MANAGEMENT OF THE SOVIET INDUSTRIAL ENTERPRISE
Document Type:
Collection:
Document Number (FOIA) /ESDN (CREST):
CIA-RDP79R01141A000700090002-2
Release Decision:
RIPPUB
Original Classification:
S
Document Page Count:
70
Document Creation Date:
December 23, 2016
Document Release Date:
May 20, 2013
Sequence Number:
2
Case Number:
Publication Date:
November 14, 1956
Content Type:
REPORT
File:
Attachment | Size |
---|---|
CIA-RDP79R01141A000700090002-2.pdf | 4 MB |
Body:
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
-SECRET-
ECONOMIC INTELLIGENCE REPORT
N? 136
MANAGEMENT OF THE SOVIET INDUSTRIAL ENTERPRISE
CIA/RR 83
14 November 1956
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
ECONOMIC INTELLIGENCE REPORT
MANAGEMENT OF THE SOVIET INDUSTRIAL ENTERPRISE
CIA/RR 83
(ORR Project 41.1617)
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E-C -R -E-T
FCREWORD
The purpose of this report is to contribute to an appraisal of the
strengths and weaknesses of the Soviet economy and of its capability
to meet economic goals, both in normal times and during periods of
national emergency, by investigating and evaluating those current man-
agerial practices in the USSR which relate to the formation and imple-
mentation of economic plans. The report pays primary attention to the
role assigned to the managerial staffs of individual enterprises with-
in this scheme and examines the day-to-day responses of management at
all levels to the operating conflicts inherent in the needs of a cen-
trally planned economy for centralized decision-making, for control,
and for tangible results.
S-E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
CONTENTS
Summary and Conclusions
I. Introduction
II. Organizational Structure of Soviet Industrial
Management
Page
1
3
6
A. Doctrinal Framework
6
B. Policymaking Machinery
7
C. Executive and Administrative Structure
8
1. Council of Ministers
8
2. Economic Ministries
8
3. The Enterprise
10
III.
The Individual Enterprise: Managerial Principles
and Structure
11
A. Nature of the Enterprise
11
B. Principles
13
C. Structure
15
IV.
Formulation of the Enterprise Plan e ? ? ??
?
?
16
A. Functions and Components
17
B. Governing Directives
18
C. Drafting
19
1. Participants
19
2. Procedure
20
D. Review
22
1. Timing
22
2. Procedure
22
E. General Characteristics of the Present Planning
Procedure
23
F. Efforts to Improve Planning Procedure
24
-v -
S -E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E -C -R -E-T
V. Implementation of the Enterprise Plan
Page
26
A. Role of Supra-Plant Agencies in Coordination
and Control .of Plant Production 27
B. Plant Production Scheduling 28
C. Procurement of Supplies and Equipment 30
D. Quality Control and Inspection 35
E. Role of the Manager 37
VI. Management of the Enterprise Labor Force . . .. . 4o
A. Establishment of a Labor Force 41
B. Assignment, Transfer, and Dismissal of Plant
Employees 43
C. Training 14.11.
D. Wage and Salary Determination 44
E. Labor-Management Relations 46
F. Function of the Manager 48
VII. External Controls over Plan Implementation 48
A. Gosbank
1. Short-Term Credits
2. Cash Operations
B. Ministry.of State Control
C. Communist Party
D. Effectiveness of Controls
149
50
52
55
57
59
- vi -
S-E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
50X1
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C -R -E -T
Charts
Following Page
Figure 1. Generalized Structure of Economic Management
in the USSR 8
Figure 2. Typical Organizational Structure of a Heavy
Industry Enterprise in the USSR 16
S-E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
CIA/RR 83 S-E-0-R-E-T
(ORB Project 41.1617)
MANAGEMENT OF TEE SOVIET INDUSTRIAL ENTERPRISE*
Summary and Conclusions
To accomplish Soviet production goals, the Sixth Five Year Plan
(1956-60) again calls for great increases in productivity, to be
brought about primarily through better utilization of existing equip-
ment and labor as well as technological improvements and automation.
