33 The promise of substitution of administrative sanctions for penal ones has been redeemed thus far in regard to exchange and sale of equipment and supplies, and in regard to the laws on labor discipline." The penal sanctions against poor quality production, however, are apparently still in force. Suppose, however, that the promised reform is carried out to the full, and penal sanctions are abolished for all economic-type crimes (except, of course, for larceny, theft, and crimes for personal gain). The manager judged guilty of deliberate deterioration of quality or of unauthorized exchange of equipment would then be subject to no penalty worse than dismissal or a fine. At the worst, his managerial career would be ruined and perhaps his savings lost. Would the elimination of prison terms make a substantial difference in the conduct of managerial activities? The findings of the present study strongly suggest that it would not. Since the great purges of the thirties, neither the revolutionary terror nor the system of criminal penalties have played a crucial role in the organization of Soviet industry. During the campaigns following the introduction of new criminal laws, such as those on the quality of production, managers for a time lived under the shadow of a prison sentence as they witnessed a number of their ill-fated colleagues publicly convicted and 0

In May 1956 the government abrogated the prewar law which made workers legally liable for leaving their jobs or being absent without authorization. Vedomoiti

Verkhovnogo Soveta, no. 10 (May 8, 1956), art. 203, pp. 246-248.

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sent off to prison labor camps. But these campaigns were short lived, and under normal conditions the manager does not consider the criminal laws as an ever present danger. The attitude toward a prison sentence as communicated by the informants is that anyone occupying a responsible position in Soviet society inevitably has enough transgressions recorded in his police dossier to send him to prison for life. This information is brought to light only if "they" decide to prosecute him as an example to others. The fall of the axe is looked upon as the act of an impersonal fate normally striking only those who run into unusual and extreme difficulties or fall afoul of a powerful Party official or vindictive personal enemy. Those who cannot adopt this fatalistic attitude withdraw from the competition for a managerial career. Thus, in the normal course of the day-today operations of the enterprise, the fear of failure and not of prison is the primary negative stimulus to managerial behavior. It might be argued, therefore, that Soviet managerial behavior can be essentially understood without reference to the police aspects of the regime, and it has been so interpreted in the present study. At least in the postwar period, the inhumane features of Stalin's system, ranging from the barbarism of prison labor camps to the petty annoyance of night work, were a dismal overlay and not an integral element in managerial behavior. Managers are still, to be sure, salaried employees of a single-party state which retains the power to impose its political objectives on the economic system. But the new leaders are acute enough to perceive which are the real driving gears in the economic machinery and which are the anachronistic idling gears which interfere with rather than promote its efficiency. With the relaxation in the political atmosphere the overlay has been removed while the essential structure remains basically the same. The goals and ambitions of men can continue to be drawn into the service of the state without the bitter whip that Stalin considered necessary. Soviet managers may be happier men in the future, but unless the essential features of the economic milieu are changed, they must continue to run their business in the same way as before. THE SOURCES OF BASIC CHANGE

If the reforms of the new regime represent no basic change, are there any kinds of reforms at all which a similar analysis would admit to represent change? Lest the foregoing conclusions be attributed to a dog-in-themanger disposition, it behooves us to show that there are areas of managerial activity where reform could lead to basic change, and to indicate where some of these areas may be found. If the persistent practices of managers are to be changed, there must be first changes in the conditions which cause them. Consider the practices associated with the striving for a safety factor. As long as managerial

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performance is measured as the percentage fulfillment of a pre-established target, and as long as managers are able to influence the level of the target, it is to their interest to try to keep the target at a low level. This form of the safety factor could be eliminated only by (a) adopting a new method of measuring performance in which the target would not serve as the benchmark, or ( b ) establishing a system of planning in which managers would have no influence on the level of their targets. The basic criterion of performance, for example, might be simply value of output, rather than the ratio of achieved output to planned output. The premium would be proportional to value of output, the factor of proportion varying from enterprise to enterprise to achieve a reasonable degree of equity. Under this system managers would have no reason to conceal productive capacity in order to obtain a lower plan. If the factor of proportion between premiums and production remained constant over a long period of time, managers would have no reason to hold back on production but would be motivated to maximize the value of output. A reform of this kind would obviously not eliminate the problems of efficiency presently associated with the role of production as the main criterion of performance. But it would go far to root out the raison d'être of a safety factor in the production program. The same result could be achieved by depriving the manager of all influence over his plan targets. The "ratchet" principle of planning is an unsuccessful attempt to do precisely this. The requirement that a target in any period must in general be greater than the performance of the preceding period is designed to introduce an element of automaticity and objectivity into the planning process. But in fact managers do influence the process by refraining from overfulfilling targets by too large an amount. If the planning officials of enterprises were made direct employees of the State Economic Committee and their remuneration made entirely independent of enterprise performance, the influence of managers on their plan targets would be enormously reduced. Managers would still wish for a safety factor but would have no possible way of achieving it. Reforms of the kind suggested above would undoubtedly raise new problems for the state, only some of which can be anticipated. If the production target is not given a central place in measuring performance, the plan would inevitably lose its present status as the focus of managerial attention. If the production plan continued to be the basis of materials allocation, there might arise the opposite of a safety factor; managers might strive for plan targets considerably above their real productive capacity in order to justify demands for larger materials allocations. The removal of planning officials from the control of management would constitute a radical departure from the enshrined principle of "unified

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authority" (edinonachalie). It would, moreover, be difficult to design a realistic criterion of performance for the planners which would be completely independent of the enterprise's success. But if the planner's performance is judged by the enterprise's success, then the principle of "mutual involvement" will come into play. Like the Party secretary, the planner will find that his interests coincide at crucial points with those of management, and the safety factor may slip in again by the rear door. Pursuing this line of analysis, it would be possible to consider each of the established practices of management and indicate the points at which reforms might lead to basic changes in managerial behavior. Rather than continue this detailed and thankless inquiry, we might more profitably conclude with a broader question. Are there any determinants of managerial behavior so general in their influence that a reform in their mode of operation may be expected to cause great changes in all facets of managerial activity? Surveying the broad canvas of Soviet industrial activity, two closely related features stand out as dominating factors. They are the unrealistically high level of plan targets and the perpetual shortages of supplies. If the leaders of the new regime should change these features of the economic system, managerial behavior might be transformed almost beyond recognition. If plan targets were set at some objectively reasonable level,34 the urgent need for a safety factor would be greatly reduced, quality of production would suffer less, the planned assortment of output would be produced more readily, the basis of the practice of "storming" would be greatly weakened, falsification of reporting would be resorted to less often. If managers could feel assured that their supplies were always available in the required quantities and quality and at the proper time, the reason for padding materials estimates would vanish, hoarding would be unnecessary, the use of blat and of the services of the tolkach would no longer be critical for successful performance. If the wave of reform under the new regime should alter the two dominating features of the economic system indicated above, the conclusions of the present study would suggest the likelihood of a basic change in managerial behavior. Is reform likely to extend that far? The least that may be said is that recent Soviet writings appear to accept the general line of analysis presented above. Since the death of Stalin the tone of the economic literature shows a markedly increased frankness and writers seem more willing to undertake independent critical analysis. The following two quotations illustrate the awareness by Soviet observers that the basic practices of management have strong institutional roots and that the reasons for their persistence are to be found in the determinants of managerial behavior which have been described above:

Post-Stalin

Reforms

317

It is well known that frequently the size of plan targets depends on the ability to influence [ugovorit': to talk someone into something] officials in the chief administration or the ministry, and not to convince [ubedit'] them by means of well-supported figures . . . Premiums in enterprises are usually paid on the basis of fulfillment and overfulfillment of the production program, on condition that the cost target and several other indicators are fulfilled. This means that in order to receive a premium one must have as low a plan as possible, which is easier to overfulfill. As a consequence there sometimes develop very unhealthy tendencies such as the striving to justify reduced targets. In fact, this means the concealment of existing resources in order to secure an "easy life" and to receive various kinds of rewards, including premiums. 35 [The abrogation of the law making it illegal to exchange or resell commodities and equipment] undoubtedly will have positive results. But the new system of redistributing surplus supplies will be effective and will help bring more reserves into production for the benefit of the national economy only when the planning of enterprise supply will be more operational and flexible. Elimination of the practice by enterprises of piling up excess supplies of materials and equipment can be achieved only by a better organization of the supply system, and only when the enterprise will feel assured that in case of need it can obtain without delay the materials which it needs and which it happens now to have in surplus quantities. 36 There is also evidence that this increasingly frank criticism is having its effect in high places. The Central Committee of the Communist Party has officially condemned unrealistically high plans and, as if to dramatize the point, has sanctioned a target for industrial growth in 1957 which is the smallest such target in the thirty years of the Soviet plan period. 37 If this line of reform is extended in the future it may well have a marked effect on the character of Soviet industrial management.

SUMMARY AND

EVALUATION

XVIII

The problem to which this study is addressed grew out of a series of interviews with former Soviet managerial officials. The interviews were originally designed to fill the gaps in the published information on the day-to-day operation of Soviet enterprises. As the volume of testimony increased, however, a series of unanticipated questions began to emerge. For in discussing the typical decisions which managers made, the informants, independently of each other, described a number of managerial practices which did not merely supplement the official descriptions of how things are done, but in fact conflicted with them. If these practices were indeed typical of Soviet managerial behavior, they could not simply be explained as an extension of the official rules. They meant that managers follow an entirely different set of rules which have no officially recognized existence and which, moreover, sharply contradict the official rules. Subsequent research in the published sources sustained and amplified the testimony of the informants. The large body of information yielded by the source materials made it clear that the practices described in the interviews were not mere aberrations or idiosyncrasies, but were prominent features of managerial behavior. During the entire period with which this study deals, from the late prewar years to the present, these practices constantly reappear as objects of criticism in official speeches, journal articles, and newspaper accounts. They were not confined to any single sphere of managerial action but pervaded all spheres — production, procurement, planning, finance, and labor management. Nor were they observed in the actions of top managerial officials alone but at all levels at which managerial decisions were taken. While it was impossible to measure their quantitative importance with any accuracy, figures were often given in the sources to illustrate the seriousness with which they were viewed by the state. The persistence of the practices over so long a period in the face of sharp government and Party criticism is cogent evidence of the deepness of their roots in the character of Soviet management. The present study has sought to explain the reason for the persistence of these practices in terms of the goals which Soviet managers

Summary and Evaluation

319

strive to attain and the conditions of the economic milieu within which enterprises operate. The typical practices of managers fall into three groups. The first group consists of ways of maintaining various kinds of reserves on which the enterprise can depend in case of need. In the case of the production plan, the managers can manipulate the planning process so as to obtain an output target which is smaller than the amount which can actually be produced. The capacity to produce output in excess of the plan target is the enterprise's reserve for emergencies. Similarly, in materials management the practice is to order larger quantities than are needed and to hoard excessive reserves of supplies. All the actions included in this group are taken in accordance with a general principle of managerial behavior called the striving for a "safety factor." The second group consists of ways of simulating the fulfillment of plan targets which in fact are not fulfilled. The production of a range of output in quantities which do not correspond to the quantities which were supposed to be produced is a device for simulating fulfillment of the overall value of output target. Economizing on quality is another device for achieving the same end. In financial operations, overplan expenditures or misappropriation of funds are concealed in reports in a way which creates the semblance of fulfillment of the financial-plan targets. These practices accord with a principle of action called "simulation." The principle governing the practices in the third group is the use of influence to further the interests of the individual enterprise. The widely quoted term blat refers to such actions as the use of personal influence to manipulate ministry officials into giving the enterprise an easy production target, or to persuade a bank official to overlook an unplanned use of enterprise funds. The role of manipulation is revealed in the rise of the penumbral occupation of the tolkach, the specialist in obtaining all manner of scarce commodities through a combination of influence and gifts. Point by point these practices conflict with the laws, regulations, and Party pronouncements on how the manager is required to conduct his work. He is expected to propose maximally high production targets, to order supplies and maintain inventories at the minimum levels consistent with his plan. He is supposed to produce his various products in quantities which conform to the plan and to the system of priorities, to maintain high quality and to be thoroughly truthful in his reporting. And all decisions are supposed to be made in accordance with the wishes of the state, rather than with the influence of individuals. The rules which govern actual managerial behavior are clearly not the rules established by the state. Why then does the manager engage in practices which violate the official rules? Part of the answer is to be found in the circumstances

320

Factory and Manager in the USSR

within which he must operate. The manager does not particularly wish to incur the risks involved in applying for a low production target or in reducing quality. The sentiment in the interviews and the published sources is rather that he feels compelled to do so, that the pressures exerted by the economic environment leave him no other way in which to achieve his goals. Through the fabric of managerial behavior run two threads which provide the key to the understanding of the economic milieu as perceived by the manager. The first is the unreasonably high levels at which plan targets are set. As the planning system functions in practice, the targets which are the criteria of managerial performance are such that they can be fulfilled only with a maximum of effort, and then only if no unexpected difficulties arise. But the very fact that the targets are so high increases the frequency with which difficulties arise, for such reasons as the breakdown of equipment because of overloading or postponed maintenance, or the failure of materials to arrive because the supplier has underfulfilled his plan. Perhaps the best indication of the high level of targets is the fact that 30 to 40 per cent of all enterprises fail to fulfill their annual production plans; we may reasonably assume that a substantial percentage of the remaining enterprises fulfill their plans by a precariously close margin. The prevailing high level of production targets is the fundamental fact of life for the Soviet manager. If high targets were the only obstacle confronting the manager, he might find it difficult but not impossible to follow the official rules of operation. Judging from the sense of professional pride exhibited by the informants, many Soviet managers would derive considerable satisfaction from such targets as a challenge to their organizational ability. Indeed, the prevailing level of targets would not seem quite so high if the manager could count on receiving the necessary materials in the proper quantities and qualities and at the proper time. What generates the sense of frustration are the perpetual shortages, the delays in deliveries, the red tape of the bureaucracy. The complete undependability of his sources of supply constitutes the second fact of life for the manager. These two dominating features of the economic setting explain why the manager feels compelled to engage in irregular practices. The concealment of productive capacity in order to obtain a lower plan is his defense against the pressure for higher and higher targets. With plans typically fulfilled by a slim margin, if at all, it is such practices as violation of the assortment requirements and shaving on quality that make the difference between success and failure. Over-ordering and hoarding vitally needed materials are necessary precautions against the undependability of suppliers. The manager with good blat in the proper quarters and the services of a competent tolkach is a step ahead of his colleague in the competition for scarce resources. Looked at in this light, there is a

Summary and Evaluation

321

compelling logic in the principles governing managerial behavior. They are, indeed, principles of survival in the sense that the manager who is unwilling or unable to live by them will sooner or later be overwhelmed by rising targets or stymied by emptied stockrooms. Those who survive as successful managers are those who face up realistically to the things which must be done under the prevailing conditions of the economic system. The argument thus far is that managers engage in irregular practices because under the normal conditions of enterprise operation those practices are necessary for the attainment of their goals. To complete the explanation, then, it is necessary to identify these goals. To put the question broadly at first, what are the goals which motivate certain men to become managers, and having achieved that end, to continue in their hectic and harassing occupation? A wide variety of personal goals may be satisfied by the pursuit of a managerial career; prestige, a high standard of living, power and authority, patriotism, the urge to create and organize. Little need be said about these goals except to remark that their power to stimulate men to great efforts has been adequately harnessed to the needs of the economic system. The state has successfully met the challenge of finding a way of recruiting a competent corps of men and women into managerial positions and motivating them to work hard at their jobs. Soviet managers spend long hours in their enterprises, they worry about their production and procurement problems, and they take grave personal risks in pursuit of their goals. The goals which explain such broad processes as the recruitment of the corps of managers, however, are not necessarily relevant to the narrower problem of explaining why certain concrete actions are taken in the course of the day-to-day operations of enterprises. A goal which explains why a manager is motivated to produce may not be useful for explaining why he decides to produce A rather than B. The goal, in other words, must discriminate among the real alternatives. It is obvious that such broad goals as prestige or power, significant as they are in the large complex of managerial motivations, do not explain the motivations for such detailed and concrete actions as the irregular practices of management. The interviews and published sources provide a wide variety of situations in which a managerial official is depicted as having made a decision, and the writer or informant states his views on the reasons that decision was taken. In such situations, which are precisely the circumstances in which the immediate goals of action may be expected to stand out, there is one goal which is referred to more often than any other as the explanation of why the action was taken. The goal is the premium, the monetary bonus earned for the performance of a specific action, primarily for

322

Factory and Manager in the USSR

production-plan fulfillment. "If he did A he would not earn a premium, but if he did B he would receive a premium; therefore he did B," is the typical form these statements take. The premium is the immediate goal of action in these instances. The potency of the premium as a positive goal of managers is supported by other considerations. Premiums constitute a substantial proportion of total managerial income, and a proportion which has been growing over the years. The standard of living of the manager may therefore be appreciably raised by careful attention to the courses of action which provide the greater premiums. It should occasion no surprise that material welfare is a powerful motivation in the modern industrial society of the USSR, particularly in view of the relatively low standard of living. Moreover, the official ideology enthusiastically endorses "material self-interest" as a motivation worthy of a socialist society, side by side, of course, with socialist patriotism. The salary, to be sure, contributes more to the manager's total income than the premium. But the salary remains the same from month to month and cannot be changed in the short run, whereas the premium varies in size each month in direct proportion to the concrete decisions made. Thus, while the salary is a measure of the importance of the manager's enterprise, the size of the premium is a measure of the skill with which he is operating his enterprise. Premiums have therefore taken on a symbolic significance, and the manager who earns large premiums is thought for this very reason to be a competent executive. Finally, there are many indications that premiums are recognized to be a potent motivator of managerial action. We often find, for example, that Soviet economists or officials, charged with finding a remedy for a particular problem, recommend a special premium as an effective way of inducing managers to devote attention to that problem. For the purpose of explaining managerial behavior, then, the premium has two essential features; as a matter of empirical fact it is a highly valued goal of managers which lies at the basis of the typical practices of managers; and as an analytical device it provides a concept around which to organize a theoretical system of explanation of a large segment of managerial activity. The theoretical statement may be summarized as follows: given the specific conditions of the economic milieu, the observed practices of managers are the logical corollaries of the goal they strive to attain. The explanation of a concrete action would take the following form: given high targets and shortages of supplies, striving for a safety factor is a logical way in which to ensure the earning of a premium. Looked at in this framework, the typical practices of managers are not a collection of accidental phenomena but are precisely the actions a manager would be expected to take in striving to earn his premiums under the prevailing conditions of enterprise operation.

