The failure of Stalinist planning

Abel Aganbegyan was Mikhail Gorbachev’s chief economic adviser. In 1988, his book, The Challenge: The Economics of Perestroika, was published in the west by Hutchinson books. LYNN WALSH reviewed it in Militant International Review (No.37, Summer 1988). The review, The Economics of Perestroika, is reprinted below, following this introduction.

"AT BEST GORBACHEV… may buy the bureaucracy some time". This was the conclusion of our assessment, in the summer of 1988, of Mikhail Gorbachev’s economic programme. But events moved much faster than we anticipated. Within four years, Gorbachev had been forced to resign, the Soviet Union, once the world’s second superpower, had collapsed, and the remnants of the planned economy crumbled. Following the failed coup of the Stalinist hardliners in August 1991, Boris Yeltsin presided over the shock-therapy privatisation of the Russian economy during 1991-92. Setting out to renovate and modernise the Stalinist party (CPSU) and state, Gorbachev had opened the door to capitalist counter-revolution.

The policy of perestroika, or restructuring, launched in 1986-87, had a radical ring to it. But it was essentially an attempt to reform the existing economic structure. Most of the reforms, in any case, had been tried before in one form or another, especially by Nikita Khrushchev (1953-64) but even during the early years of Leonid Brezhnev’s rule (the Kosygin reforms of 1965). Once again, Gorbachev pushed for decentralisation, a degree of autonomy for enterprises, more incentives for managers and workers, and a bit more space for ‘co-operatives’ (in reality, a disguise for small private firms).

But it was too late. The economic-administrative structure, which had facilitated the rapid development of basic industries, like coal, steel, railways and heavy engineering, had become sclerotic. It was incapable of adapting to new technology, especially micro-electronics which required much more sophisticated, flexible forms of management. Planning targets were more and more fictional, while managers increasingly resorted to the black market for essential inputs.

Gorbachev recognised many of the problems. He represented a new generation of technocratic bureaucrats, whose outlook was set out in books like Aganbegyan’s, The Challenge: The Economics of Perestroika, and Tatyana Zaslavskaya’s, The Second Socialist Revolution: An Alternative Soviet Strategy (1990). The aim of this layer of the bureaucracy was to renovate and modernise the state apparatus and its planning agencies. They feared that unless they could deliver faster growth and improved living standards, they could face an explosive revolt of the working class on the lines of Solidarity in Poland or even bigger. In practice, however, they succeeded only in dislocating and undermining the existing planning structures without setting up any coherent alternative.

There was no improvement in the Soviet economy after Gorbachev became general secretary in 1985. In fact, there were even worse shortages of food and consumer goods, and inflation rose despite increased state subsidies to many sectors of the economy. There was a wave of strikes. After 1990, the economy spun out of control. The ever deepening economic crisis undermined political support for Gorbachev, who was far more popular in the West than he ever was at home.

While a section of the bureaucracy supported perestroika, most party, state and economic apparatchiks – while ready to pay lip-service to reform and modernisation – were deeply opposed to any real restructuring. Gorbachev removed scores of recalcitrant bureaucrats from their positions, and campaigned to mobilise others in support of change. He failed to understand that it was not a problem of personnel or psychology, but a fundamental problem of the system which rested on a bureaucratic ruling caste.

Bureaucracy as a social formation

THIS CASTE WAS a social formation with a material interest in preserving its power and privileges. While it had usurped the political control of the working class established by the October 1917 revolution, it had defended nationalised industry and the planned economy as the basis of its power and privileges. But with the deep-rooted stagnation of the Stalinism system, especially under Brezhnev (1964-82) and after, the outlook of many layers of the bureaucracy underwent a change. Outwardly orthodox ‘communists’ and loyal to the regime, their ideological commitment to the system was steadily eroded. Well aware of the problems of the centralised, planned economy, they no longer believed that ‘Communism’ (that is, Stalinism) would overtake capitalism.