Achievement of the-plan goals will depend largely upon the ability of
management to carry through these measures _successfully. Thus manage-
ment 7- ranking.with land, labor, and capital as a basic factor of pro-
duction is as essential to the centrally planned economy of the USSR
as it is to a capitalist economy; indeed, managerial efficiency may be
even more important in the former than in the latter system. Soviet
leaders have placed increasing emphasis in recent years on the need for
good management and have launched a broad program for managerial im-
provement.
In the Soviet economy the objectives of the regime are achieved by
coordinating production and consumption through a complex system of
centralized planning and administration operated by an intricate py-
ramidal hierarchy,:the base of which is formed by thousands of firms,
or enterprises. All higher echelons in the chain of command share
responsibility for the performance of these firms. The enterprise
must conduct its operations in accordance with directives from superior
organs and within the framework of an approved plan establishing output
goals and input limits. The firm's. activities are thus coordinated with
those of related Supplying and producing enterprises, and various legal
and administrative controls are imposed to ensure that directives and
plans are carried out.
Although each enterprise draws up its own draft plans, those plans
must conform to objectives previously fixed by central planning author-
ities. The planning process has become so complex and time-consuming
that usually enterprise plans have not been approved finally until sev-
* The estimates and conclusions contained in this report represent the
best judgment of ORB as of 15 June 1956.
-1 -
S-E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C -R -E -T
eral months after the beginning of the period to which they apply.
Recently, however, the government has taken a number of measures to
improve and simplify planning. In spite of some initial difficulties
in implementation, these measures apparently have shortened the plan-
ning process, at least for the 1956 Plan.
Although Soviet leaders have repeatedly emphasized the importance
of giving plant directors authority commensurate with their responsi-
bility (the doctrine of yedinonachaliye, or one-man management), their
formal powers in fact have been limited to a greater extent than would
seem to be required in a centrally planned economy. Furthermore, in
supervising enterprise execution of plans and supplemental directives,
officials of the responsible ministry and chief directorate frequently
have been accused of exercising "petty tutelage" over the firm, to the
detriment of enterprise efficiency and initiative.
In view of this situation, the government during the past several
years has undertaken a broad program to increase the operational inde-
pendence and economic efficiency of individual enterprises, as well as
to streamline operations and partially decentralize decision-making
throughout the administrative apparatus. The government's efforts have
resulted in (1) a broad expansion, late in 1955, of the rights of en-
terprise directors; (2) increased authority of the economic ministries
in planning, allocation of resources, and financial matters; (3) annual
drives to simplify the organizational structures of administrative
organs and enterprises and to reduce the number of administrative-man-
agement personnel; and (4) measures to increase production specializa-
tion and cooperation among firms -- measures which are designed to
reduce excessive vertical integration in the production activities of
enterprises and ministries, resulting primarily from malfunctioning
of the supply and distribution system. Soviet spokesmen recently have
reported some successes in the new program, but they also have admitted
that provisions for decentralization are not being implemented as rap-
idly as desired.
Concurrently with its efforts to reduce centralization, the Soviet
government has been strengthening the powers of the principal external
agencies of control -- the State Bank, the Ministry of State Control,
and the Communist Party. This conceivably may offset in some respects
the increases in freedom of action granted to lower level management
and may interfere with the achievement of the intended gain in effi-
ciency and flexibility at the enterprise level.
- 2 -
S -E -C -R -E -T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C -R -E -T
The Soviet system of centralized economic planning and management
is not as inflexible as it may appear. The central planning agencies
have the authority and the ability to alter plans during the plan pe-
riod if they deem this necessary. Also, officials of higher echelons
may impose additional tasks on enterprises or order deviations from
original plans. They have not hesitated to make use of these possi-
bilities.with or without formal amendments of plans.
The imposition of additional, usually priority, tasks does not
release plant directors from the statutory obligation to fulfill the
plan. In order to comply with both duties, they have been compelled
to adopt a variety of expedient but illegal practices, especially in
procurement and financial matters. The fact that superiors often have
condoned such practices indicates that there is little opposition to
some degree of unofficial flexibility at the enterprise level.
In conclusion, the strong points of the Soviet system of central-
ized control over enterprises appear to be of greater significance than
its weaknesses. During the present plan period a continued diminution
of the elements of weakness may be expected, but no reduction of the
elements of strength.