Summary and Evaluation

323

The practices of management take place in an economic system inlaid with a variety of state enforcement or "control" agencies. Systematic violation of the official rules implies that the controls are less than fully effective. The reasons are to be found, in part, in the working relationship between the enterprise and the various control agencies. One group of control agencies, typified by the Ministry of State Control, stands apart from the enterprise and has no dealings with it other than in its policing capacity. In the case of this group, the reason for the ineffectiveness of control seems to be largely a technical one. Despite the abundant resources at its disposal, the Ministry of State Control is simply not large enough, nor are its inspectors skilled enough, to cope with a situation in which violations are the normal practice of the community of managers and in which concealment of violations has become a highly developed art. With its limited resources, the Ministry understandably concentrates on special problems, an approach which is rather self-defeating, for it warns managers about where caution must be exercised. The Ministry also looks for special signals as a guide to its investigations. It finds such signals in evidence of increasing difficulties of a serious nature, such as repeated large underfulfillment of plans. For the enterprise, therefore, the best way to avoid attracting the Ministry's searching attention is to report regular plan fulfillment. Awareness of this formula reinforces the manager's reliance on the tested practices which have proven successful in the past. The sensitivity of the control agencies to accumulating failure creates in Soviet economic life an "avalanche effect," which helps successful enterprises continue to be successful but which accelerates the plunge into failure of the enterprise which has begun to slip. The very state of incipient failure attracts the attention of the control organs, thus making it more difficult to take the actions which are vital for success, whereas the successful enterprise can continue in these practices with impunity. The police organs of control are fully motivated to take their functions seriously, are feared by managers, and to a certain extent act as a deterrent to their irregular practices. But the manager who means to remain a manager and succeeds in doing so must take the risks involved in following the real rules of managerial behavior; if he does not he will soon be eliminated from the ranks of management. Only if a state control agent were assigned to every enterprise would there be a radical change in the character of Soviet management; and then only as long as these control officials maintained their present attitude toward their function. However, a control official assigned permanently to an enterprise might well adopt a different attitude toward his enterprise, judging from the experience of the second group of control agents, to which we now turn. Unlike the police agencies which stand apart from the enterprise, the second group consists of a wide variety of agencies and persons who deal

324

Factory and Manager in the USSR

directly with the enterprise and who have been assigned control functions by the state. Some, like the chief accountant, are direct employees of the enterprise. Others, like the enterprise's own ministry or the local Party organization, are outside of the enterprise but bear responsibility for its performance. All of these persons and agencies have varying degrees of intimacy with the operations of the enterprise and are therefore in a better position than the Ministry of State Control to detect and prevent the irregular practices of management. If these persons and agencies exercised their control functions to the best of their ability, it would be quite impossible for the real rules of managerial behavior to prevail. The explanation of the vitiation of control in this case is that the control officials realize that their own success is dependent in varying degrees upon the successful performance of the very enterprises they are required to control. The income and the career of a chief accountant are best served by the regular plan fulfillment of the enterprise. The Party secretary who month after month reports plan fulfillment to the local Party committee is considered to be a reliable and competent official by his own superiors. The Party committee itself recognizes that the principal measure of its own work in the eyes of the senior Party organs is the extent to which the enterprises within its jurisdiction have met their assigned tasks. And the ultimate test of the performance of the ministry and chief administration officials is the fulfillment of the ministry production plan, which is the sum of the achievements of each of their enterprises. Fully aware that only by engaging in irregular practices can the manager run a successful enterprise, the control officials are compelled to abdicate their control functions in some measure. Their attitude is revealed in the theme of 'looking the other way" which pervades the interviews and appears in some of the published sources. Moreover, they often engage in these very practices themselves; the local Party committee may resist attempts by higher organs to deprive enterprises within its jurisdiction of labor or other resources which are or may be necessary for plan fulfillment, and the ministry often strives to manipulate the planning process in such a way as to obtain a lower plan. Furthermore, individual control officials who, for whatever their private reasons, do strive to prevent managers from engaging in irregular practices, may find themselves under pressure not only from management but from their own superiors. The ministry does not take kindly to the sanctimonious chief accountant who so constricts the director that the enterprise begins to underfulfill plans. Awareness of common interest in plan fulfillment often generates within the enterprise a "family relationship" in which Party secretary, chief accountant, and other control officials facilitate or overlook the transgressions of an enterprising and successful director and share in the

Summary and Evaluation

325

rewards and prestige that come with plan fulfillment. It is the fact that the control officials perceive their own fates as closely interwoven with the success of the enterprise that explains the endurance of the irregular practices of management. In evaluating Soviet managerial behavior, the elements of inefficiency are readily apparent and may be summarized briefly. Even under ideal conditions the planning of an entire economy would probably involve a measure of inaccuracy because of statistical errors and unpredictable factors. In the Soviet economy these inaccuracies are magnified by the practices of management. The planners never know how greatly production targets are understated through concealment of capacity or simulation of reported plan fulfillment. To the extent that the safety factor fails to counteract the drive for expanded production emanating from the top, production plans in other cases are unrealistically high. Similar forces are at work in the planning of materials supply. Certain enterprises are successful in padding their statements of requirements and hoarding scarce labor and resources while others are consigned to an impossibly meager diet as a result of the pressure from above for a continual reduction of cost and of materials utilization. If we think of a perfect planning system, in a practical sense, as one in which both state and manager strive for an objectively realistic set of targets, then it is clear that a system in which the one systematically overshoots and the other undershoots the mark must lead to wide inaccuracies. Errors in planning have a ramifying effect because underfulfillment due to poor planning spreads in chain fashion to enterprises in which plans are realistically set. If enterprise A underfulfills its plan because it is simply too high, its customer, enterprise B, which otherwise may have fulfilled its plan, may fail to do so because A can not deliver the materials on time. The inefficiency due to inaccurate planning thus extends beyond the enterprises directly affected. To the prevailing high level of targets must also be attributed such persistent sources of inefficiency as "storming" and managerial resistance to introducing new products and new production methods. Assuming that the plans of enterprises more or less reflect the best distribution of output from the state's point of view, then the principle of simulation leads to an inefficient allocation of resources, that is, to a poorer distribution of output. Some commodities are produced in quantities exceeding the planned demand for them, and only the prevailing sellers' market accounts for their eventual disposal. Except in industries of crucial importance to the state, there are few forces to offset the tendency to reduce quality when plan fulfillment hangs in the balance. Similarly the hoarding of materials and labor removes from the produc-

326

Factory and Manager in the USSR

tion stream resources which otherwise would contribute to increased output. The negative effect of blat and of the work of the tolkach is to divert into certain products resources which the state intended to be used for other purposes. These elements of inefficiency are so striking that they may create the impression that Soviet industry is grossly ineffectual and scarcely to be taken seriously. Such an impression would fly in the face of all we know about Soviet industrial performance. The kinds of inefficiency peculiar to an unfamiliar economic system often seem disproportionately serious because of a faulty perspective. In fact, any living economic system, and particularly a rapidly growing one, is a very imperfect, clumsy, and sprawling affair. Joseph Schumpeter used to caution that a real economic system is to be likened not to a fine watch mechanism but rather to James Watt's first steam engine, whose piston wobbled loosely in the cylinder and which hammered and pounded and hissed large quantities of wasted steam into the air; yet it produced power. Similarly, the elements of inefficiency in Soviet managerial behavior are not incompatible with a vigorous economy. To place them in a proper perspective, it is important to consider the positive sides of the informal practices of management and the bounds within which they operate. In certain ways the actions of managers serve as counterweights to forces which, if unchecked, would result in even greater sources of inefficiency. The safety factor, for example, helps compensate for the constant bias in the planning system toward unrealistically high targets. If a way were found to eliminate the safety factor entirely, it is likely that enterprises would underfulfill plans more often than they now do. In view of the ramifying effect of underfulfillment, the benefits of the safety factor are multiplied. Because of the overriding importance of production-plan fulfillment, the enterprise which must strain to the maximum to meet its plan will devote little attention to such secondary criteria of performance as cost reduction, profit earning, or quality of production. On the contrary, if necessary to meet the production plan, costs will be deliberately exceeded, profit scorned, and quality reduced. The possession of a safety factor makes it possible for the enterprise to devote more attention to these secondary criteria, with the consequence of more efficient operation. Finally, the flexibility of the economy in reacting quickly in emergencies is enhanced by the fact that enterprises typically possess reserves of capacity and supplies; for in an emergency there are ways of bringing these reserves into production. In the case of simulation, the disadvantages to the state are more apparent, but here too there are certain compensating advantages. A misappropriation of funds, such as the purchase of a vitally needed ma-

Summary and Evaluation

327

terial with money earmarked for wages, may keep an enterprise operating which otherwise would have fallen behind. If no managers were willing to incur the risks involved in such actions, idleness of resources would be more extensive. While quality reduction of producers goods is normally detrimental to the interests of the state, in the case of consumers goods there is another consideration of which the economy-minded state must not be unaware. Lower-quality consumers goods (and housing) often means that a given quantity of output has been produced with a smaller expenditure of labor and materials than would have been necessary had quality been up to standard. The tendency to concentrate on the production of commodities which are more "advantageous" to the enterprise may also have certain beneficial effects. This may be the case when managers refuse to carry out frequent and costly resettings of tools demanded by a planner in the ministry. Moreover, since all enterprises in an industry do not have identical cost structures, the product considered more advantageous by one may be less advantageous to another. To the extent that this is true, the overplan production of a commodity in one enterprise is offset by the underplan production in another. With the use of personal influence, as in blot, the contribution to the smoother working of the system is more marked. A realistic evaluation of managerial behavior must start not from an assumption of perfect planning but from an awareness that the planning of an entire national economy inevitably involves a great deal of inaccuracy, unpredictability, and plain stupidity. Given a less than perfect system, the function performed by the tolkach provides the economy with a useful tool for cutting through the red tape which inevitably ties up the flow of resources into some of the channels in which they are needed. The tolkach is an instance of the emergence of an informal system caused by the inability of the larger formal system to take account of the detailed and immediate needs of individual enterprises. Blot is the grease in the gears of the economic system which serves to keep the mechanism running more smoothly and quietly. For a proper perspective on the practices of managers, account must finally be taken of the limits within which they are confined. Why, it may be asked, if the safety factor contributes to successful performance, does the manager not strive to have his plan reduced to an extremely low level? If certain products are more advantageous than others, why does he not produce only these products to the total exclusion of the less advantageous planned products? What, in other words, are the "stabilizers" in the system of industrial management, the counteracting forces which hold the practices of management within reasonable bounds? The bounds are established, in the first place, by the system of planning. Each new set of plans is not drawn up ab ovo but takes as its point

328

Factory and Manager in the USSR

of departure the actual production results of the preceding period. This procedure immediately establishes a benchmark from which the state can gauge production possibilities for the next period. Rarely can a ministry persuade the State Economic Committee to give it a smaller production plan than its actual production in the preceding period. The bargaining usually centers about the extent to which the new plan is to be increased. Hence, if the draft plans of enterprises contain so large a safety factor that the ministry's consolidated draft plan is smaller than the last period's production, the drafts would not receive the official approval of the state. Similar considerations apply to the planning of procurement, finance, labor productivity, and other items. In fulfilling the current plan the manager shows his hand, as it were, and thus limits his own freedom of operation in the drafting of the next period's plan. The practices are limited, in the second place, by the existence of the agencies of control. Those which have a stake in the success of the enterprise are willing to "look the other way" only as long as the transgressions of managers are within what are considered to be reasonable limits. Should these practices go too far, the attention of the disinterested police agencies such as the Ministry of State Control may be attracted and all parties involved may suffer. The main function of the latter control agencies, it would seem, is not primarily to stamp out these practices wherever they take place, but to establish the extreme bounds beyond which they cannot systematically occur. For most enterprises, however, these bounds are well beyond the limits normally found necessary. It is usually the indiscreet manager or the manager already plummeting into the avalanche of failure who attracts the attention of the control agencies. For the typical enterprise it is the marginal quantities which are of crucial importance. The safety factor is important not throughout the whole range of output but only with respect to the last few percentages of plan fulfillment. The procurement of a vital material through blat may be of critical importance to the success of the enterprise, but may nevertheless involve a quantitatively small magnitude. Deviation from the planned assortment of products commonly involves only marginal quantities; most of the nation's output is produced according to plan. It is on the margin of production that the manager makes the crucial decisions which spell success or failure. The reasons that the state has tolerated the continued existence of a set of practices which conflict with the official rules can only be guessed at. That there has been a large measure of toleration is evident. Not all irregular practices have been declared criminal offenses, but only those singled out as extremely serious to the state's interests. Moreover those actions which have been made criminal offenses, such as quality deterio-

Summary and. Evaluation

329

ration, have not been vigorously prosecuted except during special "campaigns." For non-criminal offenses such as the safety factor, even the sanction of dismissal has not been employed as fully as it might be. There may be a practical reason for all this. If every official, from ministers down to managers, who has been publicly exposed for having engaged or colluded in improper activities, were dismissed or prosecuted, the economy would be stripped of a sizable proportion of its most experienced personnel. Perhaps the state's toleration reflects its appreciation of the compensating advantages of many of the practices. The state may also be aware of the forces which keep managerial behavior within acceptable bounds. By exhortation, by striving to improve the system of planning and control, by occasional campaigns against abuses which have begun to approach the admissible limits, the state has sought to cope with the informal practices of management. But there has been no major attempt to change the basic features of the economic milieu that have generated them. One of the primary objectives of the Soviet state has been the maintenance of a high rate of industrial growth. The achievement of this objective has required that people be pushed beyond the limits to which they would voluntarily go if left free to choose their own way. It required incessant pressure from above, pressure to keep the standard of living down to a level which would permit a high rate of investment, pressure upon managers to achieve higher and higher rates of production, and pressure upon resources to make them yield a maximum product. The pressures which have generated the high rate of industrial growth have at the same time generated the evasive practices of management. The elements of inefficiency in managerial behavior are the price the state has been willing to pay for the achievement of its objective. In 1957 the Soviet leaders announced a sharply reduced target rate of growth of industrial production, the lowest planned rate of growth in the thirty-odd years of the plan period. Undoubtedly this decision reflects serious political and economic difficulties, in both domestic and foreign policy. The consequence of the reduced target may well be a relaxation in the pressure under which industrial managers operate. The Party has declared that henceforth plans must be set at levels which are realistic in terms of the resources available for fulfilling them. One cannot foretell how enthusiastically this policy will be implemented or how long it will continue, but it is clear that future developments in this sphere must be closely observed. For if the interpretation presented in this study is valid, the new policy may lead to significant changes in the character of Soviet industrial management.

APPENDIX.

LIST O F

INFORMANTS

(The prewar positions are given first. Wartime and postwar positions are given in parentheses.) No. 16

(Chief electrician in machine-building plant. Reparations and dismantling in occupied area.)

25

(Design engineer in electric-machinery plant. Engineer in Sovietoccupied territory.) Chief engineer of small rubber-goods plant. Norm-setter in a shop in a large machine-building plant. Industrial journalist. Design bureau of a construction trust. Construction superintendent. Chief of weaving department of a textile plant. Chief engineer of local industrial trust. Dean of Institute of Technology, lecturer in industrial management. Editor of technological journal. Senior economist in technological construction-planning institute. Ministry inspector of iron and steel plants.

26 46 64 65 70 90

99

Job boss (prorab) on construction project.

105 114

Naval intelligence officer in shipyards. Accountant in small cooperative furniture factory. (Accountant for chief administration of local industry commissariat.)

149 164

General lawyer. Inspector in district financial department. Planner in state and cooperative retail trade network.

185

Scientific research worker in economic institutes. Chief of planning department of research institute. Chief production engineer in machine building plants. Construction superintendent {nachaYnik uchastka) on large iron and steel plant. Chief of technical department of construction trust. President of a district planning commission. Foreman in munitions plant. Construction superintendent.

190 202 220 251

332

Factory and Manager in the

USSR

311

Chief accountant in small sculpture factory. Accountant for artists' cooperative, and for municipal industrial department.

316

Chief of planning department of aircraft repair plant. Chief of planning department of electric welding plant.

320

Scientific research worker on construction materials.

384

Chief engineer and chief of planning department in textile factories. Group chief in textile commissariat.

388

Senior engineer and deputy chief of planning department in large machine-building plant. Chief of complaints section of marketing department.

396

Director of construction trust. Deputy director of military plant. (Chief of financial department of republican commissariat of local industry. Deputy department chief in all-union ministry.)

400

Chief engineer of various large machine-building and military plants.

403

Chief mechanical engineer of mining trust. Chief design engineer in industrial research institute.

405

Economic statistician in territorial planning department.

427

Senior economist in Commissariats of Finance and Foreign Trade.

450

Chief of financial department of construction trust.

480

Engineer in geological trust. Scientific research worker in geological research institute.

481

Chief of purchasing department of a lumber-processing plant.

485

Scientific research worker in agricultural-machine testing institute.

516

Chief of regional office of Commissariat of Procurement.

517

Deputy chief electrician of textile plant.

524

Chief engineer of small metal products plant. Shop chief of large armaments plant. (Senior design engineer, and chief of department of quality control in large armaments plant. Director of machinebuilding plant. Reparations work in occupied area.)

532

Economist planner in resort trust.

609

Chief of norms and estimates bureau of a chief administration. Technical director of an electrical equipment plant.

610

Professor of commercial law and industrial management.

611

Construction engineer. Inspector of construction projects.

615

Construction engineer. Inspector of construction projects.

637

Engineer. Tass correspondent.

Appendix

333

CLASSIFICATION OF INFORMANTS BY POSITION A N D INDUSTRY

Position

Industry Heavy

Chief Director Engineer No. 396

Department Chief

Nos Nos 26, 400, 16, 25, 524, 609 190, 316, 388, 403, 524, 609 s

Junior Management Nos 46, 220

No. 3S4

Nos 70, 384, 481, 517

Light (local and co-operative)

No 70

No 114 Nos 311, 396«

No 396

Government planning and financial organs Trade, law, procurement, other Total a

No 516

3

6

No 90

a

Nos 105, 403, 480, 485

Total 20

5

Light (All-Union)

Construction

Inspector

Technical Research, Plannmg, Other

4

Nos Nos Nos. 65, 99, 611, 615 611, 615 202, 251, 450

Nos 65, 320

No 220

No. 405

No 185

4

Nos 164, 427«

Nos 64, 149, 610, 637

8

No 532

22

7

11

53 b

No. 164

4

12

The informant worked in a ministry or chief administration. Forty-one informants were used for this study. The total of fifty-three shown in this table is due to the fact that some of the informants were interviewed on more than one position which they held, and both positions are shown above. b

BIBLIOGRAPHY, NOTES,

INDEX

BIBLIOGRAPHY

OF S O U R C E S

CITED

This book is based on a doctoral dissertation entitled "The Soviet Industrial Enterprise," 1954, on deposit at Widener Library, Harvard University. Additional documentation may be found in that work. Sources in English A. Arakelian, Industrial Management in the USSR. Translated by Ellsworth L. Raymond. Washington: Public Affairs Press, 1950. Raymond A. Bauer, Alex Inkeles, and Clyde Kluckhohn, How the Soviet System Works: Cultural, Psychological, and Social Themes. Cambridge, Mass.: Harvard University Press, 1956. Alexander Baykov, The Development of the Soviet Economic System. New York: The Macmillan Co., 1947. Reinhard Bendix and Seymour Martin Lipset, Class, Status and Power. Glencoe: The Free Press, 1953. Abram Bergson, "A Problem in Soviet Statistics," Review of Economic Statistics, 29:234-242 (November 1947). Abram Bergson (editor), Soviet Economic Growth. Evanston: Row, Peterson and Co., 1953. Joseph S. Berliner, "The Informal Organization of the Soviet Firm," Quarterly Journal of Economics, 66:342-365 (August 1952). Joseph S. Berliner, "A Problem in Soviet Business Administration," Administrative Science Quarterly, 1:86-101 (June 1956). Harold J. Berman, Justice in Russia. Cambridge, Mass.: Harvard University Press, 1950. Gregory Bienstock, Solomon M. Schwarz, and Aaron Yugow, Management in Russian Industry and Agriculture. New York: Oxford University Press, 1944. Edward Crankshaw, "Russia's Power: Not Ideas But Force," New York Times Magazine, June 3, 1951. David J. Dalün, The New Soviet Empire. New Haven: Yale University Press, 1951. Ilya Ehrenburg, The Thaw. Translated by Manya Harari. London: The Harwill Press, 1955. Merle Fainsod, How Russia Is Ruled. Cambridge, Mass.: Harvard University Press, 1953. Alexander Gerschenkron, "A Neglected Source of Economic Information on Soviet Russia," American Slavic and East European Review, 9:1-19 (February 1950). Jerzy Gliksman, Tell the West. New York: The Gresham Press, 1948.