Gorbachev, still committed to the planned economy, failed to understand this change in outlook. He apparently naively believed the leading layers of the bureaucracy could be recruited to support perestroika. But big sections of the bureaucracy were distinctly unenthusiastic, if not outright opposed. Glasnost (openness) and the vague promises of democratisation linked to perestroika posed a threat to their power and privileges. They had no confidence in the renovation and revival of the planned economy. The prospect of sweeping privatisation of state industry became far more attractive. Party and state bureaucrats, managers, and the growing soviet mafia could use their power to grab assets, legally or illegally, and transform themselves into a new class of get-rich-quick capitalists.

Some, like the Stalinist die-hards behind the August 1991 coup, who sought to defend the centralised power of the Soviet Union, were against this. But for most of the bureaucrats, Yeltsin, who (in alliance with western capitalists) carried through sweeping privatisation in 1991-92, was a far more attractive option than Gorbachev.

Gorbachev seriously underestimated the resistance he would face from within the bureaucracy. His attempt to transform the Communist Party leadership through multi-candidate elections failed. In 1988, in an attempt to counter the CPSU leadership, Gorbachev established a new parliament, the Congress of People’s Deputies, mostly elected through popular elections. This, however, opened the door to forces far beyond Gorbachev’s control: neo-Stalinists, ultra-right Russian chauvinists, nationalists, and pro-capitalist parties.

In 1990, Gorbachev became the first (unelected) president of a disintegrating Soviet Union; his powers of ruling by decree could not prevent control from slipping out of his hands. On the other hand, Yeltsin’s election in 1991 as president of the Russian republic enormously strengthened his influence as leader of the party of capitalist counter-revolution.

Clearly, the state structures of the Stalinist system were imploding. There was an explosion of national tensions, with the break-away of the Baltic states and other ‘soviet republics’. At the same time, the collapse of the regimes in East Germany, Hungary, Romania, etc, under the impact of elemental mass movements, showed that the days of Soviet Stalinism were also numbered.

Alongside ‘acceleration’ (of the economy), glasnost, and perestroika, Gorbachev used the slogan of ‘democracy’. Besides advocating multi-candidate elections within the CP, he put forward proposals for the election of enterprise management boards. He spoke of the need to activate "the human factor", the creative energy of workers. But he never made any appeal to the working class to counter the inertia of the bureaucracy, let alone to challenge its role as a parasitic excrescence on the planned economy. How could he? After all, he was himself a child of the bureaucracy who set out to reform it in order to preserve its role as a ruling caste.

There were no concrete proposals from Gorbachev for elected enterprise committees that would have reintroduced workers’ control, the power to check managers and defend workers’ rights and conditions. Nor for independent, democratic trade unions. And certainly not for democratically elected planning bodies that would manage the nationalised economy. Such a programme could never come from above, from a leading layer of the bureaucracy; it could only arise from below, developed through workers’ struggles against the regime.

"All the conditions for [the] political revolution are being prepared", we wrote in 1988. The Stalinist economy – a nationalised, planned economy strangled by the ruling bureaucracy – had exhausted its capacity for growth and could no longer supply the resources needed for further social progress. The bureaucracy was politically paralysed, torn by deep divisions over strategy and policy. Big layers had lost confidence in the system and were ready to defect to capitalism, to preserve their power and enrich themselves.

Among the working class, there was profound discontent with Stalinism, deep hatred of the bureaucracy for its arbitrary power and corruption. Workers recognised the gains of the planned economy, the transformation of the Soviet Union into a modern, overwhelmingly urban, industrial country, and they especially valued the free provision of essential services like education and health care. At the same time, there was a hunger for a plentiful supply of good quality food and consumer goods, and a long-suppressed desire for democratic rights: the right to information and free speech, to organise in independent trade unions and political parties, and the right to elect the people running the country at every level. There was no evidence of a widespread desire to return to capitalism.

But the missing element was class consciousness. As a result of economic development, the working class in the Soviet Union had become the predominant social class, concentrated into big industrial cities. But Stalinism, through its apparatus of repression and ideological control, had systematically prevented the development of the working class as a political force. No independent organisations, either trade unions or parties; no independent sources of information; no freedom even to discuss ideas. There were mass workers’ struggles during the transition period. But the workers lacked organisation, programmatic aims and clear-sighted leaders.

