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From International Socialism, No.44, July/August 1970, pp.7-10.
Transcribed & marked up by Einde O’Callaghan for ETOL.
It is the normal habit of bourgeois economists to treat the East European economic reforms as a purely technical issue whose aim is simply to improve efficiency. As a result it is put about that the reforms are in the interest of the whole population. In practice neither the established East European nor West European economists are accustomed to see economics from the point of view of the dominant social group. It is, therefore, not surprising that nothing has been said about the class effects of the economic reforms, since ultimately for these economists the working class either does not exist or ought to be disregarded as an inert sub-human species. This latter statement may seem somewhat strong for those unused to arguing with the East European intelligentsia. Unfortunately the latter hold probably the most extreme elitist views within any industrialised country. For confirmation of this one only has to read Amulric [1] or Sakharov. [2]
While the instruments of the present stage of the economic reform are complex the basic concept is simple. It is to switch from physical targets to profits and sales as success indicators at the level of the enterprise. If they were, in fact, only success indicators little need change. Prices are fixed from the centre while supply remains the responsibility of an All-Union State Committee. Wages and salaries are also determined through manuals compiled in Moscow. In the absence of competition, profit and the introduction of an interest charge are of importance primarily in reducing waste through the holding of unnecessary stocks or the negligent use of existing resources. It is not my purpose to discuss the success or otherwise of this aspect of the reform. The only point here worth noting is that the amount of profit left to the enterprise has been increased by reducing central government taxation so as to permit greater enterprise control and provide a stimulus for higher profit. In a capitalist economy profit serves as a source of both consumption – for the capitalist – and a source of investment. Profit in the USSR is being employed for the same purposes and it is particularly in its former aspect that the reform has shown its original intention.
The essential aspect of profit in the current reform is its use for the three incentive funds. Its utilisation as a source for improvement of production and socio-cultural facilities are of considerably less importance than its employment as a means of remuneration on a rather complex formula. [3] The latter amounts to saying that the sum going into the incentive fund is expressed as a function of planned sales and profit in relation to the wages fund. This has two obvious consequences. Firstly the level of pay of those who derive their salaries from this fund is clearly related to the level of profits of the enterprise. In fact, the situation is not far from one in which an enterprise declares a dividend on the basis of its success in management. The analogy - is brought closer by the fact that the bonuses which accrue from profits are intended primarily for the engineering and technical personnel. The amount which manual workers actually derive from these funds is a very small addition to personal incomes. [4] The only possible consequence is that the more successful the reform, the higher the salaries of the intelligentsia will be in relation to the working class. This has been made clear by explicit statements that the balance had swung too far in the direction of the working class in the course of the wage reform of 1956-60. [5] In the latter period the chaotic wage system which had evolved since the early 1930s was brought under more central control.
The present wage system is such that workers are on six-seven grades of a wage-scale. There are about 12 scales in Soviet industry. The initial basic wage-rate at the first point on the scale differs according to the nature of the industry or sub-industry. In addition such factors as whether they are on piecework or time-rates, doing specially difficult, heavy or ingenious work or are in less favoured regions of importance in determining the particular worker’s rate. Overtime is of very little significance. The overall effect is that most workers graduate relatively quickly to a semi-skilled status at which they tend to remain for life. The prospects for promotion are very small. Furthermore, they obtain very little or no increment for length of work either in the economy or in a particular factory. The result is that the ordinary worker can look forward to a lifetime of constant wages. Soviet statistics, it is true, show an average rise for all types of worker of monetary wage of about 17 per cent in the period 1965-68. [6] The problem is that there is no real attempt to determine what, in fact, has happened to prices. Although nominally fixed, ‘new products’ can have new prices and old products can have a less useful content just as, for instance, meat can have more bones and fat and less protein. The period of waiting for durable consumer goods or a new flat can lengthen. Most observers agree that queues have certainly not shortened while the above factors are operating. It is most probably true to say that, for the ordinary male urban worker, real wages have been more or less constant. The whole issue is worsened by the fact that money has much less value outside the purchase of food than in the West. Durable consumer goods, non-trivial items of clothing as suits, coats, etc, and private housing are so expensive that it would require a very big jump in wages for these to be of any impact on the standard of living. In addition, many durable consumer goods and all housing is effectively rationed so that money itself is often of minor importance. The inevitable result is that the tiny increases due to the reforms, even if not absorbed by price rises, must be regarded only as a joke – enough, perhaps, to buy one piece of cake. [7]