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345

NOTES

Chapter I. Introduction 1. The 1941 National Economic Plan was originally a secret publication of the Soviet government for official use. Its existence was not known in the West for some time. During the last war a copy of it was captured by the Germans, later captured from them by the western allies, and since then republished for general use by the American Council of Learned Societies. It contains an abundance of statistical information which has been a great boon to research on the Soviet economy. Gosudarstvennyi plan razvitiia narodnogo khoziaistva SSSR na 1941 god (State Plan of Development of the National Economy of the USSR for 1941), American Council of Learned Societies Reprints: Russian Series no. 30. 2. The pioneer work is that of Gregory Bienstock, Solomon M. Schwarz, and Aaron Yugow, Management in Russian Industry and Agriculture (New York, 1944). A stimulating later contribution was the article of Alexander Gerschenkron, "A Neglected Source of Economic Information on Soviet Russia," American Slavic and East European Review, 9:1-19 (February 1950). The latest and most thorough treatment of industrial management is David Granick, Management of the Industrial Firm in the USSR (New York, 1954). 3. For a description of the general interview project of which this study of the industrial enterprise was one part, see Raymond A. Bauer, Alex Inkeles, and Clyde Kluckhohn, How the Soviet System Works: Cultural, Psychological, and Social Themes (Cambridge, Mass., 1956). The study was supported by U.S. Air Force Contract (AF No. 33 (038)-12909). 4. An early version of this study appeared as an article entitled "The Informal Organization of the Soviet Firm," Quarterly Journal of Economics, 66:342-365 (August 1952). 5. Bienstock, Schwarz, and Yugow, p. 120. 6. Izvestiia, February 16, 1941, and Pravda, October 6, 1952. 7. Pravda, July 17, 1955. Chapter II. The Economic Milieu 1. For a more thorough and documented description of the organization of the Soviet economic system, see Granick, or Harry Schwartz, Russia's Soviet Economy (2nd ed., New York, 1954). 2. This description applies primarily to manufacturing-type firms, but the general forms of organization apply roughly to other types of firm too, such as mining, transportation, and trade. 3. A very small proportion of the resources of Soviet industry is owned not by the state but by producers' cooperatives. For a description of producers' cooperatives by a Soviet economist, see A. Arakelian, Industrial Management in the USSR, translated by Ellsworth L. Raymond (Washington, 1950), pp. 111-115. 4. The county executive committee is the executive body of the county government, the county council. Similarly the district executive com-

348

5.

6.

7. 8.

9. 10. 11.

Notes to Chapter II mittee is the executive body of the district council. The county is the administrative subdivision of a republic, and the district is the administrative subdivision of the county. Since 1954, a general move toward somewhat greater decentralization has resulted in the transfer into this category of thousands of enterprises which had formerly been under the jurisdiction of the central government. See Chapter XVII. For an excellent description of enterprise planning see D. A. Tobias, "Tekhniko-ekonomicheskoe plamrovanie proizvodstva" (Technical-Economic Planning of Production) in Mashinostroenie-entsiklopedicheskii spravochnik (An Encyclopedic Handbook of Machinery Manufacturing), (Mashgiz; vol. 15, 1951), pp. 53-90. More recent descriptions of the problems and practices of enterprise planning indicate that no substantial change has occurred. See D. Sankin, "Tekhpromfinplan predpriiatiia — orudie mobilizatsii vnutriproizvodstvennykh rezervov" (The Enterprise Plan — A Weapon for Mobilizing Production Reserves) in Planovoe khoziaistvo, no. 4, 1955, pp. 76-87. All of the union ministries and most of their chief administrations maintain home offices in Moscow. Since late 1954 the chief administration officially approves only the major indices of the plan, such as value of output, physical quantities of production, average cost of production, total wages, and so forth. The director himself officially approves the detailed plan, a copy of which is then deposited with the chief administration for control purposes. See A. G. Zverev, "Uluchshat' i sovershenstvovat' rabotu gosudarstvennogo apparata" (Improve and Modernize the Work of the Government Apparatus), in Kommunist, November 1954, p. 39. Or in the first quarter of the new year, for the planning process often falls behind schedule. See the remarks of N. K. Baibakov, Chairman of the State Planning Commission, in Pravda, February 25, 1956, p. 6. For definitions, see pp. 35-36. P. A. Shein, Material'no-tekhnicheskoe snabzhenie sotsialisticheskogo promyshlennogo predpriiatiia (Supply of Materials and Equipment to the Socialist Industrial Enterprise) (Gospolitizdat, 1954), pp. 16-18. Chapter III. The Goals of Management

1. Brief descriptions of the backgrounds and experience of informants may be found in the Appendix. 2. On the other hand, if an informant fails to refer spontaneously to a matter, this cannot be construed as evidence of the relative unimportance of that matter. On the contrary, it may be so important or self-evident that it does not occur to him to single it out. 3. References to these premiums may be found, in the order mentioned, in Mashinostroenie, September 11, 1939, p. 2; Ibid., November 29, 1939, p. 3; Industriia, April 6, 1938, p. 3; P. A. Shein, Organizatsiia material'nogo snabzheniia sotsialisticheskogo prompredpriiatiia (Organization of Materials Procurement in a Socialist Industrial Enterprise) (Gosenergoizdat, 1939), p. 147; Mashinostroenie, August 8, 1939, p. 1; Ibid., September 2, 1939, p. 2; and Industriia, January 22, 1940, p. 3. The newspapers Mashinostroenie and Industriia, organs of the ma-

The Goals of

4

5.

6. 7.

8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21.

22. 23.

Management

349

chinery manufacturing industry and heavy industry respectively, will be cited hereafter as Mash, and Ind. Schwartz, p. 546. Socialist competitions are contests among enterprises to see which can attain the best records in production, cost reduction and other indicators of performance. Winning plants are awarded a Red Banner which they retain until the next competition. See also Bienstock, Schwarz, and Yugow, p 95. "The order provided for a system of incentives for people who are outstanding in the production of spare parts. A special fund was put at the disposal of heads of chief administrations and directors of enterprises of 750,000 rubles, to be used for premiums." Mash., November 29, 1939, p. 3. Also Granick, p. 194. At the end of 1955 there was established a "Minister's Fund," to be used for awarding special bonuses to directors. See V. D'lachenko, "Ob'ektivnye osnovy khoziaistvennogo rascheta" (Objective Bases of Business Accounting), Voprosy ekonomiki, no. 1, 1956, p. 10. Mash., December 8, 1939, p. 2. For example, by order of the commissar, an "M-l" automobile was awarded as a gift to a famous organizer of stakhanovite methods in coal mining, Shashatskii. More usually the premiums were in the form of money, but awards of gifts were not uncommon. Ind., November 11, 1938, p. 4. Chernaia metallurgiia, October 1, 1940, p. 2. This newspaper, the organ of the iron and steel industry, will be cited hereafter as Cher. met. Ibid. The average monthly earnings of engineering and technical personnel at that time was about 1100 rubles. Manevich, pp. 187, 192. P. M. Pavlov, O planovykh khoziaistvennykh rychagakh sotsialisticheskogo gosudarstva (The Planned Economic Levers of the Socialist State) (Lenizdat, 1950), p. 140. Cher met., October 1, 1940, p. 2. See also Bienstock, Schwarz, and Yugow, pp. 94-95. Bulganin, in Pravda, July 17, 1955, p. 3. The informant stated that this applied to the years 1935-1936, but recent literature indicates that the problem persists. Ind., March 27, 1940, p. 3. Cher, met, November 19, 1940. p. 2. Pravda, August 31, 1954, p. 2. See E. Kapustin, "Raspredelenie po tiudu — ekonomicheskii zakon sotsializma" (Distribution According to Work — The Economic Law of Socialism), Voprosy ekonomiki, no. 6, 1954, pp. 29-30. Sh. Turetskii, "O khoziaistvennom raschete" (On Business Accounting), Planovoe khoziaistvo, no. 1, 1939, p. 123. V. Bunimovich and M. Pevzner, "Ekonomika predpriiatiia i bor'ba s beskhoziaistvennost'iu" (Enterprise Economy and the Struggle Against Mismanagement), Planovoe khoziaistvo, no. 1, 1941, p. 30. P. Kholodnyi, "Planirovanie tovarnoi produktsii" (The Planning of Market Output), Planovoe khoziaistvo, no. 4, 1940, p. 48; L. Maizenberg, "O khoziaistvennom plane" (On the Economic Plan), Planovoe khoziaistvo, no. 10, 1940, p. 26, Granick, p. 154. Mash., April 10, 1939, p. 3. I. Evenko and B. Miroshinchenko, "Proverka vypolneniia plana — vazhnei-

350

Notes to Chapter III shii printsip sotsialisticheskogo planirovaniia" (The Check-up on Plan Fulfillment— The Most Important Principle of Socialist Planning), Planovoe

khoziaistvo, no. 4, 1950, p. 90.

24. Cher, met., January 4, 1941, p. 4. Presumably, that which "might have been expected(!)" was the shop chief's willingness to sanction such activities.

25. Mash., May 16, 1939, p. 2.

26. 27. 28. 29.

30.

31. 32. 33. 34. 35. 36. 37. 38.

Cher, met., October 1, 1940, p. 2. Cher, met., November 19, 1940, p. 2. Ind., January 4 , 1 9 4 0 , p. 2. Bienstock, Schwarz, and Yugow, p. 10; Schwartz, pp. 197-198. There has been some recent legislation on the rights of managers to spend the "enterprise fund," but the details have not been published. See the remarks of M. G. Pervukhin in Pravda, February 23, 1956, p. 8. For example, the aforementioned resolution of the Eighteenth Party Conference forbidding commissariats to grant premiums to enterprises which overfulfilled their plans by producing products which they were unable to sell. Evenko and Miroshinchenko, p. 90. E. G. Liberman, O planirovanii pribyli v promyshlennosti (Profit Planning in Industry) (Gosfinizdat, 1950), pp. 5 7 - 6 0 . Mash., August 27, 1939, p. 3. V. Petrovskii, "Bor'ba za kachestvo metallov" (The Struggle for High Quality Metal), Planovoe khoziaistvo, no. 12, 1940, p. 23. Commissar Tevosian of the Iron and Steel Industry, in Cher, met., October 1, 1940, p. 1. Editorial in Voprosy ekonomiki, no. 1, 1950, p. 29. Planovoe khoziaistvo, no. 9, 1940, pp. 127-128. A form of producers' cooperative. George J. Stigler, The Theory of Price (New Yoik, 1954), p. 149. Chapter IV. Premiums and Other Goals

1. Granick, p. 155. 2. See p. 153. 3. This informant often appeared to exaggerate the frequency of managers being "put on trial." But his statement on the rate of turnover accords with other evidence. 4. Granick, pp. 4 7 - 5 6 and 290-296. 5. Ind., May 26, 1940, p. 2. Also September 22, 1940, p. 2. 6. Pravda, July 17, 1955, p. 5. 7. Pravda, February 5, 1956, p. 3. 8. Ilya Ehrenburg, The Thaw, translated by Manya Harari (London, 1955), p. 99. 9. See p. 234. 10. The quotation marks are Stalin's. See Joseph Stalin, Leninism — Selected Writings (New York, 1942), p. 206. 11. Bol'shaia sovetskaia entsiklopediia (The Great Soviet Encyclopedia), USSR volume (OGIZ, 1947), p. 760. 12. Granick cites a case in which the head of a chief administration was required to take over temporarily the duties of director of a plant whose management had accused him of setting an excessively high target. Granick, p. 67.

Profit as a Goal 13. 14. 15. 16. 17. 18.

351

Ehrenburg, p. 24. R. Magidoff, In Anger and Pity (New York, 1949), p. 174. Ehrenburg, p. 53. Mash., January 5, 1939, p. 2. Mash., June 17, 1939, p. 2. Granick, p. 121. Chapter V. Profit as a Goal

1. Pavlov, p. 104. 2. V. M. Batyrev and V. K. Sitnin, Finansovaia i kreditnaia sistema SSSR (The Financial and Credit System in the USSR) (Gospolitizdat, 1945), p. 6. 3. L. Vilenskii, "Finansovye voprosy promyshlennosti" (Financial Problems of Industry), Planovoe khoziaistvo, no. 10, 1938, p. 60. 4. By production outside the plan the informant probably meant the production of consumer goods out of reclaimed waste and scrap. The state has sought to increase this practice by allowing a large proportion of the profit on this production to be given for premiums. The informant did not consider the attraction of this source of profit strong enough to motivate the enterprise to neglect its planned production because of it. See also Planovoe khoziaistvo, no. 9, 1940, p. 127. 5. A. Arakelian, Ispol'zovanie osnovnykh sredstv promyshlennosti SSSR (Utilization of Fixed Industrial Capital in the USSR) (Gospolitizdat, 1950), p. 78. 6. S. M. Kutyrev, Analiz balansa dokhodov i raskhodov khoziaistvennoi organizatsii (Analysis of the Income Statement of a Business Organization) (Gosfinizdat, 1948), pp. 107-110. The income statements of enterprises contain an item called "the exaction of working capital" (iz'iatie), which presumably means the confiscation of overnorm working capital into the state budget. 7. Ibid., pp. 75-76. 8. Franklyn D. Holzman, Soviet Taxation (Cambridge, Mass., 1955), p. 92. 9. If the consolidated income statement of the chief administration has a net surplus of profit, then some profit may be redistributed among the enterprises, thus obviating the need for a subsidy from the budget. 10. Basic materials are those which enter physically into the final product, auxiliary materials are those which do not, such as lubricating oil, tool bits, etc. 11. For a description of how these norms are determined and of their role in determining the limit of working capital of the enterprise, see Kutyrev, Batyrev and Sitnin, or any text book on financial planning or on the analysis of the income statements of enterprises. 12. A non-Soviet scholar writes, "Another part of the firm's profit constitutes the source of additional working capital, and that also makes the manager professionally interested in maximizing the aggregate profit of his firm." H. E. Ronimois, "The Cost-Profit-Output Relationship in a Soviet Industrial Firm," Canadian Journal of Economics and Political Science, 18:179 (May 1952). See also Holzman, pp. 101-102. 13. Pavlov, p. 105. 14. M. Kh. Zhebrak, Kurs promyshlennogo ucheta (A Course in Industrial Accounting) (Gosplanizdat, 1950), p. 12.

352

Notes to Chapter V

15. A freedom which under conditions of perpetual scarcity is more imagined than real. 16. See Holzman, pp. 48-49. 17. A partial approach to this ideal is achieved by the quarterly reappraisal of the financial requirements of the enterprise, designed to recoup to the state any excess working capital which the enterprise may have legally accumulated due to changes in production which had not been anticipated in the preparation of the annual plan. "The volume of profit by itself cannot serve as a basis for determining the magnitude of the profit tax. . . . The magnitude of the profit tax paid into the budget, both absolute and percentagewise, is different for the different quarters of the year and depends upon the planned requirements of the economic organs for funds, and on the sources for meeting these requirements." A. E. Shvedskii, Otchisleniia ot pribylei gosudarstvennykh predpriiatii i organizatsii (Profits Taxes of State Enterprises and Organizations) (Gosfinizdat, 1951), pp. 4-5. This book contains an excellent description of how every bit of profit for which a planned use has not been previously determined is recouped back to the state. See pp. 16-21. 18. The enterprise always has from one day's to two weeks' or more accrued wages, which accumulate between successive pay days. An effort is made to take account of this in determining the planned upper limit on working capital, but it cannot be wholly removed from the hands of management. See Kutyrev, pp. 86-88. 19. For a sharp criticism of this source of working capital as a pernicious loss of control over management, see A. Loginov, "Deistvuiushchaia sistema otchisleniia ot pribyli i puti ee perestroiki" (The Present System of Profit Taxes and Ways of Reorganizing It), Trudy Leningradskogo Finansovoekonomicheskogo Institute (Papers of the Leningrad Institute of Finance and Economics), Second series. (Gosfinizdat, 1941), pp. 66-67. 20. Trud, January 19, 1955, p. 2. 21. S. Barngol'ts, "Voprosy analiza finansovogo sostoianiia promyshlennosti" (Problems in the Analysis of the Financial Condition of Industry), Vestnik statistiki, no. 1, 1955, p. 25. Financial organs have waged continuous war against this breach in "financial discipline," but apparently with scant success. See Mitel'man and Averbakh, writing in 1940, and Pavlov, writing in 1950. (E. Mitel'man and I. Averbakh, "Oborotnye fondy sotsialisticheskoi promyshlennosti" (Working Capital of Socialist Industry), Planovoe khoziaistvo, no. 5, 1940, p. 59). 22. Cher, met., January 16, 1941, p. 2. 23. See p. 289. 24. Mash., June 6, 1939, p. 3. 25. Mash., January 9, 1939, p. 2. 26. Mash., April 11, 1939, p. 3. 27. Cher, met., October 19, 1940, p. 3. 28. Ind., June 15, 1940, p. 3. 29. A. Zverev, "Rezervy snizheniia sebestoimosti promyshlennoi produktsii" (Reserves for Reducing Production Costs of Industrial Products), Planovoe khoziaistvo, no. 1, 1950, p. 32. 30. "In the course of its production activities, the enterprise carries out, on the basis of the plan [italics supplied], expenditures on capital repairs, on reconstruction and expansion of existing capacity and on new construction. The sources for financing capital investments are the amortization

Profit as a Goal

31. 32. 33. 34. 35. 36.

37. 38.

39. 40.

41. 42.

43. 44.