I. Introduction.
In a free enterprise economy, coordination of production and con-
sumption is achieved through the mechanism of the market.. Ultimately
resources are allocated among alternative uses by the actions of in-
numerable consumers expressed through the price system. The operation
of the market mechanism and price system thus determines what goods
will be produced, what complex of resources will be used in their pro-
duction, and how the product will be distributed. In the USSR, in
contrast, the necessary coordination of production and consumption is
achieved by deliberate design through the national economic plan. This
plan determines for a given period how resources are to be allocated,
what goods shall be produced and how, and the way in which income is
to be distributed.
- 3 -
S -E -C -R -E -T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E-C -R -E -T
Broadly speaking, the primary goal of a free market economy is the
achievement of the maximum output of goods and services demanded by
consumers with the minimum expenditure of resources. The market mech-
anism probably could be used by Soviet rulers to obtain over-all eco-
nomic coordination if their primary goal were the same. They have
elected; however, to subordinate considerations of individual consumer
demand to the attainment of various political and strategic ends. Since
the operations of an unrestricted market would not necessarily bring
about production and consumption patterns conducive to these goals, the
USSR has felt constrained to substitute for the market mechanism an
over-all economic plan which is deliberately formulated to attain pre-
determined objectives. In essence the plans are directives to various
parts of the economy telling them what to produce and allocating the
necessary resources -- functions which under free market economies are
performed by individual producers acting in self-interest in response
to price changes in a wide variety of markets.
Unlike a free market economy, which has its own inherent, imper-
sonal system.of'controls, a centrally planned economy requires the es-
tablishment of control machinery to ensure that the purposes of the
planners will be carried out -- that is, that all economic activity
will be directed toward fulfillment of the plan. In the Soviet system
these indispensable controls are exercised through the Communist Party
and a huge administrative bureaucracy. The ultimate purpose of the
control apparatus is to force the adherence of all individual producing
units to the economic goals established for them by the state plan.
With the passage of time and the consolidation of Party power this task
has become primarily the responsibility of that part of the administra-
tive bureaucracy concerned with economic management and Control. Var-
ious other methods of control also are built into the Soviet system;
thus, liberal social and economic rewards are provided for fulfillment
and averfulfillment of state goals, and severe penalties are meted out
for failure to conform. At the same time, the planners seek by unceas-
ing indoctrination and propaganda to get each level in the managerial
hierarchy to work loyally and 'enthusiastically to attain state goals
from ideological as well as purely personal motives.
Economic control through central planning, coupled with incentive-
coercive enforcement measures, creates tensions and conflicts which
pervade the whole structure of Soviet economic management. Each level
in the operating hierarchy -- the ministry, the chief directorate, the
trust or combine, and the enterprise -- has a plan which it must fulfill
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E -C -R -E -T
during a specified period, and each level operates under constant pres-
sure from those above it to attain or surpass the assigned goals. Since
each administrator is judged in terms of his success or failure in
meeting these goals, he strives for the assignment of feasible tasks
and for an adequate allocation of resources. This struggle for a ten-
able position is essentially political, and each contestant seeks to
enlist the support of those in positions of power and influence. In
effect, each sector in the managerial hierarchy strives to achieve an
equilibrium position for itself; it seeks to strike a tenable balance
between constant pressure from above for maximum output and resistance
from below to commitments believed to be infeasible. The insecurities
engendered at each managerial level by these cross-pressures and by the
constant surveillance of control authorities have led to the adoption
of an ingenious array of extralegal practices devised by administrators
to make their lot more tolerable.
In contrast with liberal economic systems, the individual Soviet
enterprise is not directed, controlled, and administered exclusively
by an internal managerial body having the right of final decision con-
cerning the appropriate use of resources to achieve optimum production.
