The Kosygin Reform: From Conception to Curtailment

What the paper says

The article examines the ideas behind the 1965 economic reform in the USSR and the way in which it was implemented. That reform is still central to discussions about whether it would have been feasible, at least in theory, to adjust the Soviet economic model in the post-war period without breaking it. The article sets proposals by well-known economists (such as those in an article by E. G. Liberman) against the economic debate that ran from 1962 to 1965. This facilitates reconstruction of an alternative model for a planned economy which was developed jointly at that time by mathematical economists, cyberneticists, and practical business operators. In contrast with the prevailing view, the author maintains that the struggle between proponents of economic liberalism and of improving planning through computerization arose later and that contemporaries of the reform, including V. S. Nemchinov, put forward a set of reform proposals that combined computerization, economic and mathematical methods, and the use of economic incentives (material interest), which were compatible with Liberman’s proposals. Several important elements of the proposed economic system were not implemented: pricing reform was carried out belatedly and only once; a way to collect economic information that would permit prompt price adjustments was not created; and stability of economic guidelines was not sustained. Guidelines were instead subject to change through annual approvals by ministries and industries. The Interdepartmental Commission (IDC), which was nominally empowered to advance reform, resorted largely to mere jockeying for “favorable” guidelines. No wholesale market for the means of production was created, and therefore the increased demand of enterprises for capital investment could not be satisified. The state arbitration mechanism, which was meant to ensure consistency in deliveries by economic means, worked only to a limited extent. The reform reduced government revenues and increased the population’s effective demand, which exceeded the ability to deliver commodities and exacerbated the deficit in the market for consumer goods. These negative outcomes might have been averted either by ratcheting up reform until a market economy was created, or else by reinstating administrative control over production quotas. But it proved impossible to refrain from choosing one of the two options. The administrative path was chosen even before the Prague Spring because the state bureaucracy was unwilling to give up its role in the economic and social development of the country. The inconsistency in the implementation of the reform led to contradictory results. Although a number of financial indicators improved, the transition to an intensive type of development did not occur.