Stalinism atomised the consciousness of the working class, and the political weakness of the proletariat was the decisive factor in allowing the rapid sweep of the capitalist counter-revolution in 1990-91. Pro-capitalist politicians like Yeltsin hid their real aims behind demagogic attacks on the corruption of the bureaucracy and the façade of parliamentary elections. They certainly never warned the masses of the economic and social disaster that would follow the ‘shock therapy’ of 1991-92.

Yeltsin played the role of gravedigger to the Soviet planned economy, a role he grabbed and played with enthusiasm. Gorbachev, on the other hand, pushed by unforeseen events, unexpectedly found himself playing the part of an undertaker, opening the gates to the graveyard of history.

The economics of perestroika

UNTIL RECENTLY OFFICIAL Soviet economists denied that there were any fundamental problems: it was merely a question of ‘perfecting’ socialism. Such complacency is swept aside by Aganbegyan. His main aim is of course to explain the economic policies for which Gorbachev is now pushing. But in justifying the new line Aganbegyan, who clearly has access to all the necessary information, has produced a devastating diagnosis of the deep-rooted sickness afflicting the Soviet economy.

The truth is that the Soviet economy has been slowing down for over 15 years. Over the five years of the Eleventh Plan, 1981-85, the national income grew by only 16.5%. This contrasts with a 41% increase during the Eighth Plan, 1966-70, 28% growth during 1971-75 and 21% during 1976-80.

These growth rates, however, are based on official figures, which Aganbegyan admits are ‘inadequate’ and in fact overestimate the actual growth. According to his calculations, "in the period 1981-85 there was practically no economic growth".

Considerable detail and some very illuminating examples of the symptoms of stagnation are given in the book. Aganbegyan summarises it in this way: "Unprecedented stagnation and crisis occurred during the period 1979-82, when production of 40% of all industrial goods actually fell. Agriculture declined (throughout this period it failed to reach the 1978 output levels). The use of productive resources sharply declined and the rate of growth of all indicators of efficiency in social production slowed down: in effect the productivity of labour did not increase and return on capital investment fell, aggravating the fall in capital-output ratio".

Towards the end of the 1981-85 period, he says, the situation improved slightly. "But overall, the 1981-85 plan appeared not to be fulfilled and the country fell into a serious economic situation".

This is when Gorbachev became general secretary. He represented the wing of the bureaucracy which recognised the threat of an economic catastrophe and had concluded that only radical reforms could avert disaster.

Aganbegyan attempts to analyse the reasons for the economic malaise, though he goes only so far. He does not write off the gains of the planned economy. In a chapter on The Lessons of History he outlines the gigantic scale of the achievements. The cost, in terms of human blood and sweat, was enormous. But on the eve of the first world war tsarist Russia accounted for a mere 4% of the world’s industrial output. Today the USSR produces about 20%.

But the drive, directed from above, to transform a backward, mainly rural society into a modern industrial power led to what Gorbachev describes as the ‘gross output drive’. The command structure – or ‘bureaucracy’, as Aganbegyan admits (page 194) at one point – concentrated on building up heavy industry, drawing on the country’s vast natural resources and mobilising the massive reserves of labour. This is described as the ‘extensive’ development of production. This continued even after the heavy industrial foundations were laid down. In the last 15-year period there was still a "predominance of extensive over intensive factors of growth: two thirds of economic growth occurring through the growth of resources and only one third through increased efficiency".

The test of productivity

THE REFORMERS IN the leadership around Gorbachev recognise that this has now reached its limits. Easily exploitable reserves of coal, oil and other minerals have been used up, and the cost of extraction, particularly of energy, is now much greater. The Soviet Union produces more steel than the USA, but it can no longer afford to squander resources in the extravagant use of metal products.

Even more critical is the supply of labour. In the period of post-war growth the labour force grew by about ten million every year. In the next period, because of the demographic impact of the war (in which about 20 million died), the labour force will grow by only about 2.5 million annually. At the same time, improvements in living standards will require more workers in health, education and services. More labour could undoubtedly be drawn from the countryside, but only by improving the efficiency of agriculture.