Management in the USSR rather comprises a whole hierarchy from the
Party Presidium, which establishes the over-all goals and the means by
which they are to be implemented, down to the director of the individual
factory which turns out the physical units of product: Once-the tasks
for each sector of the economy are set by an approved plan, however,
the implementation of the plans -- that is, the day-to-day management
of that sector -- devolves upon the responsible economic ministry and
its components, and particularly upon the individual enterprises. To
engender order and efficiency in the management of each economic unit,
Soviet doctrine decrees that managerial authority and responsibility
shall reside in the head of that unit, and in him alone. Applicable
to all levels in the managerial structure, this concept (yedinonachaliye)
postulates, in essence, that the head of each unit in the hierarchy shall
be given sufficient authority to manage his unit in accordance with the
plans and then shall be held strictly accountable for the results. It
does not imply either that the manager is free to act outside the gen-
eral framework of approved economic plans or that he is free from sur-
veillance by Party and governmental control authorities.
Ranking with land, labor, and capital as one of the four basic
factors of production, management is as essential a productive factor
to a centrally planned economy like the USSR as it is to a capitalistic
-5-
S-E -C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C -R-E-T
economy. The importance of managerial efficiency may be even greater
in a planned economy, because here the criteria of managerial efficien-
cy include the ability to complete on schedule production tasks fixed
by a legally binding plan, as well as to complete them with a minimum
expenditure of productive resources. In recent years, Soviet leaders
have laid increasing stress on the importance of the managerial factor
and on the necessity for improvement. Although the USSR has been aided
in meeting past industrial production goals by the presence of a large
pool of surplus manpower which could be channeled into industry, during
the 1956-60 Plan period the country will face decreased annual incre-
ments to the industrial labor force and will have to rely primarily on
technological advancement and on improvement in managerial efficiency
to fulfill production goals.
II. Organizational Structure of Soviet Industrial Management.
A. Doctrinal Framework.
Broadly considered, Soviet doctrine concerning economic admin-
istration envisages both centralization of decision-making in all im-
portant policy matters and concomitant decentralization of operational
functions. In harmony with Communist principles of "democratic cen-
tralism," this means, more specifically, (1) that the administrative
structure should be hierarchical, with strict subordination of lower
to higher organs and with each higher level having the right to exer-
cise direct supervision over all lower level; (2) that each unit in the
hierarchy is to be assigned obligatory tasks (its plan), the sum of the
plans of all units on one level comprising the plan of the immediately
superior level; and (3) that the principle of one-man authority and
responsibility is to govern the work of each level. But these tenets
are not to be regarded as absolutes, for Soviet managerial doctrine
also contemplates "appropriate" modifications. Thus, with respect to
higher levels in the hierarchy, the principle of one-man management
is tempered with an emphasis on the importance of collegial decision-
making, presumably in order to bring a wider range of experience to
bear on the solution of problems. And, although the guidance an.
supervision exercised by an organ over its subordinates is to be con-
crete and realistic, based on first-hand knowledge of operating prob-
lems, such supervision must not extend to petty detail or encroach
unduly on the prerogatives assigned td these subordinate organs.
- 6 -
S -E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-RDP79R01141A000700090002-2
S -E-C -R -E -T
The system of management through a hierarchical structure, with
centralization of authority and responsibility at each level, is used
in both Soviet and capitalist economies. The hierarchical structure
through which the Soviet state manages its enterprises, however, ex-
tends above the individual firm to include units of the central govern-
ment. Moreover, each level of this public administrative structure is
assigned tasks which are fixed and linked to those of other levels
through central planning and are enforced through a complex network
of overlapping checks and controls.
B. Policymaking Machinery.
Supreme policymaking power in the USSR rests with the Presidium
of the Central Committee of the Communist Party. The Presidium has
11 members, 7 of whom are also members of the highest executive body
in the USSR, the All-Union Council of Ministers. All strategic, polit-
ical, and economic policy determinations which are basic to the forma-
tion of the national economic plans are made by the Party Presidium,
though major policy decisions are given formal ratification, usually
ex post facto, by the Party Central Committee and by the Supreme Soviet
of the USSR. The locus of decision-making authority is indicated by
the fact that major changes in economic policy are announced through
decrees of the Central Committee of the Party or through joint decrees
of the Central Committee and the Council of Ministers. Through direc-
tives which become the basis for plan formation the Party Presidium
determines such fundamental questions as the following: what produc-
tion goals shall be set for important strategic commodities, which
sectors of industry are to be given priority in development, how the
national income is to be divided between consumption and investment,
what are the more important measures which shall be taken to imple-
ment established goals, and what alterations must be made in already
established plans to meet changed conditions or policies. Such basic
policy determinations obviously are not made in a vacuum, for the Pre-
sidium has available to it the fact-gathering machinery of the entire
administrative bureaucracy and may seek advice and counsel from whom-
ever it wishes.