353

fund, profits and other resources of the enterprise, and also funds from the budget." Shvedskii, p. 4. Arakelian, Industrial Management, p. 94. Holzman, p. 100. Loginov, p. 63. V. A. Dozortsev, "Pravovoe polozhenie promyshlennogo predpriiatiia," (The Legal Status of the Industrial Enterprise) Sovetskoe gosudarstvo i pravo, no. 8, 1955, p. 49. Kapital'noe stroitel'stvo — sbornik vazhneishykh rukovodiashchykh materialov (Capital Construction — A Collection of Major Materials for Guidance) (Gosplanizdat, 1948), pp. 160-163. Postanovleniia tsentral'nogo komiteta KPSS i soveta ministrov SSSR po voprosam promyshlennosti i stroitel'stva (1952-1955 gg.) (Decrees of the Central Committee of the Communist Party of the Soviet Union and of the USSR Council of Ministers on Industry and Construction, 19521955) (Gospolitizdat, 1956), pp. 99-102. Ibid. For earlier postwar versions, see Schwartz, pp. 210-211, and Kapital'noe stroitel'stvo, pp. 208-210. Some western writers, such as Ronimois, accept the official Soviet view that the premiums from the enterprise fund, as well as profit in general, are a strong incentive for the manager. After introducing an interesting little construct called the "profit meter," which is a measure of the deviation of any output from the profit-maximizing output, Ronimois writes: "The profit meter may be taken to measure, caeteris paribus, the incentives [Ronimois' italics] for the Soviet managers to diverge from their output targets. That is so because part of the firm's profit is paid as bonuses through the so-called director's fund to the manager, who accordingly is personally interested in maximizing the aggregate profit of his firm." Ronimois, p. 179. Manevich, p. 205. N. A. Voznesenskii, "Khoziaistvennye itogi 1940 goda i plan razvitiia narodnogo khoziaistva SSSR na 1941 god" (Economic Summary of 1940 and the Plan for the Development of the National Economy in 1941), Planovoe khoziaistvo, no. 3, 1941, p. 36. Manevich, p. 204 fn. The amount spent out of the enterprise fund in any year is not quite equivalent to the amount deducted from profit and paid into the fund in that same year. The total payroll in all industry in 1940 was 161.0 billion rubles (A. Bergson, "A Problem in Soviet Statistics," Review of Economics and Statistics, 29:239, November 1947). We do not have the breakdown of this payroll by category, but an approximation may be made on the basis of the 1941 Plan (Gosudarstvennyi plan razvitiia narodnogo khoziaistva SSSR na 1941 god (State Plan of Development of the USSR National Economy for 1941), American Council of Learned Societies Reprints: Russian Series no. 30, p. 512) The planned total payroll for the industry of the commissariats (46.7 billion) and for construction (9.0 billion) was 55.6 billion rubles. Of this, the salaries of "engineering-technical personnel" were 8.8 billion, or about 15.8 per cent of the total. Assuming that this ratio was about the same in 1940, then engineering-technical personnel earned about 25.4 billion rubles in 1940. Pavlov, p. 139. Postanovleniia, p. 100.

354

Notes to Chapter

V

45. Granick, pp. 271-283. 46. Pravda, May 15, 1944, p. 3. 47. An enterprise whose plan provides for a loss rather than a profit is permitted to form an enterprise fund in proportion to the percentage reduction of cost below plan. Postanovleniia, p. 99. 48. Liberman, p. 62. 49. In fact, Soviet writers often virtually equate profit, and therefore "rationality," of managerial behavior, with cost reduction alone. For example: "Thus profit in the USSR is an actual reflection of the technical and organizational rationality of business management. Behind socialist profit stand tons of economized raw materials, thousands of kilowatt-hours of rationally utilized power, the growth of the productivity of labor, an economizing of labor time, the improvement in the utilization of production capacity." Liberman, p. 5. 50. See Chapter VIII. Chapter VI. The Safety Factor and the Production Plan 1. A variation of the word, connoting an intensive form of the activity, is perestrakhovka, which may be translated as "re-insuring." 2. See the remarks of Malenkov in his "Report of the Central Committee of the Ail-Union Communist Party (of Bolsheviks) at the Nineteenth Party Congress," in Leo Gruliow (editor), Current Soviet Policies (New York, 1953), pp. 112, 119. 3. "The American company, 'National Industrial Service Association,' comprises about 2000 workshops specializing in the repair of electrical equipment. . . . The servicing of enterprises by these workshops is carried out with great efficiency. One need only pick up the phone [italics supplied] and a truck will be dispatched immediately to the enterprise with a spare motor to replace the damaged one, with spare parts, etc." B. Sukharevskii, "Problemy vosproizvodstva osnovnykh fondov v promyshlennosti SSSR" (Problems of the Reproduction of Fixed Capital of Industry in the USSR), Problemy ekonomiki, no. 11-12, 1940, p. 165. 4. Ind., March 1, 1938, p. 2. 5. Current Digest of the Soviet Press, V, no. 5 (March 14, 1953), p. 32. From Izvestiia, February 3, 1953. The Current Digest of the Soviet Press will be cited hereafter as Current Digest. 6. For example, a Soviet writer describes how an unidentified ministry raises the profit target of its enterprise every quarter. If the planned profit for the first quarter is 100 and the enterprise makes 105, then the ministry raises the profit target for the second quarter to 105. If the enterprise then makes a profit of 107, the target is raised to 107 in the third quarter. This is similar to the process by which a monopolist can squeeze every drop of consumer surplus out of the consumer if he can succeed in discriminating sufficiently between successive units. It is interesting to note that the author of the above statement criticized the ministry not for raising the target in each period but for raising it up to the very limit of the enterprise's past achievement. A. Birman, "Nekotorye voprosy ukrepleniia khoziaistvennogo rascheta v promyshlennosti" (Problems of Business Accounting in Industry), Problemy ekonomiki, no. 1, 1941, pp. 116-117. 7. Current Digest, VI, no. 24 (July 28, 1954), p. 45. From Pravda, June 17, 1954.

The Safety Factor and the Production Plan

355

8. Pravda, January 13, 1955, p. 2. 9. B. Alfeev and A. Korotkov, "Za polnoe vyiavlenie i ispol'zovanie proizvodstennykh moshchnostei v promyshlennosti" (For a Full Uncovering of Industrial Productive Capacity), Planovoe khoziaistvo, no. 2, 1950, p. 38. 10. It may seem that this aspect of the safety factor lends support to the view that there are strong conservative elements in managerial behavior which might lead to economic stagnation if the driving force of the present Party elite were removed. However, such conservative tendencies may be viewed as managerial reactions to the conditions within which the enterprise functions. If the nature of the Party changed, the conditions of economic life might also change in a way which would unleash new dynamic forces from within the corps of managers. See Barrington Moore, Jr., Terror and Progress USSR (Cambridge, Mass., 1954), pp. 71, 192. 11. Granick, p. 183. 12. We do not wish to overlook the explanation offered by the official of the chief administration, namely, the different personalities of the two directors. Differences in personalities are extremely important in the explanation of the actions of individual enterprises. The character of an enterprise and the roles played by the various officials are undoubtedly more a function of the personalities of the leading individuals than of the rules describing the functions of the enterprise and of the officials. This is one of the factors making for the great difficulty in describing the "typical" Soviet enterprise. 13. John Scott, Behind the Urals (Boston, 1942), p. 162. 14. Current Digest, V, no. 46 (December 30, 1953), p. 19. From Pravda, November 15, 1953. 15. Liberman, p. 22. 16. M. Iarmol'skii, "Neuldonnyi pod'em proizvoditel'nosti truda v sotsialisticheskom proizvodstve" (The Steady Rise of Labor Productivity in Socialist Production), Planovoe khoziaistvo, no. 4, 1953, p. 35. 17. For example, enterprises are required to raise the norms every time a substantial number of workers has begun to surpass them. However, periodically there are public campaigns to raise all norms. Granick writes, "Management's knowledge that new campaigns would be forthcoming encouraged it to maintain existing norms and store up rationalization gains." Granick, p. 85. The dramatic promises of large increases in norms during campaigns can often be explained not as "quixotic" behavior but as the successful accumulation of a safety factor. 18. Current Digest, III, no. 2 (February 24, 1951), p. 38. From Pravda, January 12, 1951. 19. Alfeev and Korotkov, pp. 37-38. 20. Evenko and Miroshinchenko, p. 86. 21. In a list of various techniques for building up a safety factor in the enterprise Informant 90 named the following: (1) overreporting the duration of interruptions required for change-overs from one type of production to another; (2) concealing the true date on which a new piece of equipment is first put into operation; (3) concealing the true productivity of equipment which had been extensively overhauled; (4) underreporting the full economies made as a result of mechanization or automation of processes. 22. One informant reported in a private conversation that in case of a breakdown of equipment or power supply, a four-hour stoppage of production

356

23. 24. 25. 26. 27. 28. 29. 30. 31.

Notes to Chapter VI would be reported as six hours. During the extra two hours the plant is able to catch up on some production on which it has fallen behind. Such stoppages, while never directly sought after, may nevertheless provide an opportunity to get out of a difficult position. Liberman, p. 44. Mash., December 26, 1937, p. 1. Mash., December 1,1937, p. 1. Maizenberg, pp. 22-23. K. A. Fedoseev, Tekhpromfinplan predpriiatiia (The Technical-IndustrialFinancial Plan of the Enterprise) (Gosfinizdat, 1948), p. 27. Mash., December 8, 1939, p. 2. Bulganin in Pravda, May 17, 1955, p. 1; and July 17, 1955, p. 2. Izvestiia, January 18, 1955, p. 2. Pravda, July 17, 1955, pp. 1-6.

Chapter VII. The Safety Factor and the Procurement Plan 1. F. Gaposhkin and A. Ambartsumov, "O material'no-tekhnicheskom snabzhenii" (On Material-Technical Procurement). Planovoe khoziaistvo, no. 11, 1938, p. 105. 2. For example, see the Decree of the Commission of Soviet Control of January 26, 1940. Sobranie postanovlenii i rasporiazhenii pravitel'stva SSSR (Collection of Decrees and Orders of the Government of the USSR), 1940, no. 4, art. 131. 3. E. Lokshin, "Voprosy planirovaniia material'no-tekhnicheskogo snabzheniia narodnogo khoziaistva SSSR" (Problems of the Planning of MaterialTechnical Procurement in the National Economy of the USSR), Planovoe khoziaistvo, no. 2, 1950, pp. 53-54. 4. V. Sitnin, "Krupnyi rezerv material'nykh resursov" (A Huge Reserve of Material Resources), Planovoe khoziaistvo, no. 12, 1940, p. 42. 5. Ind., November 11, 1938, p. 2. 6. Sitnin, in Planovoe khoziaistvo, no. 12, 1940, pp. 41-42. 7. V. Lipsits, "Puti uluchsheniia planirovaniia sebestoimosti promyshlennoi produktsii" (Ways of Improving Cost Planning in Industrial Production), Planovoe khoziaistvo, no. 3, 1952. The article indicates the numerous points at which imperfections in planning can occur. 8. Current Digest, III, no. 11 (April 28, 1951), p. 40. From Izvestiia, March 13, 1951. 9. N. Fasoliak, "Planirovanie materiarno-tekhnicheskogo snabzheniia promyshlennogo predpriiatiia" (Procurement Planning in an Industrial Enterprise), Planovoe khoziaistvo, no. 6, 1953, p. 89. 10. Pravda, August 31, 1954, p. 2. 11. G. M. Malenkov, "O zadachakh partiinykh organizatsii v oblasti promyshlennosti i transporta" (On the Tasks of Party Organizations in the Spheres of Industry and Transport), Izvestiia, February 16, 1941, p. 2. 12. Cher, met., October 31, 1940, p. 2. 13. Current Digest, III, no. 2 (February 24, 1951), pp. 37-38. From Pravda, January 14, 1951. 14. Cher, met., March 22, 1941, p. 3. 15. Since the last-named consideration implies some imperfection in Soviet planning, authors who advocate that it be taken into account have been

The Safety Factor and the Procurement

16. 17. 18. 19. 20. 21.

22. 23. 24. 25. 26. 27. 28.

29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42.

Plan

357

severely criticized in recent years. See Finansy SSSR, no. 7, 1954, p. 93, and Planovoe khoziaistvo, no. 1, 1954, p. 94. Mash., January 4, 1939, p. 2. Sitnin, in Planovoe khoziaistvo, no. 12, 1940, p. 41. Gudok, January 25, 1955, p. 1. Stroitel'naia gazeta, January 14, 1955, p. 2. Sitnin, in Planovoe khoziaistvo, no. 12, 1940, p. 40. V. Sitnin and Z. Sitkin, "Usilit' kontrol' rublem v tiazheloi promyshlennosti" (Strengthen Control by the Ruble in Heavy Industry), Planovoe khoziaistvo, no. 2, 1940, p. 30. For data on hoarding of equipment, see P. Kokurkin and G. Tsibul'skii, "Plan 1941 i rezervy sotsialisticheskoi promyshlennosti" (The 1941 Plan and the Reserves of Socialist Industry), Planovoe khoziaistvo, no. 4, 1941, p. 21. Ind., March 1, 1938, p. 2. Malenkov, in Izvestiia, February 16, 1941, p. 2. Mash., May 16, 1939, p. 2. Current Digest, III, no. 7 (March 31, 1951), p. 27. From Pravda, February 16, 1951. Current Digest, III, no. 7, (March 31, 1951), p. 28. From Trud, February 14,1951. Cher, met., March 22, 1941, p. 4. "The practice of inflated statements of requirements for metal has led to the fact that in the enterprises of the Commissariat of Machine Building the most common quality iron products form a 53 days' supply. The Ordzhonikidze Machine Tool Plant has accumulated non-ferrous metals for . . . 5 months although the norms provides for no more than a 45 days' supply." Mash., January 15, 1939, p. 1. Sitnin, in Planovoe khoziaistvo, no. 12, 1940, p. 44. Cher, met., April 24, 1941, p. 4. Ind., July 31, 1940, p. 2. N. Fedotov, "Vnedrenie grafika na zavodakh mashinostroeniia" (The Introduction of a Schedule in Machinery-Manufacturing Plants), Planovoe khoziaistvo, no. 3, 1941, p. 69. Ind., February 11, 1940, p. 3. Ind., June 15,1940, p. 3. Shifrin, p. 30. N. Sokolov, "Gosbank v borTje za ekonomiiu v narodnom khoziaistve" The State Bank in the Struggle for Economy in the National Economy), Planovoe khoziaistvo, no. 3, 1940, pp. 43—44. Current Digest, VI, no. 32 (September 22, 1954), p. 22. From Pravda, August 13, 1954. The reasons are explained in Sitnin, Planovoe khoziaistvo, no. 12, 1940, pp. 42-43. Current Digest, III, no. 2 (February 24, 1951), pp. 34-35. From Pravda, January 8, 1951. B. Iu. Krichevskii, Finansovaia rabota na promyshlennom predpriiatii (Financial Work in an Industrial Enterprise) (Gosfinizdat, 1951), pp. 29-30. Shifrin, p. 30. For a description of the embarrassment to an enterprise because of the "raids" carried out by special groups of activists during a campaign, see a number of articles in Ind., March 15, 1940, p. 3.

358

Notes to Chapter VII

43. D. D. Kondrashev, Balans dokhodov i raskhodov predpriiatii i ob'edinenii promyshlennosti (Income Statements of Enterprises and Consolidated Enterprises in Industry) (Gosfinizdat, 1948), pp. 34-35. 44. Shifrin, pp. 39-40. 45. A. Arakelian, "Khozraschet i bor'ba za luchshee ispol'zovanie osnovnykh fondov" (Business Accounting and the Struggle for Improved Utilization of Fixed Capital), Voprosy ekonomiki, no. 5, 1951, p. 30. 46. Mash., January 5, 1939, p. 2. 47. Postanovleniia, pp. 89-90. For a description of the preceding system of reselling, see Shein, MateriaYno-tekhnicheskoe snabzhenie, or Shifrin. 48. Sitnin, in Planovoe khoziaistvo, no. 12, 1940, p. 46. 49. Ibid., p. 47. 50. Mash., June 9, 1939, p. 4. 51. G. Kosiachenko, "Gosudarstvennyi plan — nerushimyi zakon" (The State Plan — An Unbreakable Law), Planovoe khoziaistvo, no. 1, 1951, p. 43. Pravda, July 23, 1947, p. 3. 52. Speech by A. I. Mikoian, in Ind., February 11, 1940, p. 3. See also Current Digest, VI, no. 41 (November 24, 1954), p. 16. 53. Sokolov, pp. 43-44. 54. Cher, met., April 26, 1941, p. 2. 55. Ind., December 31, 1938, p. 2. 56. Ind., June 15, 1940, p. 3. 57. Malenkov, in Izvestiia, February 16, 1941, p. 2. 58. Pravda, February 11, 1941, p. 1. 59. See, for example, Cher, met., March 18, 1941, p. 4. 60. Cher, met., April 26, 1941, p. 2. 61. Mash., October 10, 1939, p. 2. 62. Mash., July 10, 1939, p. 2. 63. Military industry seems always to have had this right. In fact, military industry was usually pointed out as an exception in the interviews. "Military factories are in a special position. The Commissariat of Defense can take more responsibility upon itself, and can ship things from one factory to another." (Informant 481.) 64. G. Kozlov, Khoziaistvennyi raschet v sotsialisticheskom obshchestve (Business Accounting in a Socialist Society) (Gospolitizdat, 1945), p. 37 fn. 65. Current Digest, VII, no. 20 (June 29, 1955), p. 22. From Vedomosti Verkhovnogo Soveta SSSR, no. 8, June 8, 1955, p. 223. Chapter VIII. The Assortment of Production 1. B. Miroshinchenko, "Assortiment i kachestvo produktsii — vazhneishie zadaniia gosudarstvennogo plana" (The Assortment and Quality of Production— The Most Important Tasks of the State Plan), Planovoe khoziaistvo, no. 3, 1952, pp. 13-14. 2. Sitnin and Sitkin, in Planovoe khoziaistvo, no. 2,1940, p. 28. 3. For example, Miroshinchenko, pp. 13-14. 4. Mash., April 12, 1939, p. 3. 5. Mash., September 1,1939, p. 4. 6. Cher, met., March 22,1941, p. 3.

The Assortment of 7. 8. 9. 10.

11.

12. 13. 14. 15. 16. 17. 18.

19.

20. 21. 22 23. 24. 25. 26.

Production

359

Pravda, July 17, 1955, p. 2. Mash., December 15, 1939, p. 3. Tobias, p. 61. Ia. Chadaev, "Vsemerno rasshiriat' proizvodstvo tovarov shirokogo potrebleniia na predpriiatriakh mestnoi i kooperativnoi promyshennosti" (For a General Extension of the Production of Mass Consumer Goods in the Enterprises of Local and Cooperative Industry), Planovoe khoziaistvo, no. 4, 1951, p. 50. Current Digest, III, no. 2 (February 24, 1951), p. 36. From Pravda, January 9, 1951. An enterprise which had been awarded the Red Banner was later shown to have failed to meet its assortment plan in a number of important items and to have underfulfilled its labor productivity plan. The Red Banner was therefore taken away from it. Whether the premiums which the managers earned for winning the socialist competition were also taken away is not stated. Ia. Vidrevich, "Za dal'neishee uluchshenie i uproshchenie ucheta i otchetnosti" (For Further Improvement and Simplification of Accounting and Reporting), Vestnik statistiki, no. 1, 1955, p. 44. Planovoe khoziaistvo, no. 3, 1955, pp. 84-85. Pavlov, p. 83. Liberman (p. 24) cites a case of two enterprises, one of which concentrated on loss items in order to fulfill its production plan, and the other concentrated on profit items at the expense of its production plan. Ind., August 25, 1940, p. 3. Cher, met., November 19, 1940, p. 2. According to this measure, the fulfillment of the assortment plan is the ratio of the sum of the value of output of all products equal to or less than the planned quantity (omitting any output produced over the planned quantity) to the sum of the planned value of output of all products. See I. A. Sholomovich, Analiz khoziaistvennoi deiatel'nosti promyshlennogo predpriiatiia (Analysis of Managerial Performance in an Industrial Enterprise), (Gosfinizdat, 1950), p. 41. Also G. V. Teplov, Operativno-proizvodstvennoe planirovanie na mashinostroitel'nykh zavodakh (Operational-Production Planning in Machinery-Manufacturing Plants), (Mashgiz, 1946), p. 150. The absence of a clearly defined priority scale makes it difficult to hold managers to account for failure to discriminate properly among products. For example, the textbook by Sholomovich which uses the quantitative measure of degree of assortment plan fulfillment described above is attacked by the reviewer T. Kalinin because all items are given the same political weight and no account is taken of the relative importance of different products. Kalinin, however, does not propose a measure of relative importance. Planovoe khoziaistvo, no. 6, 1951, pp. 92-93. Mash., July 4, 1939, p. 2. Mash., January 14, 1939, p. 1. Mash., December 8, 1939, p. 2. In recent years subcontracted output is supposed to be counted as part of production-plan fulfillment. Planovoe khoziaistvo, no. 9, 1940, p. 127. Cher, met., November 2, 1940, p. 4. Mash., April 14, 1939, p. 2. Liberman, p. 58.