The intelligentsia is not on a wage-scale but paid according to occupation. Each occupation has a fixed salary, increasing with the importance of the enterprise. The biggest factories pay the biggest salaries. There are no increments for length of time worked, but the ordinary engineer receiving his 100-110 rubles shortly after leaving university (a sum similar to that obtained by most workers) has historically had the opportunity of promotion. Obviously, he has a desk in an office and generally more pleasant conditions of work, but until the last decade because of the rapid expansion of the economy, and the large-scale purges and the effect of the war he could expect that either he could continue his education to a post-graduate level or he would rise relatively quickly in the occupational rank. It is clearly still true that such a route up towards the top of the educational or industrial ladder is feasible and occurs. The fact, however, is that with the relatively slow expansion of education and decline in rate of growth, not to speak of an end to the purges and the effects of the war, opportunities are greatly limited. As a result, both the graduate and the semi-skilled worker look forward to a grand 100-120 rubles per month, which even if their wives obtain the same income is only sufficient to permit of the purchase of the bare necessities. In fact, this somewhat overstates the position since it is possible for some of the intelligentsia to supplement their incomes in various semi-legal and illegal ways. That the intelligentsia is corrupted in the process is important but not relevant for this article. Nevertheless, the position of equality is greatly resented by the intelligentsia and since the regime cannot, within its own limitations, raise incomes all round it has opted to improve the position of the intelligentsia. That the increases can be substantial is shown by a recent article on the economic reforms [8] which showed that the percentage of income for engineers and technicians deriving from bonuses, now the material incentive fund, increased in one factory in Kiev from 12.4 per cent in 1965 to 28.1 per cent in 1968 and from 5.2 per cent to 22.2 per cent in the case of a second enterprise. In fact, the (Soviet) author states:
‘A review of undertakings which have changed over to the new system shows that most of them have used their Material Incentives Fund chiefly to improve the earnings of engineering and technical staff and white collar employees’.
The white collar employees who are remunerated on a basis different from the above two groups are in fact very badly paid, receiving probably, on average, about half the salary of the other groups. As a result, these posts are overwhelmingly filled by women. It is of no small social importance that their incomes be raised. The result, however, is, if anything, likely to reinforce the overall redistributive effect of the reform since these employees are largely married to the engineers and technicians and other members of the staff administration of the enterprise or state civil service. It may, marginally, raise the relatively low state of women in the USSR, but there is no campaign for women’s liberation in the USSR and their position as women is not likely to change.
To the extent, therefore, that the reform is applied (and hitherto it has been very limited), it represents a deliberate attempt to assuage the discontent of the ordinary intelligentsia with their relatively low incomes, status and lack of sound mobility. While the upper intelligentsia were absorbed into the elite in the fifties the remainder are to be drawn closer towards the ruling group by, in effect, buying them out.
To do this effectively, however, it is not only necessary to have more money or even lots more money, it is also essential to be able to purchase high quality goods and flats. It is precisely the aim of the reform to be more efficient in the production of goods and ultimately consumer goods. Bonuses for quality have been introduced or increased while the penalty, through non-sale of the product and so reduction in bonus, is also raised. This, however, illustrates this whole aspect of the reform. From the point of view of the worker, to the extent that the reform is implemented he will go ever increasingly to a de facto piece-rate system. By 1960 40 per cent of Soviet workers were mostly on time-rates but the reform must reverse the situation. In other words, it is hoped to discipline the workers to put more effort and ability into their work through the application of what is tantamount to piece-rates. That neither modern technology nor modern management are in favour of this system merely testifies to the fact that it must fail. That trade unionists and socialists have long been opposed to a system which sets worker against worker in a competitive struggle for their daily pittance is, of course, only relevant insofar as the effect of the reform is to raise working-class consciousness and increase solidarity in spite of the lack of genuine trade unions.
To the degree, however, to which the reforms are in fact successful this would mean more consumer durables available. This, of course, is the purpose of the Fiat Motor factory in Togliattigrad. It is also the purpose of the allocation of a sector of flats built for so-called co-operatives. In fact, they amount to outright purchase but with such a high down-payment that few workers could contemplate buying their own flats. In effect, they permit the intelligentsia to legally jump the housing queue. Since motor cars, even if one million Fiats are produced, are and will be relatively scarce their price is unlikely to decrease from its present three-four times the annual salary of the average male worker. The result could only be that the elite and wealthier intelligentsia would benefit immediately while the mass of the ordinary graduates and technicians would obtain the concessions they have been seeking, only insofar as the reform is effectively carried out.