- 7 -
S-E-C -R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E-C -R -E -T
, C. Executive and Administrative Structure.*
1. Council of Ministers.
The highest executive body in the USSR, the All-Union Coun-
cil of Ministers, is comprised mainly of the heads of Ministries, and
has final responsibility for carrying out policies set by the Party
Presidium. The 6-member Presidium of the Council is the locus of-de-
cision-making power; it is composed of a chairman and 5 first deputy
chairmen. There are also 8 deputy chairmen.** The Council approves
the annual and quarterly economic plans, issues decisions and decrees
relating to formation and implementation of plan directives, exercises
general supervision over the economic ministries, and coordinates their
work with a view to the attainment of over-all economic and political
objectives. In addition to supervising the ministries, the Council
also oversees the work of various special agencies, most of which play
an important part in economic management.***
2. Economic Ministries.
The day-to-day management of specific segments of Soviet 1
industry is assigned to various economic ministries. Each ministry
is responsible for the activities of all enterprises subordinate to
* See Figure 1, following p. 8.
** Most of the deputy chairmen have no specific ministerial assign--
ment and devote their time to supraministerial problems of policy or
coordination, generally in fields related to their individual back-
ground and experience. Since the death of Stalin the supraministerial-
group has become larger and more formalized, reflecting the increased
emphasis on collegial rule in the Party and the government as a whole.
*** Insofar as economic management in the USSR is concerned, the most.
important of these organizations are the State Committee of the Coun-
cil of Ministers for Long-Term Planning of the National Economy
(Gosplan), the State Economic Commission of the Council of Ministers
for Current Planning of the National Economy (Gosekonomkomissiya).,
the State Bank (Gosbank), the Main Administration for Material Re-
serves (Gosreserv), the State Committee for Construction Affairs,
the Chief Directorate for Labor Reserves, the State Committee of the
Council of Ministers for New Techniques, and the State Committee for
Questions of Labor and Wages.
- 8 -
S -E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2 SECRET
Accounting
GENERALIZED STRUCTURE OF ECONOMIC MANAGEMENT
IN THE USSR*
SPECIAL
r
USSR
COUNCIL OF MINISTERS
Presidium and Deputy Chairman
AGENCIES' ATTACHED
Central State
Statistical State Bank Planning
Directorate Committee
Production
State
Economic
Committee for
Current Planning
ECONOMIC
FUNCTIONAL
Technology
I
Capital
Construction
CENTRAL COMMITTEE
OF
COMMUNIST PARTY
Presidium
TO THE COUNCIL
State
Committee
for
New Technology
Chief Directorate
for
Material Reserves
MINISTRIES
Mini try**
Planning
Collegium
State
Committee
for
Labor and Wages
DEPARTMENTS
Finance
Supply
CHIEF DIRECTORATE'S***
Chief Directorate
Sales
PRODUCING LEVEL
Enterprise
*This is a simplified presentation, stressing essentials and eliminating details and variations which are
present in some industries. Not all components are shown; those indicated have the most prominent
role in relation to the producing enterprises.
**Some ministries are All-Union and other are union-republic; the latter may have counterpart
(subordinate) ministries in some or all of the 16 republics.
***The chief directorate, although an integral part of the ministry, is in the chain of command between
the minister-and the enterprise and has an internal structure similar to that of the ministry.
24185 7-56
Figure 1
I SECRET
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Labor and
Wages
Personnel
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E-C -R -E-T
it and may exercise its supervisory responsibilities directly through
staff departments or indirectly through chief directorates (glavki*).