360

Notes to Chapter IX Chapter IX. The Quality of Production

1. E. Vasil'ev, "Sotsialisticheskaia distsiphna truda" (Socialist Labor Discipline), Planovoe khoziaistvo, no. 9, 1940, p. 23. 2. Izvestiia, February 16, 1941, p. 2; and Gruliow (editor), Current Soviet Policies, p. 108. 3. A. Kats, " Ispol'zovanie rezervov v promyshlennosti SSSR" (The Utilization of Reserves in Industry in the USSR), Problemy ekonomiki, no. 5-6, 1950, p. 132. See also Vilenskii, pp. 50-51. 4. Gruliow (editor), Current Soviet Policies, p. 12. 5. Pravda, February 25, 1956, p. 6. 6. Warren W. Eason, "Population and Labor Force," in Abram Bergson (editor), Soviet Economic Growth (Evanston, 1953), p. 10; Donald Hodgman, "Industrial Production," ibid., p. 232. 7. Pravda, December 29, 1934, p. 1. 8. Cher, met., March 22, 1941, p. 3. 9. Cher, met., October 12, 1940, p. 2. 10. E. Lokshin, "Sotsialisticheskaia distsiplina truda i bor'ba za kul'turu proizvodstva" (Socialist Labor Discipline and the Struggle for Order in Production), Problemy ekonomiki, no. 8, 1940, p. 22. 11. There are some indications that the percentage of spoilage may be related statistically to the spread of the Stakhanovite movement. Vilenskii (pp. 50-51), for example, shows a rapid increase in spoilage between 1936 and 1937, the period in which the Stakhanovite movement was taking hold and spreading. 12. Cher, met., March 22, 1941, p. 1. See also Cher, met., January 7, 1941, p. 3. 13. Izvestiia, February 16, 1941, p. 2. 14. Karl Marx, Capital (New York, The Modern Library), pp. 452, 436, 464, 523, 537, 606, 608, 455, 606. 15. V. Bunimovich, "Voprosy sebestoimosti i khozrascheta v legkoi promyshlennosti" (Cost of Production and Business Accounting in Light Industry), Planovoe khoziaistvo, no. 10, 1939, p. 56. 16. Current Digest, V, no. 37 (October 24, 1953), p. 17. From Pravda, September 11, 1953. 17. Ind., July 26,1940, p. 3. 18. Cher, met., March 22, 1941, p. 1. 19. Mash., April 17, 1940, p. 2. 20. Lokshin, in Planovoe khoziaistvo, no. 2,1950, p. 59. 21. Some informants, however, denied that this was done. "Spoiled output is not included in the calculation of plan fulfillment," stated Informant 190. As in the case of all such practices, there are clearly differences in the conditions under which they may or may not be done. 22. Cher, met., October 24, 1940, p. 2. 23. Vilenskii, p. 51. 24. Cher, met., October 1, 1940, p. 1. 25. Ind., May 20, 1940, p. 3. 26. Trud., February 5, 1955, p. 2. 27. Mash., April 10, 1939, p. 3. 28. Ind., February 22, 1940, p. 3. 29. Ind., July 14, 1940, p. 1.

The Quality of Production

361

30. Ind., April 12,1940, p. 3. 31. Ind., July 11, 1940, p. 3. 32. See, for example, Current Digest, III, no. 29 (September 1, 1951), p. 40. From Trud, July 18, 1951. 33. Ind., August 21, 1940, p. 2. 34. Mash., August 23, 1939, p. 2. 35. "We also made parts for warships. These were first accepted by the military representative (voenpred). When the finished ship was given over to the fleet, there was another military representative who accepted it . . . If there was an error somewhere it was usually found out later along the line." (Informant 388.) 36. "For every important branch of industry there would be one representative of that industry in our factory. For example, we made rotors for the X Turbo-Generator Plant. These rotors were very important, and were passed on not only by our department of quality control but by a representative of the buyer, and by a representative of the power industry (energopred). Thus there was a troika for quality control." (Informant 388.) 37. Pravda, December 9, 1933, p. 1. 38. Ind., July 13, 1940, p. 1. 39. See, for example, Ind., August 23, 1940, p. 2; Ind., August 25, 1940, p. 3; Cher, met., November 5, 1940, p. 4. 40. Vasil'ev, in Planovoe khoziaistvo, no. 9, 1940, p. 23. 41. Cher, met., October 24, 1940, p. 2. 42. Ind., September 22, 1940, p. 2. 43. Ind., September 28, 1940, p. 1. 44. Trud, January 20, 1955, p. 1. 45. Mash., April 10, 1939, p. 3. 46. For greater detail see the article on GOST in Bol'shaia sovetskaia entsiklopediia, second edition, vol. 12, p. 280. GOST stands for State Ail-Union Standard. 47. V. Emel'ianov, "Zadachi standartizatsii v SSSR" (Tasks of Standardization in the USSR), Planovoe khoziaistvo, no. 12, 1940, p. 14. 48. See, for example, Ind., February 16, 1940, p. 2. 49. Emel'ianov, pp. 15-18. 50. L. Leont'ev, "Kachestvo produktsii i kul'tura proizvodstva" (The Quality of Output and Order in Production), Problemy ekonomiki, no. 9, 1940, p. 100. 51. Emel'ianov, pp. 15-16. 52. BoVshaia sovetskaia entsiklopediia (second edition) vol. 12, p. 280. This figure must refer only to the GOSTs, the standards which replaced those established before 1940 by the standards committees of the individual commissariats. There is, in addition, a large number of OST's, standards which were established before the 1940 change. The total of 12,000 which was given for 1940 must have referred to the OST's. 53. V. Tkachenko, "Za vysokoe kachestvo produktsii" (For High-Quality Production), Planovoe khoziaistvo, no. 6, 1951, pp. 7&-77. 54. Planovoe khoziaistvo, no. 10, 1940, p. 6. 55. Mash., December 16, 1939, p. 2. 56. Ind., September 28, 1940, p. 1. 57. Cher, met., June 12, 1941, p. 3. 58. Leont'ev, p. 97

362

Notes to Chapter IX

59. Trud, January 20, 1955, p. 1. 60. Tkachenko, p. 79. 61. Lesnaia promyshlennost', January 18, 1955, p. 1. Chapter X. Falsification of Reporting 1. Current Digest, VI, no. 38 (November 3, 1954), p. 8. From Partiinaia zhizn', no. 10, 1954, pp. 25-28. 2. Current Digest, IV, no. 47 (January 3, 1953), p. 17. From Izvestiia, November 21, 1952. 3. In the case of products with a very long period of production, it is sometimes permitted to treat individual sub-assemblies of the final product as market output rather than as goods in process. See Tobias, p. 61 fn. Such provisions are easily adaptable to the private ends of the enterprise. For example, if the enterprise is lagging in its fulfillment of the target for market output it may ship out a large sub-assembly of the final product and treat it as market output. 4. Current Digest, IV, no. 47 (January 3, 1953), p. 16 From Vecherniaia Moskva, November 22, 1952. 5. Joseph S. Berliner, "A Problem in Soviet Business Administration," Administrative Science Quarterly, 1:86-101 (June 1956). 6. Fedoseev, p. 38. 7. Vidrevich, p. 45. 8. See, for example, Mash., August 15, 1939, p. 3. This is one of several articles written on this subject during this period. 9. Pravda, February 4, 1955, p. 2. 10. Ehrenburg, p. 20. 11. Vasil'ev, in Planovoe khoziaistvo, no. 9, 1940, p. 21. 12. Mash., August 11, 1939, p. 3. 13. Pravda, July 17, 1955, p. 4. For other cases see Schwartz, Russia's Soviet Economy, p. 532; Trud, September 17, 1949, p. 1; Harold J. Berman, in Harvard Law Review, 66:955 (March 1953). 14. N. Rossiiskii, "Kak nash uchastok stal stakhanovskim" (How We Became a Stakhanovite Section), in M. Zelikson (editor), Slovo masterov (The Foremen Speak) (Profizdat, 1948), p. 48. 15. Vedomosti verkhovnogo soveta SSSR, May 8, 1956, pp. 246-247. 16. Izvestiia, February 16, 1941, p. 2. 17. P. Kuznetsov, "Normirovanie truda — na sluzhbu stakhanovskomu dvizheniiu" (Labor Norms in the Service of the Stakhanovite Movement), Planovoe khoziaistvo, no. 1, 1939, p. 139. 18. Mash., February 15, 1939, p. 2. 19. A. Grigor'ev, "Uporiadochit' zarplatu, ukrepit' tekhnicheskoe normirovanie" (Put Order in Wages, Strengthen Technical Norm Setting), Planovoe khoziaistvo, no. 10, 1938, p. 72. Also Ind., March 11, 1940, p. 2. 20. Pravda, December 24, 1952, p. 2. 21. For a facsimile of a work order and a description of how it is used, see G. V. Teplov, Operativno-proizvodstvennoe planirovanie na mashinostroitel'nykh zavodakh (Operational-Production Planning in MachineryManufacturing Plants) (Mashgiz, 1946), pp. 125-127. 22. D. Tsiporukha, "Zametki upolnomochennogo" (Notes of a State Planning Commission Plenipotentiary), Planovoe khoziaistvo, no. 1, 1940, p. 125; the article lists the ways in which wage overpayments are made.

Falsification of

Reporting

363

23. In some industries an effort was made to do away with the cumbersome and easily evaded system of work orders by substituting the so-called "schedule" (marshrutnaia) system. Although orders to this effect were issued in the prewar period by some commissariats, the new system apparently never quite caught on. In the postwar period the work-order system is still described as the basic method of wage payments. Teplov, Operativno-proizvodstvennoe planirovanie, p. 125. 24. Mash., July 21, 1939, p. 2. 25. S. Pogostin, "Stakhanovskoe dvizhenie i zadachi tekhnicheskogo normirovaniia" (The Stakhanovite Movement and the Tasks of Setting Labor Norms), Problemy ekonomiki, no. 1, 1939, p. 133. 26. Stroitel'naia gazeta, November 26, 1954, p. 3. 27. Tsiporukha, p. 125. 28. Kuznetsov, p. 139; Tsiporukha, p. 125. 29. Ind., March 11, 1940, p. 2. 30. Tsiporukha, p. 125. 31. Grigor'ev, pp. 72-73. For the multiplicity of wage rates and possible supplementary legal payments in construction in the postwar period, see D. I. Bukhshtein, S. N. Protopopov and E. D. Syrtsova, Organizatsiia i planirovanie stroitel'stva (The Organization and Planning of Construction) (Gosfinizdat, 1951), pp. 156-159. 32. Fedoseev, p. 65. 33. Mash., February 15, 1939, p. 2. 34. Ind., May 29, 1940, p. 2. 35. Ind., March 1, 1938, p. 3. If the work orders are filled out too early, they may have to be changed later when the earnings prove to be too low: "At the end of the month all the people in charge of this worked three to four days to change all the work orders. We increased the workers' pay by about 30 per cent." (Informant 202.) 36. Stroitel'naia gazeta, November 26, 1954, p. 3. 37. L. Pogrebnoi, "Stakhanovskoe dvizhenie i perestroika zarabotnoi platy" (The Stakhanovite Movement and the Revamping of Wages), Problemy ekonomiki, no. 5, 1938, p. 46. 38. Mash., July 21, 1939, p. 2. 39. G. Nechaev, "Usilit' kontrol' gosbanka nad raskhodovaniem fondov zarplaty" (Strengthen State Bank Control Over Wage Outlays), Finansy i kredit SSSR, no. 6, 1954, p. 54. 40. Sh. Turetskii, "Nekotorye voprosy narodnokhoziaistvennogo planirovaniia" (Some Problems of National-Economic Planning), Problemy ekonomiki, no. 7, 1940, p. 75. Also L. Maizenberg, p. 27. 41. Ia. Kats, "Za polnyi uchet fondov zarplaty" (For a Full Accounting of Wages), Planovoe khoziaistvo, no. 7, 1938, p. 64. 42. Kats, in Planovoe khoziaistvo, no. 7, 1938, p. 64. 43. Sokolov, p. 42. The problem of the extent of coverage of wage statistics by the Central Statistical Administration is discussed in Bergson, in the Review of Economic Statistics, 29:238-239 (November 1947). 44. Vasil'ev, in Planovoe khoziaistvo, no. 9, 1940, p. 24. 45. Mash., January 8, 1939, p. 2. 46. Bienstock, p. 10. 47. Ehrenburg, p. 169. 48. Ind., March 1, 1938, p. 2. 49. Cher, met., October 22, 1940, p. 2.

364 50. 51. 52. 53.

Notes to Chapter X Vidrevich, p. 48. Tekstil'naia promyshlennost', no. 1, 1955, p. 3. Pravda, January 14, 1955, p. 1. Vasil'ev in Planovoe khoziaistvo, no. 9, 1940, p. 24. Malenkov, in Gruliow (editor), Current Soviet Policies, p. 113. Chapter XI. Blat

1. D. N. Ushakov (ed.), Tolkovyi slovar' russkogo iazyka (Interpretative Dictionary of the Russian Language) (OGIZ, 1935). 2. A. I. Smirnitskii (ed.), Russko-angliiskii slovar' (A Russian-English Dictionary) (OGIZ, 1949). 3. Edward Crankshaw, "Russia's Power: Not Ideas but Force," in the New York Times Magazine, June 3, 1951, p. 35. See also Jerzy Gliksman, Tell the West (New York, 1948), p. 248. 4. David J. Dallin, The New Soviet Empire (New Haven, 1951), pp. 180196. 5. Mash., June 9, 1939, p. 4. For a contemporary description of the cumbersome process of obtaining even small items through official channels, see Pravda, August 9, 1954, p. 2. 6. Cher, met., November 30, 1940, p. 4. 7. Mash., January 22, 1939, p. 3. 8. Current Digest, III, no. 5 (March 17, 1951), p. 37. From Pravda, January 30, 1951. 9. Cher, met., November 14, 1940, p. 4. 10. Ind., September 10, 1940, p. 3. 11. In recent years the ministry is no longer supposed to involve itself in the month-to-month plans of its enterprises. See Chapter XVII. 12. Cher, met., March 22, 1941, p. 2. 13. Evenko (p. 90), for example, stresses the need to fulfill the plan first of all in those products which are specifically listed in the National Plan, and characterizes all other products as of "secondary importance." 14. Granick, pp. 77-78. Chapter XII. The Tolkach 1. 2. 3. 4. 5. 6. 7.

8. 9.

and Uses of Influence

Krokodil, March 30, 1952, p. 3. Ind., February 11, 1940, p. 3. Izvestiia, June 15, 1954, p. 2. Current Digest, V, no. 4 (March 7, 1953), p. 27. From Izvestiia, January 28, 1953. Izvestiia, July 12, 1955, p. 2. Ind., April 5, 1940, p. 2. The reference to decentralized materials seems to suggest that such methods would not be employed with regard to funded materials. The more candid poem quoted above is more in harmony with the rest of the evidence which suggests that tolkachi are valued more for their ability to obtain funded materials than ordinary ones. Ind., April 10, 1940, p. 3. This was the Magnitogorsk Iron and Steel Combine. Mash., July 10, 1939, p. 2.

The Tolkach and Uses of Influence 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29.

30. 31. 32. 33. 34.

35. 36. 37.

38. 39. 40.

365

Ind., February 4, 1940, p. 3. StroiteUnaia gazeta, January 14, 1955, p. 3. Izvestiia, June 15, 1954, p. 2. Mash., June 8, 1939, p. 2. Ind., February 4, 1940, p. 3. Ind., May 17, 1940, p. 3. Izvestiia, June 15, 1954, p. 2. Ind., March 16, 1940, p. 3. Izvestiia, June 15, 1954, p. 2. Izvestiia, October 14, 1954, p. 2. Ind., December 31, 1938, p. 2. Izvestiia, June 15, 1954, p. 2. Mash., July 21, 1939, p. 2. Ind., April 5, 1940, p. 2. Ind., April 10, 1940, p. 3. Ind., March 14, 1940, p. 3. This article was accompanied by a cartoon entitled "Travel Mission," showing a smiling, relaxed gentleman bathing in the sea. Krokodil, April 10, 1952, p. 8. See also Pravda, September 24, 1954, p. 2. Ind., July 17, 1940, p. 2. Ind., February 11, 1940, p. 3. "There is competition among the tolkachi. It depends upon their craftiness and the funds which they have at their disposal: if one man is from a large region and another from a small region, the former will get the goods more easily and the latter will have to wait a month for his." (Informant 114.) Alexander Baykov, The Development of the Soviet Economic System (New York, 1947), pp. 298-299. Kats, in Problemy ekonomiki, no. 5-6, 1940, p. 137. Ind., April 5, 1940, p. 2. Ind., February 11, 1940, p. 3. Granick (p. 146) calls the paying of black-market prices an often-used method of illegal procurement. The example given is the false labeling of good output as damaged goods, which permits it to be sold outside of channels at higher prices. This is indeed a typical method of evading the fixed prices, but the falsification is in the definition of the product and not in the price itself. Admittedly, it comes to the same thing, but one does wonder why, of all the illegal techniques used by management, they shy away from direct overpricing. Ind., July 24, 1940, p. 3. Shein, Organizatsiia, p. 94. Not all writers agree that this is a legitimate and commendable practice on the part of the supply agent. One writer, for example, describes the practice of "hunting around" in the supply depots as one of the worst practices, to be used as a last resort in cases in which, for example, the production program has been changed after the statements of requirements have been confirmed. See Fedotov, p. 68. But from reports about the frequency of plan changes, even these cases would account for a considerable amount of such hunting. Sobranie postanovleniia, 1940, articles 387 and 578. Izvestiia, June 15, 1954, p. 2. Ibid.