Economic growth, from now on, can come only through raising the productivity of labour, through intensive rather than extensive factors, through quality rather than quantity.

The old system of economic management is incapable of directing such a radical change. Aganbegyan’s criticisms of what he calls the "command administrative style of management" are very sharp. Plans were based on targets, targets are expressed in terms of volumes and physical aggregates of products. Everything has been geared to fulfilling the plan in quantitive terms, or even to over-fulfilment. Prices of capital equipment or consumer goods have long ceased to be a reliable yardstick of efficiency. A wide range of prices bear little or no relationship to the real costs of production. They do not reflect supply and demand, but neither are they a reliable tool for planning.

Far from encouraging innovation and efficiency, the command system tends to penalise managers (and therefore workers) who ‘disrupted’ the plan by introducing new technology or reorganising processes of production. Aganbegyan gives several examples of technically advanced machines or processes developed in the USSR but applied to production in Japan or the USA much more rapidly and extensively than in the Soviet Union.

He also gives devastating examples of economic blunders (costing the equivalent of years of production in many cases) made by the highly centralised management structure, inevitably out of touch with the many limbs of the USSR’s continental economy. Aganbegyan also refers to waste and corruption, albeit only in passing. He stops far short of revealing its true extent. It is really an organic disease, which is a big factor in the country’s stagnation. He limits himself (page 194) to saying "the administrative network itself increasingly deteriorated into a self aggrandising system". This is similar to Gorbachev’s own vague references to a ‘braking system’ which is holding back social development. Aganbegyan says: "An inevitable corollary of this administrative system of management was bureaucracy – at the opposite pole to democracy".

Aganbegyan’s analysis, however, is purely ‘economic’. From his critique of the old system he concludes that it is necessary to change over to "a fundamentally different system of management based on the use of economic levers and incentives". But for Marxists economics are not enough. Marx himself considered his theory to be a theory of political-economy. Economics are inseparable from social relationships. Economic developments are always bound up with class relations and political developments. This must be applied to the Soviet Union and the East European states as well as to capitalist societies.

An absolute fetter

BUT AGANBEGYAN MAKES no attempt to examine the social basis of the ‘economic management system’ he rejects. Apparently, it is simply the product of the economic policies pursued under different conditions in the past. New economic conditions demand new economic policies. He acknowledges the conservative outlook of the old managers, but appears to believe that this can be overcome by a vigorous campaign for the new policies, together with "the development of democracy". In fact, the old ‘economic management system’ has a distinct social basis, which is now a powerful element in society. The isolation of the revolution in a relatively underdeveloped country did not merely lead to a ‘gross output drive’.

Under the leadership of the Bolsheviks, the working class, a minority of the population at that time, were able to take power. But cut off from the proletariat of the advanced countries of capitalism with a much more developed economic basis, the working class of the Soviet Union was not strong enough to maintain political control of society. Their power was usurped by the bureaucracy, a privileged social layer, which through bloody purges under Stalin, established a monopoly of political power and economic administration. The bureaucracy preserved the main social gains of the revolution, the nationalised economy and planned production, but regarded them as the basis of its own privileges, power and prestige.

Under conditions of backwardness the bureaucracy, through developing the industrial basis of society, played a relatively progressive role. But its social character determined the methods of management it employed: coercion, direction from above, rigid centralisation, inflexible targets expressed as physical aggregates, and incentive schemes geared to output volumes. The bureaucracy inevitably relied on totalitarian methods. The one thing the ruling caste could not tolerate was the involvement of the working class in the running of the economy and the state.

When the overriding task was laying the foundations of heavy industry the bureaucracy, given the USSR’s abundant resources, could achieve staggering successes. But its strength, as Aganbegyan himself has shown, has turned into its fatal weakness. Bureaucratic methods, always crude and clumsy, are totally obsolete in a sophisticated modern economy.

Aganbegyan puts the crisis down to outmoded methods of management. He never faces up to the fundamental reason: the bureaucracy has outlived even the relatively progressive role it played during the phase of basic industrialisation. Now the ruling caste is a complete fetter on development.