Each ministry is headed by a minister, who is aided by
deputy ministers, each in charge of specific functions, and by a col-
legium, an advisory body composed of the deputy ministers and the heads
of important ministerial departments and chief directorates.** The
central headquarters of the ministry operate through a number of de-
partments established along functional lines. Although there are differ-
ences in organizational structure among the ministries, they usually
have the following staff departments: planning, production, technology,
finance, accounting, supply, capital construction, personnel, labor and
wages, and sales. 3/ These ministerial departments are not a part of
the formal chain of command between the ministry and the enterprise;
hence officials of these staff departments as a general rule are not
supposed to deal directly with an individual enterprise without the
approval of the appropriate official of the chief directorate imme-
diately in charge of the plant./1/
* The term glavk (plural glavki) is variously translated as chief di-
rectorate, main administration, and chief administration. Furthermore,
some of the ministerial departments are sometimes called glavki. To
avoid confusion, the following terminology will be used throughout this
report: chief directorate will refer to those production-territorial
glavki which are a part of the chain of command between the ministry
and the enterprise, and department will refer to the staff departments
of the ministry which are organized along functional lines.
** In line with the emphasis on collegial rule in recent years, govern-
ment and Party leaders have urged the ministers to make more use of the
ministerial collegia in order to bring a broader range of experience
to bear on the solution of problems.
At the same time the ministers have been
urged to show more initative in decision-making and have been given
additional authority to formulate and alter ministerial plans and to
allocate supplies and distribute output within the ministry. Similar
delegation of authority has also been extended to the councils of min-
isters of the individual republics. 2/
- 9 -
S -E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
50X1
50X1
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E-C -R -E -T
In addition to functional departments, the organizational
structure of each ministry also includes a number of chief directorates,
each of which has direct charge of a number of individual enterprises.
A chief directorate may supervise all enterprises subordinate to the
ministry located in a designated geographic area (for example, Chief
Directorate of the Cement Industry of Eastern Areas) or all those pro-
ducing a given product (for example, Chief Directorate of the Combine
Industry).* Functioning as a kind of subministry and a link in the
formal chain of command between the ministry and the enterprise, the
chief directorate has an internal structure similar to that of its
ministry. Thus a typical chief directorate has such departments as
economic planning, supply, production management, technical problems,
sales, and finance. 5/
3. The Enterprise.
The lowest level in the managerial structure is occupied
by the directors of the individual industrial enterprises. In some
industries, notably mining, construction, trade, and food products,
a number of individual plants are.frequently grouped into trusts
(tresti) or associations (obuyedineniya) for the purpose of uniting
producing, servicing, and distribution functions under common manage-
ment. 6/ A related form of organization, the combine (kombinat), is
also used in some industries. The combine usually is a vertical trust,
integrating under one management plants at successive stages of pro-
duction, from raw materials to finished product 7/; the Magnitogorsk
Steel Combine is an example. For all practical purposes, however,
these trusts and combines function in much the same way as do individ-
ual enterprises subordinated directly to a chief directorate, the most
typical arrangement. All three institutions -- individual enterprise,
trust, and combine -- fall into the category of predpriyatiye, which
* Most enterprises are put under the direct supervision of a chief
directorate. In some instances, however, large or important firms are
subordinated directly to the ministry and are supervised by the minis
terial production department. Sometimes, also, an enterprise which is
failing to fulfill its plan may be removed from control of the chief
directorate and placed under the ministry itself until the shortcomings
are overcome.
- 10 -
S-E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C -R -E-T
means enterprise, business, or undertaking. The organizational struc-
ture of the enterprise is patterned in general after that of the min-
istry and the chief directorate.*
III. The Individual Enterprise: Managerial Principles and Structure.
A. Nature of the Enterprise.
In the Soviet economy, as in capitalist economies, the enter-
prise** is the ultimate producing unit and as such has long been re-
garded by Soviet leaders as the "basic link" in industrial manage-
ment. 8/ The firm is legally obligated to conduct its operations in
accordance with a government-approved plan which sets output goals and
fixes input limits. Within the framework of its plan and of the con-
trol structure essential to a centrally planned economy, however, the
Soviet firm carries on its producing activities as an independent enti-
ty, in many respects not much different from its capitalist counterpart.
Every firm is allocated a supply of fixed capital (building, machinery,
and the like), for which it is held legally accountable. Likewise, it
is supplied with working capital (fixed by its plan), which is credited
to its account in Gosbank and which can be augmented if necessary by
loans from the Bank. It pays for its own labor and materials from these
funds and from receipts from the sale of its products, all financial
transactions being cleared through its checking account. Vested with
legal personality, the firm is solely responsible for its own financial
obligations, generally expressed in formal or informal contracts, and
may be sued in court for failure to fulfill commitments. Finally, the
firm hires and fires its own employees and establishes internal arrange-
ments so as to meet production obligations set by its plan.