366

Notes to Chapter XII

41. Current Digest, VI, no. 38 (November 3, 1954), p. 26. From Pravda, September 24, 1954. 42. See also Granick, p. 67. 43. V. Girovskii, "Ob uluchshenii smetnogo dela i planirovanii stroitel'noi promyshlennosti" (On Improving Estimating Procedures and Planning of the Construction Industry), Planovoe khoziaistvo, no. 3, 1954, p. 75. 44. Liberman, p. 27. 45. This informant did not occupy a high position and his testimony on such matters must be regarded as hearsay rather than experience. 46. "On the basis of the draft plan, they draw up their statements of requirements for machines, for materials, and so forth. They go to the planning department of the chief administration. There the plan is combined with all the plans of the other factories in the chief administration. The reaction depends upon the chief of the planning department in the chief administration. He may accept the draft plan and study it seriously. Or he may yell and stamp his feet and shout, 'You must raise it 50 per cent.'" (Informant 403.) 47. Granick, p. 267. Chapter XIII. Inbuilt Controls over Management 1. V. A. Goloshchapov (compiler), Bukhgalterskii uchet — sbornik vazhneishykh rukovodiashchykh materialov (A Handbook of Basic Materials in Accounting), Fifth revised edition, Gosplanizdat, 1950, pp. 15-19. 2. Under the Edict of July 10, 1940. 3. Goloshchapov, Bukhgalterskii uchet, p. 18. 4. Decree of the Council of People's Commissars of January 8, 1938. Sobranie postanovlenii, 1938, article 1. 5. Cher, met., January 14, 1941, p. 1. 6. Mash., July 21, 1939, p. 2. 7. Ind., March 6, 1940, p. 3. 8. Kats, in Problemy ekonomiki, no. 5-6, 1940, p. 132; Leont'ev, in Problemy ekonomiki, no. 9, 1940, p. 96; Mash., September 9, 1939, p. 2; Mash., February 21, 1939, p. 3. 9. Mash., June 2, 1938, p. 1. 10. Ind., March 1, 1938, p. 2. 11. Cher, met., March 4, 1941, p. 3. 12. Mash., December 14, 1939, p. 2. 13. Cher, met., March 22, 1941, p. 1. Also S. M. Levin, Tekhnicheskoe normirovanie v chernoi metallurgii (Technical Norm-setting in the Iron and Steel Industry) (Metallurgizdat, 1950), p. 116. 14. Bronshtein, p. 7. 15. A. Arakelian, Ispol'zovanie, pp. 28-29. 16. Mash., December 14, 1939, p. 2. 17. Kheinman, pp. 110-111. 18. Sukharevskii, pp. 168-169. 19. Mash., October 11, 1939, p. 1; also September 8, 1939, p. 2. 20. Smekhov, pp. 56-57. 21. Ind., June 5, 1940, p. 2. 22. Ind., January 4, 1940, p. 2. 23. Ind., April 6, 1938, p. 2. 24. Mash., October 16, 1939, p. 2.

Control by the Ministry 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44.

45. 46. 47. 48. 49. 50.

367

Mash., February 9, 1939, p. 2. Smekhov, p. 56. Arakelian, Ispol'zovanie, p. 81. Mash., February 21, 1939, p. 1. Also Cher, met., November 26, 1940, p. 1. Mash., June 2, 1938, p. 3. Cher, met., March 13, 1941, p. 3. Mash., February 21, 1939, p. 4. Cher, met., January 16, 1941, p. 2. Mash., April 10, 1939, p. 3. Ind., September 1, 1940, p. 2. Manevich, p. 190. Ind., March 14, 1940, p. 3. Goloshchapov, Bukhgalterskii uchet, p. 17. Mash., July 21, 1939, p. 2. Mash., January 17, 1939, p. 1. Granick, p. 187. Cher, met., January 14, 1941, p. 1. Cher, met., January 16, 1941, p. 2. Ibid. V. I. Gostev, "Zadachi, formy i metody tekhnicheskogo kontrolia na mashinostroitel'nykh zavodakh" (Tasks, Forms, and Methods of Quality Control in Machinery-Manufacturing Plants), in Mashinostroenie — entsiklopedicheskii spravochnik (An Encyclopedic Handbook of Machinery Manufacturing) vol. 15 (Mashgiz, 1951), p. 594. Mash., June 2, 1938, p. 3. Also Informant 190. Pravda (January 28, 1955, p. 2) reports a case in which all the administrative personnel supported the effort of their chief engineer to appropriate the rewards of an invention made by a worker. Mash., August 14, 1939, p. 3. Mash., June 2, 1938, p. 3. Malenkov, in Gruliow (editor), Current Soviet Policies, p. 119. See also Current Digest, V, no. 25 (August 1, 1953), p. 15. Mash., January 15, 1939, p. 2. Chapter XIV. Control by the Ministry

1. Cher, met., January 16, 1941, p. 2. 2. Planovoe khoziaistvo, no. 3, 1941, pp. 60-61. 3. For example, Kosiachenko, p. 39. The author, who was the editor-in-chief of Planovoe khoziaistvo, the organ of the State Planning Committee, criticized a number of ministries for failure to meet production plans and to aid their enterprises. Criticism of this kind, leveled at ministries and chief administrations, abounds in the literature. See also Current Digest, III, no. 6 (March 24, 1951), pp. 31-32, for other examples. 4. Ind., April 17, 1940, p. 3. 5. Kosiachenko, p. 43. 6. Mash., September 18, 1939, p. 3. 7. Stroitel'naia gazeta, January 28, 1955, p. 2. 8. Ind., July 26, 1940, p. 3. 9. Granick, p. 73. 10. Mash., December 8,1939, p. 2. 11. Liberman, p. 37 fn.

368

Notes to Chapter

XIV

12. Ind., May 16, 1940, p. 2. 13. See Sokolov, pp. 37-38. 14. "For example, it is incomprehensible why the Chief Administration of the Tractor Industry established a target for the cost of production of tractors that was higher than actual cost. The actual cost of production of the tractor 'Stalinets' was 24,443 rubles in January, 22,283 rubles in February, 18,502 rubles in March. However, the plan for the first quarter of 1938, which was sent out only on the fourth of March, provided for a cost of production for the tractor of 26,830 rubles." Mash., April 6, 1939, p. 2. 15. Editorial in Planovoe khoziaistvo, no. 6, 1951, p. 27. 16. Kosiachenko, pp. 45-46. 17. Granick, p. 147. 18. Izvestiia, January 6, 1951, p. 2. 19. Current Digest, II, no. 50 (January 27, 1951), p. 32. From Izvestiia, December 13, 1950. 20. Mash., July 10, 1939, p. 2; Ind., January 18, 1940, p. 2; Cher, met., March 22, 1941, p. 3. 21. Ind., September 10, 1940, p. 3. 22. Mash., April 23, 1939, p. 2. 23. Cher, met., January 14, 1941, p. 1. 24. Ind., September 25, 1940, p. 2. 25. Tried, February 5, 1955, p. 2. 26. Ind., September 10, 1940, p. 3. 27. Mash., April 23, 1939, p. 2. 28. Izvestiia, February 16,1941, p. 2. 29. Mash., April 3, 1939, p. 3. 30. Manevich, p. 195. 31. Maizenberg, p. 23. 32. Mash., May 8, 1939, p. 2. 33. Mash., July 18, 1939, p. 1. 34. Granick, p. 53. 35. Ind., September 28, 1940, p. 2. 36. Current Digest, III, no. 1 (February 17, 1951), p. 36. From Pravda, January 5, 1951. 37. Current Digest, IV, no. 44 (December 13, 1952), p. 32. From Trud, November 1, 1952. 38. Ind., February 15, 1940, p. 2. 39. Ehrenburg, p. 25. Chapter XV. Party and Trade Union Controls 1. Bienstock, pp. 18-22; Arakelian, Industrial Management, pp. 156-158. 2. N. S. Khrushchev, "Changes in the Statutes of the All-Union Communist Party (of Bolsheviks)," in Gruliow (editor), Current Soviet Policies, p. 136. 3. Pravda, October 20, 1954, p. 2. 4. Ind., February 22, 1940, p. 1. 5. Mash., October 21, 1939, p. 2. 6. Ehrenburg, p. 144. 7. Partiinaia zhizn', no. 9, 1955, p. 36. 8. Current Digest, VI, no. 29 (September 1, 1954), pp. 7-8. From Partiinaia zhizn, no. 3, 1954.

Other Controls over

Management

369

9. Gruliow (editor), Current Soviet Policies, p. 119. 10. Merle Fainsod, How Russia is Ruled (Cambridge, Mass., 1953), pp. 204, 430. 11. Gudok, January 20, 1955, p. 1. 12. Gerschenkron, p. 10. 13. Fainsod, p. 205, Current Digest, III, no. 6 (March 24, 1951), p. 33. From Pravda, February 7, 1951. 14. Pravda, September 9, 1955, p. 2. 15. Current Digest, VI, no. 38 (November 3, 1954), p. 8. From Partiinaia zhizri, no. 10,1954. 16. Pravda, August 15, 1954, p. 2. 17. Current Digest, VI, no. 31 (September 15, 1954), p. 22. From Pravda, August 5, 1954. 18. The director of this informant's enterprise was a member of the district Party committee. 19. Ind., September 29, 1940, p. 3. 20. Bienstock, p. 22. 21. Arakelian, Industrial Management, p. 159. 22. Ehrenburg, p. 20; Gerschenkron, p. 9. 23. Trud, January 26, 1955, p. 2. 24. Mash., May 18, 1939, p. 1; Informant 384. 25. Quoted in Bienstock, pp. 76-77. 26. Mash., July 6, 1939, p. 2. 27. Arakelian, Industrial Management, p. 160. 28. D. Berdnikova, "Vliianie stakhanovskogo dvizheniia na tekhnicheskii progres" (The Influence of the Stakhanovite Movement on Technical Progress), Problemy ekonomiki, no. 1,1941, p. 81. 29. The practice of "counter-planning" has been de-emphasized in recent years. 30. Alex Inkeles, Public Opinion in Soviet Russia (Cambridge, Mass., 1950), chap. 14. 31. Mash., February 5, 1939, p. 3, and January 28, 1939, p. 2. 32. Current Digest, VI, no. 34 (October 6, 1954), p. 3. From Partiinaia zhizri, no. 9, 1954; also Sovetskoe gosudarstvo i pravo, no. 4, 1954, pp. 39-48. 33. "Even the Party committee of the Chief Administration of Agricultural Machinery does not like self-criticism. Once deputy Party secretary Comrade Zagor did not like a notice in the wall newspaper. He called the Party committee together and advised the editor, Comrade Petrov, "henceforth never to print anything in the wall newspaper without first informing the Party committee.' " Mash., February 14, 1939, p. 3. 34. Mash., October 18, 1939, p. 3. Chapter XVI. Other Controls over Management 1. Planovoe khoziaistvo, no. 3, 1940, p. 31. 2. Ibid. 3. B. Babynin, M. Sonin and S. Trubnikov, "Protiv mestnicheskikh tendentsii v planirovanii rabochei sily" (Against Localistic Tendencies in Planning Labor Power), Planovoe khoziaistvo, no. 4, 1940, p. 59 and passim. 4. Planovoe khoziaistvo, no. 7, 1938, editorial, p. 6. 5. Ind., September 29, 1940, p. 3.

370

Notes to Chapter XVI

6. Current Digest, V, no. 26 (August 8, 1953), p. 34. From Izvestiia, July 2, 1953. 7. Mash., September 18, 1939, p. 3. 8. M. Urinson, "Soveshchanie predsedatelei planovykh kommissii oblastei, kraev i avtonomnykh respublik v gosplane RSFSR" (Conference of Presidents of the Planning Commissions of Counties, Territories, and Autonomous Republics of the RSFSR), Planovoe khoziaistvo, no. 5, 1950, p. 86. 9. G. Zimin, "Opyt raboty Voronezhskogo oblplana" (Work Experience of the Voronezh County Planning Commission), Planovoe khoziaistvo, no. 3, 1950, p. 64. Also I. Sergienko, "Nekotorye voprosy planirovaniia mestnoi i kooperativnoi promyshlennosti v Chkalovskoi oblasti" (Some Problems of Planning in Local and Cooperative Industry in Chkalov County), Planovoe khoziaistvo, no. 5, 1951, p. 94. 10. Current Digest, II, no. 51 (February 3, 1951), pp. 31-32. From Izvestiia, December 22,1950. 11. Current Digest, III, no. 4 (March 10, 1951), p. 41. From Izvestiia, January 28, 1951. 12. A. Korobov, "Raionnyi razrez narodnokhoziaistvennogo plana" (District Breakdown of the National Economic Plan), Planovoe khoziaistvo, no. 1, 1939, p. 61. 13. I. Gaisinovich, "Bol'she vnimaniia raiplanam" (More Attention to District Planning Commissions), Planovoe khoziaistvo, no. 7, 1938, pp. 90-91. 14. Current Digest, VI, no. 29 (September 1, 1954), p. 22. From Izvestiia, July 18,1954. 15. S. Borobkov, "Iz opyta raboty gorodskykh i raionnykh planovykh kommissii Kurskoi oblasti" (From the Work Experience of the City and District Planning Commissions of Kursk County), Planovoe khoziaistvo, no. 1, 1951, p. 83. 16. Zimin, p. 71. 17. Gaisinovich, p. 91. 18. Izvestiia, March 17, 1956, p. 2. 19. Holzman, pp. 35-38. 20. Sokolov, p. 36. 21. Ind., February 22,1940, p. 2. 22. Sokolov, p. 37. 23. Ind., June 1, 1940, p. 2. 24. In a recent liberalization of the ministry's financial authority, it is allowed to use 3 per cent of its planned working capital for providing short-term financial aid to its enterprises. This should make it easier for ministries to cover wage overpayments. D'iachenko, in Voprosy ekonomiki, no. 1, 1956, p. 10. 25. A. Kurdriavtsev, "Usilit' kontrol' gosbanka nad raskhodovaniem fondov zarplaty" (Strengthen State Bank Control Over Wage Payments), Dengi i kredit, no. 3, 1954, p. 33. 26. StroiteTnaia gazeta, February 20, 1955, p. 3. 27. Sokolov, p. 38. 28. Sokolov, p. 40. 29. Mash., May 30, 1939, p. 3. 30. Granick, p. 174. The following discussion of credit is based largely on Granick, pp. 173-181. 31. Gaposhkin, p. 107. 32. Granick, p. 177.

A Critique of the Post-Stalin Reforms

371

33. Shvedskii, p. 29. 34. Current Digest, VI, no. 29 (September 1, 1954), p. 21. From Izvestiia, July 17, 1954. 35. Holzman, p. 137. 36. Loginov, p. 71. 37. Planovoe khoziaistvo, no. 1,1951, p. 96. 38. Batyrev, p. 37. 39. Loginov, p. 71. Holzman (p. 126) finds that a tax law of 1932 did include such a provision. Loginov's comments suggest that this was not the actual practice. 40. Stroitel'naia gazeta, February 20, 1955, p. 3. 41. Arakelian, Industrial Management, p. 92. 42. For a description of the work of the ministry, see Ts. A. Iarmol'skaia, "O roli gosudarstvennogo kontrol'ia v tvorcheskii-organizatorskoi deiatel'nosti sovetskogo gosudarstva" (The Role of State Control in the Productive and Organizational Activity of the Soviet State), in Sovetskoe gosudarstvo i pravo, no. 6, 1952, pp. 20-27. 43. Fainsod, pp. 343-344. 44. Granick, p. 16. 45. M. G. Pervukhin, in Pravda, February 23, 1956, p. 8. 46. Izvestiia, March 18, 1956, p. 2. 47. N. M. Vasil'ev, "Za dal'neishee ukreplenie gosudarstvennoi distsiplinyi v sovetskom gosudarstvennom apparate" (For Further Strengthening State Discipline in the Soviet State Apparatus), Sovetskoe gosudarstvo i pravo, no. 6, 1954, p. 21. 48. Levin, pp. 353-357. 49. Fainsod, pp. 431-432. 50. Fainsod, p. 432. 51. "We had to have extra funds, and they knew that the director would get funds illegally. They just looked the other way. But if the director were called a Trotskyist, all this would be held against him. If he were never arrested then he would never be called to account." (Informant 384.) 52. Cher, met., March 22, 1941, p. 1. 53. Current Digest, VI, no. 38 (November 3, 1954), p. 9. From Partiinaia zhizn, no. 10, 1954, pp. 25-28. 54. Mash., July 15, 1939, p. 1. 55. Malenkov, in Gruliow (editor), Current Soviet Policies, p. 108. 56. ". . . The district consumer cooperative provides more goods to the successful and efficient village cooperative." (Informant 164.) As a result the successful village cooperative is better able to fulfill its plan. But this success may also be a danger to the firm, for a hard-pressed chief administration may be forced to saddle it with more difficult tasks. See StroiteTnaia gazeta, January 28, 1955, p. 2. Chapter XVII. A Critique of the Post-Stalin Reforms 1. For a recent discussion of changes in various aspects of Soviet life see Philip E. Mosely, editor, Russia Since Stalin: Old Trends and New Problems. The Annals of the American Academy of Political and Social Science, vol. 303 (January 1956) and Problems of Communism, (JanuaryFebruary 1956) pp. 1-35. 2. See Gregory Grossman, "In the Land of the Paper Pyramids," Problems of

372 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. 29. 30. 31. 32. 33.

Notes to Chapter XVII Communism, (July-August 1955) pp. 19-21 and John N. Hazard, "Governmental Developments in the USSR Since Stalin," in Mosely, pp. 13-14. Izvestiia, January 31, 1957, p. 2. B. Glukser and P. Krylov, "O sisteme pokazatelei narodnokhoziaistvennogo plana" (The System of National Economic Plan Indicators), Planovoe khoziaistvo, no. 5, 1954, p. 81. Grossman, p. 19. Kh. Kastanaev and N. Levinson, "Puti sovershenstvovaniia upravlencheskogo apparata" (Ways of Improving the Administrative Apparatus), Kommunist, no. 1, 1956, p. 70. Pravda, February 8, 1955, p. 2. Glukser and Krylov, pp. 80, 84. Planovoe khoziaistvo, no. 6, 1955, p. 5 (editorial). Glukser and Krylov, p. 80. Dozortsev, p. 43. Glukser and Krylov, p. 86. Ibid., p. 84. Grossman, p. 23. Hazard, pp. 11-14. Izvestiia, May 26, 1955, p. 2. Pravda, May 30, 1955, p. 2. Pravda, May 25, 1955, p. 2. See particularly the report by Bulganin in Pravda, July 17, 1955. Dozortsev, p. 49. M. N. Sveshnikov, "Rol' gosbanka v provedenii rezhima ekonomii" (The Role of the State Bank in Promoting Economical Operation), Sovetskoe gosudarstvo i pravo, no. 4, 1955, p. 26. V. Lavrov, "Zadachi uluchsheniia finansovo-khoziaistvennoi deiatel'nosti predpriiatii" (Tasks in Improving the Financial and Managerial Activity of Enterprises), Planovoe khoziaistvo, no. 6, 1955, pp. 48-49. Ibid. Dozortsev, p. 49. The following description is from Sveshnikov, pp. 22-25. S. S. Alekseev and V. K. Maniutov, "Grazhdansko-pravovye formy obespecheniia vysokogo kachestva i shirokogo assortimenta tovarov narodnogo potrebleniia" (Civil Law Forms of Securing High Quality and a Wide Assortment of Consumer Goods), Sovetskoe gosudarstvo i pravo, no. 6, 1954, p. 60. Grossman, p. 20. Current Digest, VII, no. 20 (June 29, 1955), p. 22. From Vedomosti verkhovnogo soveta SSSR, no. 8, 1955, p. 223. Postanovleniia, pp. 89-90. Pravda, September 1, 1953, p. 1. Edmund Stevens, This Is Russia Un-censored (New York, 1951), pp. 3 3 34. Izvestiia, September 8, 1953, p. 2. The 1955 decree abrogating the 1940 law against resale and exchange also provided that people then serving prison sentences under the 1940 law were to be released. This decree was issued almost two years after the 1953 broad amnesty decree. If the 1953 amnesty had been executed in good faith, the only persons still in prison in 1955 for economic crimes must have been those sentenced in the period between 1953 and 1955.