The present crisis in the USSR – and in the other Stalinist states of Eastern Europe – is no longer due to historic backwardness. The foundations of modern industry have been established. There is no real shortage of resources. The working class is now the dominant class in Soviet society, and it is the best educated and technically trained proletariat in the world. The current economic crisis is the product of the bureaucratic distortion of Soviet society.

The policies proposed by Aganbegyan must be evaluated in this light. While he repeatedly refers to the need for more democracy, the need to consult the workers, and the increased involvement of the working class, he nevertheless implicitly rejects the only real solution to the crisis: the restoration of workers’ democracy. This is the oxygen required by an atrophied system. Successful planning requires the conscious involvement of the working class at every level of political control and economic planning. This would mean the establishment of workers’ control and management, with the implementation of the conditions set out by Lenin at the time of the revolution. All officials would be elected and subject to recall, with strict limitations on differentials and safeguards against privileges.

On the economic basis now established in the Soviet Union it would be easily possible to reduce the working day and the working year dramatically, allowing workers the time to participate in running society. Communications technology based on computers and systems of control based on microprocessors offer all the means of establishing conscious control over a complex modern economy. One priority would be the planned integration of the USSR, the East European states, and China.

This, of course, would entail the overthrow of the bureaucracy. It is hardly surprising, then, that Aganbegyan steers clear of any such course. Gorbachev may or may not endorse all the policies outlined in The Challenge, and whether he will be able to push through his proposals against opposition within the bureaucracy remains to be seen. But Aganbegyan is undoubtedly outlining the viewpoint of the wing of the bureaucracy which sees the need for reform from above in order to prevent revolution from below. Nothing in Aganbegyan’s proposals, therefore, threatens the existence of the bureaucracy. On the contrary, through attacking the outmoded policies of the conservative wing he hopes to ensure the successful adaptation and survival of the bureaucracy.

Market mechanisms and bureaucratic planning

WHAT ARE THE policies being proposed by Aganbegyan as a solution, and what are their prospects of success in the next period? They are based on a move from ‘administrative’ to ‘economic’ methods of planning. Enterprises in some sectors, it is intended, will become self-financing and allowed to make their own plans. There will be a wholesale market for both production equipment and materials and consumer goods. This is intended to force enterprises to economise with materials and labour and to give consumers more choice. An incentive system will be introduced to reward efficiency and encourage the application of new technology. In other words, a much bigger element of the market mechanism will be introduced into the economy.

Although Aganbegyan argues that ‘economic’ methods must be applied throughout the whole system – total ‘perestroika’ – he seems quite cautious about the extent to which market relations should be given scope. Whether this is diplomatic caution in the face of bureaucratic opposition, or he has learned the lessons of the disastrous free market experiments in Eastern Europe, especially in Yugoslavia, is not clear. The commanding heights of the economy will remain under centralised state control, and autonomous ‘collective’ enterprises will have to give priority to fulfilling contracts with state industries and organisations. Despite the detailed proposals and arguments put forward by Aganbegyan, the relationship he envisages between the plan and the market remains unclear. This points to the flaw in his proposals.

Initially market methods can undoubtedly improve efficiency and raise production in some sectors. If applied widely, as proposed by Gorbachev, they may well have a significant effect on the economy for a period. But the clear lesson of previous attempts in both Eastern Europe and the Soviet Union itself is that market pressures, which are by definition unplanned, produce new imbalances. This is particularly so in the case of production goods, where demand and specifications depend decisively on the overall development of industry.

Gains in some sectors lead to shortages in others. The central planning authorities then have to step in once again with ‘administrative’ measures to try to overcome dislocation and crisis. This is particularly the case when the functionaries of the central planning bodies have a vested interest in preserving the bureaucratic basis of their power and privileges.

The resort to market methods represents a step backwards from the point of view of social development. The problems of the efficient use of resources, the application of science and technology, the assessment of social needs, and the real preferences of consumers, could all be solved through the development of democratic planning. Market methods, on the other hand, will inevitably compound the problems of bureaucratic waste and inefficiency with anarchic economic relations.