Of late, with the diminishing impact of the reform there have been a spate of articles describing experiments in which workers were dismissed and the resulting wages saved distributed among the remainder. The Central Committee has itself endorsed these so-called experiments. It has not yet, in spite of the request, abolished the workers’ right of tenure, although that is essential to do so, before dismissals can be made. At the moment no factory director can dismiss a worker without finding him another job. Clearly, one result has been massive underemployment. [9] In the drive for efficiency the workers are, it would appear, to be the first casualty. There is no unemployment pay and no effective labour exchanges in the USSR. Only if the law is changed and possibly some form of benefit introduced could the reform therefore be introduced. A point in this direction is the retraining schemes which have been introduced. [10] Pay diminishes to 40 per cent of the original wages of the worker by the third month. In the fourth month he presumably gets nothing. It is assumed that he will be earning very quickly. It is quite clear that the Soviet economists like their Western counterparts see much merit in some measure of unemployment. Their problem is that they do not have anywhere to absorb the excess. They have tried sending the youth to agriculture and the services as in 1966 when there was a double outflow from the schools as a result of the abolition of the 11th Class. Quite naturally it failed since both sectors have low pay and poor status. Ultimately, they could absorb the millions of under-employed in the production of consumer goods or in construction.
This comes to the point that the socio-economic system has failed to break out of the production of producer goods for the sake of producer goods for 40 years. A structural change would be required for which they are riot prepared. The power of the elite ultimately rests on their control over the huge institutions, administrative organisations and large-scale enterprises which proliferate in the USSR. A real shift of resources to agriculture, the services and consumer goods would mean a shift of power to the peasant, the consumer and technicians as opposed to the administration. It may be that the big producer-goods factory managers and central administrators can see that the logic of the reform requires abdication but they are reluctant to comply. In any event they are supported by the huge armaments sector which would not be able to avoid over-riding any market in the interest of national security. The result is that there is little scope for the reallocation of resources towards the consumer goods sector, largely for non-technical economic reasons.
In other words, they are faced with the insoluble dilemma of wanting the reforms in order to deal with the discontent of the intelligentsia and a section of the elite, but being unable to implement them without so antagonising the working class that the whole system will become unstable. The alternatives of switching resources from heavy industry is ruled out on direct political and military grounds. The Politburo know full well that the redistribution of income, more intensive and competitive work demanded, and unemployment required would make any move towards quicker economic reform fraught with great danger. [11] They are hoping to do it pragmatically, so that there is as little opposition as possible but it is unlikely that the working class, which has now been urbanised for almost a generation, will remain entirely passive. The problem of the ruling group is that they have no solution other than hoping to follow in the tracks of Mr Wilson and muddle through. Unfortunately for them, time has run out as the rate of growth declines this year while agricultural products hardly increased. Under the pressure of circumstances it is most likely that a political change at the top will lead to more of these economic reforms and the consequent politicisation of the working class, whom they will try to control with greater suppression.
1. Andrei Amulric, Will the USSR survive until 1984, Survey, Autumn 1969.
2. A. Sukharov, Progress, Coexistence and Intellectual Freedom, Penguin, 1968.
3. MI = (aS + bP)W where W = Wages fund, S = Sales, P = Profit and MI = Incentive fund.
4. Planovoye Khoziastvo, No.6, 1966, Soviet Studies Information Supplement, October 1966, p.16.
5. G.D. Sokoleva, The New Soviet Incentive System: A Study of its Operation in Kiev, in International Labor Review, January 1970.
6. Narodnae Khoziastvo SSSR 1968, p.555.
7. Literally true because of the very high price of cake.
8. Op. cit., footnote 5.
9. Agan-Beggan, Socialist Commentary, October 1965, p.7.
10. P. Baranenkova, Technical Progress and Personal Mobility in Industry, Voprosy Ekonomiki 3/1970, p 60. The article is largely an attempt to discuss factors preventing the dismissal of workers and how they may be overcome.
11. Planovoye Khoziastvo of 11/1968, p.5, in an editorial, specifically attacks the reforms on these grounds.
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