A Critique of the Post-Stalin

Reforms

373

34. An objectively reasonable level of targets may be defined roughly in terms of the percentage of enterprises which fulfill their plans. The rather astonishing figures released by Bulganin, that in the period 1951-1954 between 31 per cent and 40 per cent of all enterprises underfulfilled their annual plans, underscores the unrealism of the plans. In addition to the enterprises which underfulfilled, it is likely that a large percentage of enterprises succeeded in fulfilling their plans by very narrow margins. A reasonable level of plans might be one in which perhaps less than 5 per cent of all enterprises underfulfill their plans. 35. I. Kasitskii, "Vnutrizavodskoe planirovanie i tekhpromfinplan predpriiatiia" (Enterprise Planning and the Technical-Industrial-Financial Plan), Kommunist, no. 5, 1956, p. 98. 36. Dozortsev, p. 46. 37. Izvestiia, December 25, 1956, p. 1; February 6, 1957, p. 2.

INDEX

Abstinence from production, 234 Abuse, definition, 54 Accountant, key figure in tolkach operations, 215-216. See also Chief accountant Accounting, 38, 94, 166, 177 Accounting period, importance of, 162163 Accounts, shuffling, 169-170 Accumulation, 57, 59 Administration of Standards of the Council of Ministers of the USSR, 156, 158 Advancement, desire for, 50-51 Agiotage, 220 Agricultural Machinery, Ministry of, 251252, 259 Agriculture, Commissariat of, 186-187 Allocation order, 22, 186-190 All-Union Committee on Standards, 149n„ 156-159 All-Union Council of Ministers, 16 All-union jurisdiction, 16 All-union ministers, 17; compared with republican ministers, 302-303 Alternatives, reasons for choice, 25, 32, 45-46. See also Goals of management "Always," definition of, 71n. American labor, 173n. Amnesty decree, 312-313 Annual plans, 163-164 Anti-Communist displaced persons, 6 Assortment, and premiums, 41; of production, 114-135; for repair work, 238 Assortment plan, reasons or explanations for violation of, 117-130; special cases, 120-121; profit as reason for violation, 124-127; Turetskii on, 124; priority as reasons for violation, 127-130; sanctions against deviation from, 130135; Liberarían on, 132; maneuvering by ministry, 250 Auditing, problems concerning, 189n.; by ministry, 253-255

Authorities, secretiveness of, 1-2. See also Enterprise Automotive and Tractor Parts Marketing Administration, 212-213 Automotive-tractor parts, improvement of, 149 Automotive transport industry, premiums, 29 Auxiliary materials, exchange of, 108109 Avalanche effect, 55, 295-300 Bank, short-term credit, 285 Bank clearings, payments by, 176-177 Base salary, and premiums, 45-49 Basic premiums, 28, 32 Benefit, contrasted with incentive, 68 Bias in interviews, 4, 6-7 Bicycle parts, 147n. Blat, 177n., 286, 316, 319; definition of, 182-184; in procurement of supplies, 184-190, personal basis of, 191-197; and the "market," 197-199; and the priority system, 199-206; use by tolkachi, 215-218; enhanced by interchange of personnel, 261; for a smoother working of the system, 326327 Bluffing, in materials requirements, 93 Boiler tubes, 196-197 Bonuses. See Premiums Borrowing, of spare parts, 128; of output, 161-169 Breach of contract litigation, and fines for, 64, 130-131 Breakdowns, safety factor against, 76-77; prevalence of, 238 Bribery, difference from blat, 191 Bricks, 123n., 145 Bulganin, Premier Nikolai, report on industrial management, 11; on executive changes, 48; on new products and subcontracting, 87; on obsolete models, 121; on labor mobility, 171

376

Index

Bureaucracy, 7; resentment against, 229 Bureaucratic managers, 53; state's condemnation of, 222 Bureaus, 15 Buyers, availability of, 149 Campaigns, press scrutinized for, 202 Capital, fixed, 22; "own" working capital, 22-23 Capital expenditures, 65 Capital investment, profit and, 65-67 Capital repairs, versus current repairs, 179 Capitalist system, attitude of informants to, 6 - 7 Careerist, 50 Carryover of borrowed output, 167-168 Cement, overshipment, 102; exchange for other materials, 108-109 Central Committee of the Communist Party, 16; incessant demand for higher output, 260; condemnation of unrealistic plans, 317 Central government, reorganization, 3 0 3 306 Central planning organs, 306 Central Statistical Administration, 166, 178 Centralization, concept of, 224n. Change, in managerial performance, 1011, 301, 306-317 Chekhov, Anton, 97n. Chernaia metallurgia, newspaper organ of iron and steel industry, 10 Chief accountant, office of, 13-14; control duties, 231—233; pressures on, 2 3 9 243; mutual involvement, 243-248 Chief administrations, 17; action on reserves criticized, 249 Chief designer, 15 Chief engineer, or deputy director, 13; office of, 15; tenure, 48; importance of enterprise fund to, 70; and safety factor, 76; control functions, 232, 2 3 4 238; pressures on, 239-243, mutual involvement, 243-247 Chief of planning department, 13-14 Chief of purchasing department, 14 City governments, self-interest of, 2 7 9 281 Clean-up campaigns, 140n. Clearance planning, 83-85; by ministry, 257 Clock Industry, Chief Administration of, 256 Coal Machinery, Chief Administration of, 256n.

Coal mines, simulation in output, 117; authority over, 302 Colleagueship, 261 Collective contract, 272n. Collective farm system, acceptance of, 6 Collusion, control and production officials, 242-247 Combines, 13 Commissariats, subdivision leading to increased competition, 220 Commissars of ministries, relations with enterprises, 260-261 Commission of Soviet Control, 89 Commodities, norms for, 60; exchange of, 107-113 Communist ideology, acceptance by informants, 6 Communist Party, Central Committee of, 16 Comparable production, 73 Competition, among tolkachi, 219n.; stimulated by subdivision, 219-220 Concealed reserves of production capacity, 79; ministry pressure on, 2 5 7 258 Conferences, and criticism, 274r-278 Conflicts, and personal relationship, 246; ministry and enterprise, 257-259 Constant prices (1926-1927), in premium plans, 35; relation to current ones, 123 Construction account, use for wage falsification, 176 Construction Materials, Chief Administration of, simulation, 116 Consultant fees, 221 Consumer goods, as medium of exchange, 109-110; underfulfillment, 128, 129, and blat, 195 Consumer-goods enterprises, decentralization, 301 Consumer-goods production, weak resistance to poor quality, 151-152 Contingencies, safety factor for, 77 Contracts, deliberate over-signing, 131 Control agencies, managerial practices limited by, 323-324, 328 Control figure targets, 18 Control officials on the managerial staff, 231-238; pressures on, 238-343; web of "mutual involvement," 243-247 Controls over management, inbuilt, 2 3 1 247; the ministry, 248-263; party and trade union, 264-278; local governments and their planning commissions, 279-282; State Bank, 282-287; tax collector, 287-289; police agencies of

Index control, 289-293; other control agencies, 293-295; avalanche effect, 295300; post-Stalin reforms, 301-317. See also Ministers Corrections of errors, regulations on, 166 Cost function, discontinuities in, 120 Cost plan, 72-73; simulated fulfillment, 169-170 Cost-price ratios, in deviation from assortment plan, 125, 126 Cost reduction, premiums as motivation for, 41-42; importance, 72-73 Council of Ministers, 16, 84, 289, 290 Council of the National Economy, 11 Council of People's Commissars, decrees, 34, 38, 84, 89, 153, 223, 311 County executive committee, 16 Creativity, as a goal, 51-52 Criticism, as a full-time occupation, 104; and conferences, 274-278; intolerance of, 278n. Criticizing, function of mass communications, 2; Bolshevik tradition of selfcriticism, 2; suppression, 3 Current prices, in premium plans, 36, relation to constant, 123 Current repairs versus capital repairs, 179 Customer reaction, 131-133 Customer resistance, weakness of, 149156 Daily quotas, 163 Data, problem of credibility, 2 Decentralization, 301-304; purpose of, 303-304 Decentralized commodities, 22, 219 Decentralized procurement, 220 Decisions, managers' duty, 4, 25 Deficit parts, 234 Delays, 91; premiums as cause for, 35 Departments, 14 Deputy director, 13 Detection of falsification, 166-169 Deterioration of quality, unintended, 137-142; deliberate, 142-148 Deviation from assortment plan, sanctions against, 130-135 Diesel Administration, 297 Directives and control figures, 18 Director, office of, 13; and the steward of the state, 17; and the planning process, 17-18; tenure and dismissal, 4749; importance of enterprise fund to, 70; real power dependent on personal influence, 230; Granick on, 230; full responsibility for policy, 231; controls over, 231-238; director's pressure on

377

control officials, 239-243; mutual involvement, 243-247; and Party secretary, 265-267 Director's fund, premiums from, 32. See also Enterprise fund Discrimination, sanctions for, 133-134 Dishoardmg, 105-107; Arakelian on, 105-106; by exchange of commodities, 107-113 Dismissal, for underfulfillment, 47n.; for deviation from assortment plan, 134; of control officials, 245 Displaced persons as informants. See Informants; Interviews with informants District executive committee, 16; responsibilities, 279 District government, industrial department of, 279 District Party committees, 227 Domestic Trade, Minister of, 108 Draft plan, submitted to chief administration, 18 Duplication, in repair work, 238 Easiest product, preference for, 120-121 Economic institutions, homogeneity of, 12 Economic regions, 11 Economic system of USSR, 5, 12-24 Economy, premiums for making an, 28, 92-93 Ehrenburg, Ilya, The Thaw, 49, 52, 53, 262-263, 266 Eighteenth Party Conference, 36, 110, 116, 136, 140, 248-249 Electric Power Plants, Ministry of, 97 Encyclopedia of Machinery, on measure of plan fulfillment, 122 Engels, Friedrich, on freedom, 62 Engineering-technical personnel, total 1940 salaries, 69. See also Chief engineer England, industrial conditions compared with Russia, 141-142 Enterprise, defined, 12; physical charcteristics, 12-13; firm management, 1315; and the state, 16; supervision of, 17; planning process, 18-19; decentralization of authority over, 301-304 Enterprise fund, 67-70; misappropriation, 216n. Enterprise plan, 20, 27, 62; production, procurement, and labor and payroll plans, 20; degree of detail reduced, 304 Equilibrium theory, deviation from planned assortment in terms of, 119

378

Index

Escapees, from Soviet army, 5 Estimates, padding of, 89-94 Evaluation, of informants' data, 318-329 Evasion, Marx on, 142 Excellence, premiums a reward for, 46 Exceptions to assortment plan, profit as, 124-127; priority as, 127-130 Excess materials, pressure to accept, 99101; dishoarding of, 105-107; exchange of, 107-113 Exchange of commodities, 107-113 Excuse, socially approved, 78n. Expediting, by tolkachi, 209-211 Expense accounts, for tolkachi, 218 Experimental shops, use for production, 237n. Export market, quality standards maintained for, 153 Failure, fear of, 53 False grading, 147-148 Falsification, motivation for, 37-38; of reporting, 160-181; function of, 298 Family circle, the, 259-263 "Fat," awareness of, 90, 187 Feasible products, 125 Fifth Five Year Plan, constant prices, 123 Finance, 22-23; in informants' interviews, 4; indifferent attitude toward, 65, 203204 Finance department of firm, 14; of local executive committee, 287-288 Financial controls, 282-289; forces that limit effectiveness of, 61 Financial organs of government, controls, 287-288 Fmancial plan, 20 Fines, 64; for breach of contract, 130131 Fire prevention funds, shuffling, 169 Firm, managerial officials, 13-15; and the state, 16-17; local jurisdiction over, 16; all-union jurisdiction over, 16-17; republican jurisdiction over, 16; planning process, 17-22 First Five Year Plan, 139 Fixed capital, 22 Fixed price system, 220-221 Flexibility, safety factor enhances, 80 Flitting of labor, 139, 171; Marx on, 141; Fomich, Anton, a fictional tolkach, 207209, 218 Forced credit from sellers, 64 Foreign travel, liberalization of, 3 Foreman, 15 Fourth Five Year Plan, premiums, 30 Free access to Soviet system, denied, 3

Free medical care, informants' attitude toward, 6 Free social services, informants' attitude toward, 7 Free societies, social institutions of, 12 Freedom, limited, 62 Friendship. See Blat Fuel consumption, premiums, 35 Fulfillment of plans, premiums for, 26; as cause for quality deterioration, 145. See also individual plans by name Funded commodities, 22; and blat, 195 Funds, for tolkachi, 215-216 Germany, former Soviet citizens in, 4-5 Gifts, and blat, 191-192, 215n. Goals of management, 25-43; premiums and other, 43-56; profit as, 57-74; Liberman on incentives, 92n. Gogol, Nikolai, 97-98 Goods in process, borrowing of, 161-162 Grain storage, loss from rodents, 147 Great Soviet Encyclopedia, on self-interest, 49-50 Gross output, in premiums plans, 35-36; stress by some managers on, 122-123 Guaranteed earnings, 172, 175 Haggling, 225-226 Harvard Project on the Soviet Social System, 4 Heavy Industry, Commissariat of, order on repair work, 246n. Heavy industry, most informants from, 8; newspaper organ of, 10; rate of profit, 57-58; dominance over light, 201-202; authority over, 302 Heavy Machinery, Commissariat of, padding, 249; warnings, 255 High-priority enterprise, relatively little need for blat, 205-206 Hoarding, 95-99, 320; sources of hoarded materials, 99-105; Pravda on, 97; dishoarding, 105-107; state pressure against, 112; ministry connivance, 253; motivations for, 311; source of inefficiency, 325-326 Homogeneity, in social and economic institutions, 12 Housing, from enterprise fund, 68 Identity of interests, ministry and enterprise, 260-261 Illegal actions, reasons for taking, 53-54; prevalence, 197 Illegal procurement activities, data on, 221-222

Index Illegal selling and blat, 198-199 Imprisonment for subquality output, 153 Inbuilt controls over management, 231247 Incentives. See Goals Income, from blat, 191-192 Independence, of the manager, 62 Indices of performance, 70-71 Industrial commodities, levels of importance, 22 Industrial management, informants interviewed on, 8; Premier Bulganin on, 11 Industrial ministries, many abolished, 11 Industrial revolution, 141 Industrialization, results of rapid pace, 138-142 Industriia, newspaper organ of heavy industry, 10 Inefficiency of regime, informants' criticism, 7; in managerial behavior, 325326 Inferior materials, use of, 144 Influence, the tolkach and uses of, 207230 Informal inter-enterprise relations, 206. See also Blat; Tolkach Informants, 4-9; fear of reprisals, 5-6; reliability of, 6; anti-Soviet bias of, 7; attitudes toward government of, 6-7. See also Interviews with informants Initiative, state's exhortation of, 222223; proof by example, 229n. Inputs, falsification, materials, 169-170; labor, 170-181 Inspection, superficial, 238n. Inspection General, traditional Russian institution, 290 Inspectorates, 294 Inspectors, concealment of simulation from, 166-167 Interchange of personnel, 261 Interfirm clearings, bank responsible for, 284-285 Interfirm purchases, 20-21 Inter-industry purchasing system, distrust of, 91; rigidities in system, 102-104 Intermediate level officials, 15 Internal transportation, high cost of, 173n. Interviews with informants, analysis, 4 5; focused on professional experience and knowledge, 7; attitudes toward Soviet regime, 4-8; approach followed in, 8-9, time period covered, 9-11 Inventories, excess of, 59-60; difficulty of full accounting, 93-94; hoarding, 95-99; sources of materials hoarded, 99-105; dishoarding, 105-107

S79

Investment, financed out of profit, 61, 67; from enterprise fund, 67 Iron and steel industry, newspaper organ of, 10; premiums, 30, 31 Irregular practices, of managers, 318-322 Job-lot production, 132 Junior commander of production (foreman), 15 Junior shop officials, 15 Khrushchev, Nikita, 11; on function of Party official, 264; economic reform proposed, 302n. Krokodil, satirical reference to quality, 136; on false grading, 148; on falsification of work orders, 173n.; on the tolkach, 207-209, 218 Labor, and safety factor, 77-78; growing skill of, 142; falsification of reporting, 169, 170-181; shortages and pirating, 170-171; mobility, 171-172; reclassification, 180; overstaffing, 180-181 Labor and payroll plan, 20 Labor discipline, Marx on, 141 Labor organization, department of, 14 Labor productivity, as a goal, 33; as criterion of performance, 71; lagging rate of growth, 86-87 Lateness to work, Marx on, 141 Law, fear and circumventing of, 112113 Laws, new, 11 "Leading links" guide to priority, 202 Leap-frog transfers, criticism in press, 48 Leasing equipment, 111-112, 112n. Legal action on quality, 150-151 Legal restrictions on premiums, 39 Legal system, 293-294 Letters, effectiveness of, 229 Li Shao-chi, on self-interest, 50n. Light Industry, Ministry of, assortment deviation, 124 Light Machinery Manufacturing, Chief Administration of, financing investment program, 66 Line officials, 15 "Living peacefully" as a goal, 53-54, 241 Loan program, new, 307-309 Local executive committee, finance department, 287 Local governments, and their planning commissions, 279-282 Local jurisdiction, firm of, 16 Local party committee, 268-271

380

Index

Local planning commission, 279-280 Local state bodies, 16 Long-run decisions, salary relevant for, 47 Long-run premiums, 45 "Looking the Other Way," by ministry, 252-253; in Izvestiia, 253 Loss, planned operations at a, 72 Love of creating and building, as a goal, 51-52 Love of power, as a goal, 51 Low-grade merchandise, consumer acceptance of, 151-152 Low-priority enterprise, need to accept subquahty production, 151; need for blat, 205 Lumber, Commissariat of, padding, 90 Machine capacity, safety factor, 85-86 Machinery, Commissariat of, on spare parts production, 255 Machinery industry, newspaper organs of, 10 Machines, repair work schedule on, 235236 Maintenance, simulation by neglect of, 234-235 Maintenance problem, 138 Maintenance work, pressure for release of men from, 237 Malenkov, G. M., on managerial performance, 10; denunciation of loopholes in premium plans, 36; on material padding, 94; rebuke on hoarding, 96; on exchange of commodities, 110; attack on simulation, 116; on subquality goods, 136-137; on filthy conditions, 140, 141n.; on wage falsification, 172; stress on consumer goods, 202; on principle of survival, 245; on ministry warnings, 255; on involvement, 266 Manager, prepurge and postpurge, 9; contrast with capitalistic society, 11 Managerial behavior, motivation of, 4, 25-43; presentday and future, 10-11; profit as criterion of, 70-74; reforms of new regime, 306-314; determinants of, 316; irregular practices, 318-322; and the control agencies, 323-324; elements of inefficiency, 325-326; counteracting forces, 327-328; state toleration, 328329. See also Controls over management; Goals; Ministries Managerial staff, obligations and rights, 13-15 Manufactured articles, and blat, 195n.