But will Aganbegyan’s policies improve the conditions of the Soviet workers? In order to overcome resistance within the bureaucracy, Gorbachev has appealed over their heads to the workers to exert pressure on his opponents. But workers are clearly sceptical about the benefits of ‘perestroika’, which have not been forthcoming so far. All the indications are, moreover, that it is the workers who will bear the real cost of ‘accelerating socio-economic development’.

The introduction of realistic economic prices, for instance, will mean a big increase in the cost of living. Food prices in particular will go up if this policy is carried through. Food is subsidised to the extent of 40% of the cost of production, so economic prices would mean massive rises. The workers’ explosive response to such increases in Poland and elsewhere may lead Gorbachev to hesitate.

Higher prices, argues Aganbegyan, will be compensated for by higher wages. But wage rises will have to be paid for by improvements in productivity and output. This will take time. In the recent period, workers’ pay has in some cases been reduced through relating bonuses to quality of output – before the workers are equipped with the necessary plant and machinery to achieve improvements. Enterprises will also be expected to use labour much more efficiently. This will mean shedding hundreds of thousands of workers. But again, the creation of new jobs will undoubtedly take time, even if things develop according to Aganbegyan’s plans. He says himself that in the next few years (when most investment will be on the replacement of obsolete equipment) additional growth will have to be achieved primarily through squeezing out the unused or under-utilised reserves of the economy. Only in the following period will massive new investment in social provision and service industries become possible.

An insuperable obstacle

MEANWHILE, THE ENHANCED incentives he proposes will go predominantly to the managers, engineers, and technical-white collar workers in industry. Manual workers will be offered very little in the next few years – simply the promise of improvements later, a story they have heard many times before. The strike last October in Moscow’s massive Likino bus factory and other strikes indicate the response that will be provoked from the workers if Gorbachev attempts to carry through reform at their expense.

Throughout his book, Aganbegyan repeatedly asserts the need for democracy, and one chapter is devoted to Glasnost, Democracy, Self-Management as the Dynamic of Perestroika. Despite his sharp criticisms of bureaucracy, however, his proposals for workers’ self-management are extremely limited. Workers in enterprises should be able to elect their managers, he argues. The experience of Yugoslavia, however, where quite extensive measures of self-management were introduced at one time, has demonstrated the limitations of such reforms. Unless the working class, through trade unions and genuine soviet-type organisations, controls the central planning bodies of the state, limited rights of participation in individual enterprises amount to very little. In fact, when the enterprise is constrained by a combination of the state plan and market forces outside its control, such participation can ensnare the workers in decision-making processes from which they cannot benefit. A precondition of genuine self-management would be independent, democratic trade unions through which the workers could defend their interests. Aganbegyan talks only of consulting with the official trade unions, which are just another instrument of the bureaucracy.

Even with the election of managers, the bureaucracy, through its privileged managerial strata and its political apparatus, the Communist Party, will retain decisive control. A choice between party candidates, advocated by Gorbachev and Aganbegyan, will not undermine the power of the party leadership.

At the same time, the economic policies advocated by Aganbegyan, if carried through, will produce a widening of the differentials between workers and the ruling elite. Sections of the bureaucrats in obsolete arms of the apparatus may be undermined. But the functionaries, managers, technical experts, and the burgeoning business elements will gain even bigger material privileges, a growth that will inevitably be accompanied by new forms of profiteering and corruption.

If the policies outlined by Aganbegyan are energetically implemented, as Gorbachev is clearly attempting to do, they may well give a boost to the Soviet economy for a period. But they will not, despite Aganbegyan’s forcefully argued claims, advance the socialisation of economic relations and provide a way out of the crisis. Nor will perestroika lead to a progressive democratisation of Soviet society. The ruling bureaucracy, with its material basis in privilege and its vested interest in power, remains an insuperable obstacle. For the Soviet Union to go forward and realise the enormous economic, scientific and cultural potential of the planned economy the successors of Stalin must be overthrown by the true heirs of October, the working class. All the conditions for this political revolution are now being prepared. At best Gorbachev, who is undoubtedly an astute leader, may buy the bureaucracy some time.