Marginal production, premiums tied to, 46-47 Marginal profit, 118n. Market, blat and the, 197-199; definition, 198n.; tolkachi operating in, 212 Market output, in premium plans, 36; as basic measurement of fulfillment, 122123 Marketing, interviews on, 4; and purchasing, 20-22; affecting profit, 73; unimportance to manager, 131-132 Marketing administration, chief, 21 Marketing department, 14 Marx, Karl, Capital, on conditions in England, 141-142 Mashinostroenie, newspaper organ of machinery industry, 10 Mass communications, 2 Mass participation, trade union and, 271275 Material self-interest, 49 Material welfare, powerful motivation, 322 Materials, falsification of, 169-170 Materials account, use for wage falsification, 177 Materials procurement, and safety factor, 77, 88-113 Materials requirements, reasons for padding, 89-94 Mechanical engineer, chief, 15. See also Chief engineer Metal, high exchange value of, 110 Metal Products, Chief Administration of, 249 Military construction, priority of, 204 Military industry, priority for, 127-128; quality problem, 151n., 152; dominance over civilian, 201 Mining enterprise, premiums, 29; ore quality deterioration, 144 Mining Machinery, Chief Administration of, 256n. Ministers, responsibilities of, 16-17; goals of, 51; all-union versus republican, 302-303 Ministries, division of firms in, 17; interest in producing unit, 41; working capital from, 61; knowledge of safety factor, 82; awareness of padding, 90; interest in hoarded materials, lOOn.; importance of attitude of, 135; performance measured by quarterly and annual plans, 163-164; importance of personal relations with, 226-227; power over enterprise's control officials, 241; control by the, 248-263; active aid by the,

Index 248-252; involvement in success of enterprise, 283-284 Ministry of State Control, major function, 289-290; lack of knowledge of enterprise activity, 290-291; ineffectiveness of, 323 Ministry of State Security, 290 Ministry of Trade, 310 Ministry plans, clearance, 84 Minor officials, value of personal relations with, 228-229 Misallocation, and blat, 199 Mixed-rating discrepancies, 175 Mobilizing internal resources, 100-101, 105 Modernization, from enterprise fund, 68 Money bonuses. See Premiums Monthly accounting period, importance of, 163 Monthly plan, storming in, 39-40; focus on, 47 Mordovian State Planning Commission, 282 Moscow, tolkachi in, 214-215; generalized authority, 224n.; contacts in, 226 Mutual involvement, the web of, 243247, 262, 264-271, 316 National Economic Plan, 2, 11, 18-20 Negotiation, personal factor in, 224-230; planning by, 225-226 New product, excuse for price rise, 221 New products, introduction of, safety factor and, 86; in Izvestiia, 86 Nineteenth Party Conference, 116, 137, 141n. NKVD, knowledge of tolkachi, 221 Non-ferrous Metals, Chief Purchasing Administration of, 110, 211 Nonmaterial goals of managers, 50-56 Nonmonetary goals and premiums, 4956 Nonplan allocation order, 188 Non-Soviet students, 5 Normed working capital, 60 Norms, for enterprise, 60, increase in labor, 172; falsification in setting, 174 OchkovtirateYstvo, formula of simulation, 114 One-day production records, as a goal, 45 Organization and technical measures, plan of, 20 Output, borrowing, 161-169; use by tolkachi, 217

381

Output plan fulfillment, importance of, 72-73; simulated, 161-169. See also Production Plan Over-all success, premiums for, 28 Overfulfillment, premiums for, 26; goal of, 33; excess of working capital from, 58-59 Over-ordering, 320 Overpayments, of wages, 172-173 Overplan output, 72-73 Overstaffing of labor force, 178-179 Overstatement of production, 163-164 Padding of estimates, 89, 99n. Party controls over management, 264271 Party secretary, functions of, 264; and director, 265-267; in web of mutual involvement, 264-271 Payroll plan, 20 Penal sanctions, replaced by administrative sanctions, 311-312 People's commissars, 16. See also Ministers Per diem allowances, limited, 223 Percentage fulfillment of profit plan, importance of, 72 Performance, criterion for evaluating, 7074; Granick on, 71 Permanent campaign, the, 306-307 Persecution, of control officials, 239 Personal basis of blat, 191-197 Personal benefit, exchange for, 109, blat for, 197-199 Personal influence, the role of, 182, 224230 Personal relationships, as cause for misuse of premiums, 38-39, and conflicts over control, 246 Personnel department, 14 Peskm, Alex, interviewer, 8 Petroleum industry, tolkachi in, 217 Piece-rates, Marx on, 142 Plan-drafting stage, latitude during, 62 Plan fulfillment, premiums for, 26, goal of, 44—45, 51-52; and overfulfillment, 75-76, ministry connivance in simulation of, 256-257. See also individual plans by name Plan of organization and technical measures, 20 Plan targets, realism of, 226, 316 Planned assortment, reasons for deviation from, 117-130; sanctions against, 130135 Planned centralized commodities, 22 Planned decentralized commodities, 22

Index Planned funds, pressure to spend, 203n. Planned investment, compared with investment from profits, 67 Planned profit, 59-60. See also Profit Planning, interviews on, 4; by negotiation, 225-226; value of personal relations, 228-229; post-Stalin reforms in, 304-306 Planning agencies, administrative reorganization, 306 Planning commissions, of local governments, 279-282 Planning department, chief of, 13-14 Planning process, 17-20; submitting of draft plan, 18-19 Plant manager, 1. See also Director; Manager Plenum of the Central Committee, 281 Plyushkins (hoarders), 97-98 Police agencies of control, 289-293 Politburo, now the Presidium, 260 Political atmosphere (post-Stalin), 312314 Political idealism, as a goal, 53 Politically educated managers, 202 Politics, customer pressure through, 131; ministry pressure from, 259 Postpurge managers, 9 Postwar hoarding, 97 Postwar period, lack of published materials, 10 Postwar premiums, 29 Power, love of, 51 Power industry, procurement problem, 9 In. Preferences, state's scale of, 127-128, 200-202

Premium maximization, 43n., 79-80 Premium optimization, 43n. Premiums, as basis for choice of alternatives, 25-26, the nature of, 27-29; the size of, 29-32; postwar scales of, 30, operational significance of, 32-39; general acknowledgment of potency of, 39-43; and base salary, 45-49; and nonmonetary goals, 49-56; from enterprise fund, 68-69; for dishoarding, 105; exceptions to, as motivation, 122130; as cause for falsification, 165-166; ministry use of, 256; as a positive goal, 321 Prepurge managers, 9 Presidium of the Supreme Soviet, decrees against exchange of commodities, 110— 111; incessant demand for higher output, 260

Press, material from, 10; editorials in, 45, 202; outlet for criticism, 2, 276-278 Pressure by the ministry, 257-259 Pressures on control officials, 238-243; web of mutual involvement, 243-247; result of Soviet state objectives, 329 Prestige, from earning premiums, 46 Prewar period, premium size, 29; borrowing output, 164n. Price competition, from agiotage, 220 Price system, paradox of, 147n. Price-to-cost ratio, in assortment plan, 119, 122 Price violations, relative absence of, 220221 Pride of work, as a goal, 52 Priority, as an exception to assortment plan, 127-130; eifect on quality, 153 Priority system, and blat, 199-206 Private property concept, informants' attitude to, 7 Procedures, system of, 22 Procurator, 293 Procurement of supplies, Pravda on, 91n.; blat m, 184-190 Procurement plan, 20; and the safety factor, 88-113 Production, incessant demand for, 23; premiums' double duty in motivating, 40, comparable and noncomparable, 73, the assortment of, 114-135; the quality of, 136-159; spoilage problem, 137-142; pressure to acquire maintenance men for, 237 Production conferences, 274-277 Production cost, as criterion of performance, 71 Production plan, 20; and the safety factor, 75-87 Production-plan fulfillment, quantitative index of performance, 70-71 Production program, 115 Production units, 15 Profit, definition, 57; and working capital, 58-61; and capital investment, 65-67; total 1940, 69; as a criterion of performance, 70-74; as an exception to assortment plan, 124-127 Profit maximization, 60; dominant goal of capitalist, 43 Profit target, and premiums, 34-35 Propaganda, function of mass communications, 2 Protests, in mutual involvement, 244; filing of, 254 Psychological motivation, 33

Index Published materials, as a source, 3; use in interpretation, 5, 224, prewar period, 9-10 Purchasing, interviews on, 4; interfirm, 20-21; and marketing, 20-22; tolkach activity, 209-218 Purchasing administration, chief, 21 Purchasing department, chief, 14 Purges of 1936-1937, 9 Push, by tolkachi, 209-210, 212, 213, 214 Putevka, premium of, 28 Qualitative indices of performance, 71 Quality, as a goal, 45; in materials requirements, 94—95; of production, 136159; unintended deterioration of, 137142; deliberate deterioration, 142-148 Quality control, premiums needed for, 42; stricter, 154; technical standards and, 156-159 Quality control, department of, 14; officials of, 145; control function of, chief of, 232, 233; pressures on, 239-243; mutual involvement, 243-247 Quality inspectors, 152, 153, 158-159 Quality Steels, Chief Administration of, 254 Quantitative index of performance, 70—71 Quarterly plan, importance of, 163-164 Quiet life, desire of ministries for, 249 Ratchet principle, in planning, 78-79, 315; as cause for understatement, 165; and ministry, 250, 257 Rationalization proposals, premiums for, 28 Raw materials, and blat, 195; from tolkachi, 219n. Receipts, working capital used to offset decline in, 63 Reciprocation of favors, in blat, 192 Recomputation of capacity, use in safety factor, 82 Record-breaking, Marx on, 142 Red Banner, for overfulfillment, 26 Red Directors, 9, 261 Redistribution of materials, decrees on, 110-113 Reduced planning, condemnation of, 76; struggle for, 82; and clearance planning, 85 Reforms, post-Stalin, 10-11, 301-317; bases for, 314-317 Refrigeration Industry, Chief Administration of, 251 Regional economic bodies, 11, 279

383

Reinsurance, 239; in safety factor, 84; in mutual involvement, 244 Rejects, 137, 147n.; sale of, 193-194; disposal by tolkachi, 219 Rent, failure of officials to pay, 199n. Repair and maintenance account, use for wage falsification, 176 Repair work, schedule of, 234-238 Repairs, current versus capital, 179 Reporting, falsification of, 36-38, 160181, 316 Representative, tolkach as, 211 Representative of ministry, resident in enterprise, 260-261 Reprimands, by ministers, 254-255 Reprisals, fear of, 5-6 Republic council of ministers, 16, 302 Republican jurisdiction, firm of, 16 Republican ministers, 16, 301-303 Requirements, statement of, 88-89, 253 Research problems, sampling and bias, 2 4 Reserves, spoilage as, 147; ministry desire to control, 258; maintaining, 319 Retail store, quality problem, 152 Retooling, effect on production, 120 Rewards, to workers, 68 Risks, fear of taking, 54-55 RSFSR, criminal code of, 232 Russian Republic State Planning Commission, 104 Safety factor, 75-83; Granick on, 80; clearance planning, 83-85; other forms of, 85-87; and the procurement plan, 88-113; as cause for deviation from assortment plan, 126; and falsely reporting spoilage, 146-147; as cause of falsification, 164-165; in wage funds, 178; in repair work, 235; ministries aid to, 249-251, 257; practices associated with striving for, 314-315, 319; benefits of, 326 Salaried managers, 1 Salary, and premiums, 45-49 Sales tax, 57, 287-288 Sampling, in interviews, 4, 9 Sanctions, against deviation from assortment plan, 130-135; weighing of alternatives by managers, 133-134 Scarcest factor, determines direction of production, 120 Scheduling, element of choice in, 200201 Scrap Iron, Chief Administration of, 95 Second Five Year Plan, 139

384

Index

Self-deception, in safety factor, 84-85 Self-denial, in Russians, 52 Self-interested bargaining, 225-226 Sellers' market, perpetual, 190, 219; and premiums, 41; weak resistance to subquality production, 151 Shift engineers, 15 Shock work, 128 Shoddiness, 152 Shoes, upgrading of, 148 Shop banner, for overfulfilment, 26 Shop plan, 27 Shops, organization of, 15; premiums in inter-relationships, 40-41 Shortages, effect on assortment plan, 120; need of change, 316 Short-run considerations, focus on, 47 Short-run decisions, premiums relevant for, 47 Short-run premiums, 45 Short-term credit, 285 Shuffling accounts, 169-170 Simulation, principle of, 114; criticism of, 116; in violation of assortment plan, 117-135; in deterioration of quality, 136-159; in falsification of reporting, 160-181; a technique of planning commission, 280; source of inefficiency, 325; compensating advantages, 326327 Sixth Five Year Plan, constant prices, 123 "Sleeping peacefully" theme, as a goal, 53-54 Snow shoveling, work orders for, 174 Social institutions, homogenity of, 12 Social motivation, 33 Socialism, capital investment motivated by building of, 66 Socialist competition, for fulfillment, 26 Socialist property, protecting, 77n. Socialized economy, informants' attitude toward, 7 Southern Construction Administration, 250n. Soviet institutions, compared with those of free societies, 12 Spare parts, premiums as cause for shortage, 33-34; underfulfillment, 128-129 Special-order production, 132 Special orders, relative importance of, 203 Special section, agency of secret police within enterprise, 291-293 Specific premiums, 28, 32; strong incentive of, 69; as cause of deviation from assortment plan, 125-126

Speculation, 220 Spoilage, 137-142; from hoarding, 98; rate of, 121; solving by simulation, 145-146; norms, 146-147; ministry connivance, 254 Spontaneous utterance, value in interviews, 26-27 Stakhanovite movement, 142; spoilage from, 139-140; effect on labor, 171172; manifestation of mass participation, 273-274 Stalin, Josef, death of, 10, 301; condemnation of equality-mongering, 49; on learning by spoiling, 138-139 Stalinism, rejection of, 6; versus Soviet system, 193n. See also Reforms, postStalin Standards system, evolution of, 156-159 State, all enterprises owned by, 1, 16-17; definition, 16; investment financing by, 66-67; attitude toward illegal procurement activities, 222-224; post-Stalin reforms by, 301-317; toleration of managerial practices, 328-329 State Acceptance Commission, 251n. State Arbitration Commission, 112n., 294 State Bank, and the enterprise, 23, statistics on hoarding, 95-96; credit for meeting transit norms, 101; cash withdrawals from, 176; wage data, 178; control functions, 282-287; new loan program, 307-309 State Committee on Labor and Wages, 306 State Committee on New Technology, 306 State Controller, 294n. State Economic Commission (formerly State Planning Commission), 19, 229, 304 State Economic Committee, 22, 306 State ownership, informants' attitude to, 7 State Planning Commission (now State Economic Commission), 19; looks to premiums as general motivation, 42; redistribution, 113; stress on fulfillment, 132; on spoilage, 137; reclassification of labor force, 180; power of minor officials, 229; on reserves by ministry, 249; pressures for output increase, 260n. State Planning Committee, 306 State property, illegal sale of, 199 Stewards (state), 16-17 Stimulation, offered by tolkachi, 219

Index Storming (speeding up to meet target), 39-40, 138, 141-142, 162, 168, 235, 316, 325 Strakhovka, safety factor, 76 Subcontracting, 85-86, 128-129; use in wage falsification, 176-177; ministry aid in avoiding, 250 Subquality production, premiums as cause of, 34; weak customer resistance, 149156; punishment for, 153-155 Subsidy, for capital investment, 66 Sulphuric acid, process of supplying, 185 Supervision system, 1957 law changing, 11

Supplies, blat in the procurement of, 184-190 Supply, formal explanation versus actual, 104-105; post-Stalin reform, 310-312 Supply agent, competence of, 223 Supply chief, high pay, 217 Supreme Soviet of USSR, 153, 157-158; law changing system of supervision, 11 Surpayment of mixed-rating discrepancies, 175 Surplus output, loss sales of, 65; resale of, 107 Surpluses, procedure for disposal, 311312 Survival, principle of, 55-56, 245-247 System in operation, 23-24 Tadzhik Republic Planning Commission, 282 Targets in the planning process, 19; premiums for fulfillment and overfulfillment, 28-29; need of reform in practices of, 314-315; reduced in 1957, 317 Tax collector, control over management, 287-289 Tax revenues, 287 Technical conferences, 275 Technical department, chief of, 15 Technical education, improvement, 142 Technical-industrial-financial plan, 20 Technical inspection, 294 Technical standards, and quality control, 156-159 Ten-day plan, attempts to meet, 40 Tenure of office, as a goal, 47-49; Gramck on, 48; Pravda on, 49 Tevosian, Commissar, 149 Textile industry, quality control, 152153; lack of pressure, 204-205 Theft, and the market, 198

385

Tolkach, activity of the, 209-218; Pravda on, 210n.; and other officials, 218-224; role of personal influence, 224-230; services of, 316, 319, negative effect on efficiency, 326; function performed, 327 Tool Administration, Chief, 294n. Trade unions, wage date, 178; controls over management, 271-278 Trading of Commodities, procurement by, 107-113 Training, results of inadequate, 139 Transformer, purchase through blat, 197198 Transit norm, 101 Transportation Machinery, Chief Administration of, 106n. Travel missions, 210, 212-213, 214; source of tolkach's funds, 217; misuse of, 217-218 Trouble, tolkach activity to guard against, 215 Trusts, horizontally integrated firms, 13; and factories, 249 Turnover tax, 57 Ukrainian Ministry of the Coal Industry, 302 Underfulfillment, clearance planning for, 83-84; simulation to offset, 114; deliberate, 165 Understatement of production, 164-165 Undressing, 144 Unfinished goods, premiums as cause for increase in, 35-36 Unified authority, 15-16 Union-republican ministry, 301 Unit of measure, in plan fulfillment, 122 Unit of the factor of production, 120 Units of plan fulfillment, changes in, 3536 Upgrading of quality, 147-148 Urals Iron and Steel Industry, Chief Administration of, 95 Utilization norms, 94 Vigor, importance in director, 229-230 Violations, tolerance because of personal relations, 227-228; necessity for performance, 232-233 Volume of profit, not a criterion of performance, 72 Wage payments, bank control over, 282284 Wage reporting, falsification, 170-178

386

Index

War period, and premiums, 30 Waste, from hoarding, 98 Welfare expense, from enterprise fund,

68

Wholesale organizations, 21 Wineries, evaporation, 147 Wiredrawing, quality problem, 148n. Work orders, 173-175 Working capital, 22-23; and profit, 5 8 61; the uses of, 61-65

Young Communist League, 277 "Z" (znakomstvo, or pull), 204 Zaiavka, statement of requirements, 88 ZIS, 183, 187, 227 Zverev, A. G., Minister of Finance, on capital investment, 65; on shuffling, 170