Unlike its capitalist counterpart, however, the Soviet firm is
state-owned and forms the final link in an administrative chain in which
all links share responsibility ,for its performance. Hence in a strict
sense there are no areas in which the firm has complete autonomy, for
* The internal organization of the enterprise is discussed in more de-
tail in III, below.
** Unless otherwise stated, the terms enterprise and firm are used in
this report to refer to an individual plant or factory subordinated
directly to a chief directorate or ministry.
S -E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E -C -R -E -T
higher administrative organs have the right to intervene in any and all
enterprise activities to ensure plan fulfillment for the firm and for
themselves.
The principal limitations on the independence of the Soviet firm
are inherent in its subordination to central planning authority. The
enterprise plan sets tasks with respect to quantity, quality, and assort-
ment of production. The plan also fixes the amounts of materials that
may be used in producing the prescribed output, the amount of fuel to
be consumed, the number of workers to be employed, and the total wages
to be paid. The firm's products are sold at prices fixed by the state
to predetermined customers in accordance with contracts generally drawn
up by the chief directorate or ministry. These organs usually also
purchase supplies and materials and allocate them to the firm as pre-
scribed in its plan. The firm may secure credit only for the purposes
and in the amounts spedified in its financial plan. Finally, the firm
may not dispose of its fixed capital through sale or retirement without
specific authorization from superiors, nor may it divert working capi-
tal to purposes not called for by its plan.
Although the limitations on the autonomy of the enterprise stem
from the fact that it is publiely owned and from the Soviet need for
central direction and control, the simultaneous provision for some de-
gree of enterprise freedom and initiative stems from the concomitant
need to achieve tangible results and to promote flexibility and pro-
gress.* The firm is not supposed to function as a mere automaton, rou-
tinely carrying out the orders of superiors; rather, it is supposed to
show initiative and to strive to surpass its formal commitments. Thus
the firm is free to overfulfill its production plan and to produce goods
of higher quality than the required specifications, if it can do so with-
out using productive resources in excess of those allowed. In fact,
liberal bonuses for overfulfillment provide firm management with the
incentive to exercise such initiative. Likewise the firm is free to
* To achieve some sort of workable balance among these basic needs (for
control, results, flexibility, and progress) is probably the moat crit-
ical problem of Soviet managers at all levels. This problem is partic-
ularly evident in the relationships between plant directors and offi-
cials of the supervising ministry and the chief directorate. Some of
the results of their attempts to solve this complex problem in day-to-
day operations are examined in subsequent sections of this report.
- 12 -
S -E -C -R -E -T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E-C -R -E -T
produce at lower costs than permitted in its plan, thus increasing
over-all economic efficiency. Within the limitations imposed by its
plan and by regulations of supervisory bodies, enterprise management
may organize its physical plant and productive resources as it sees
fit, and the more successful it is in plan fulfillment, the more free-
dom it is likely to have to manage its internal affairs with minimum
interference. Plant management may make recommendations to superiors
concerning production goals and allocation of materials for the plant
and is usually permitted to work out detailed implementation at the
plant level of general directives from superior bodies. 9/ Finally,
the enterprise is encouraged to exercise initiative in improving meth-
ods of production, including development of new technological devices.
B. Principles.
Soviet managerial doctrine provides three basic principles con-
sidered to be particularly applicable to individual enterprises. The
first is that the enterprise director, or manager, as a representative
and authorized agent of the government, can in no sense be completely
independent. He is merely a link in a chain of command providing strict
subordination of lower to higher organs; hence the so-called "powers"
and "rights" of enterprise managers are delegated powers subject to
rescission, and heads of the chief directorate and ministry, since they
too share responsibility for the firm's performance, have the right and
the duty to intervene in its internal operations as they deem necessary.
The second principle is embodied in the doctrine of yedinona-
chaliye, or one-man authority and responsibility, a concept similar to
that used in the management.of large capitalist enterprises.* As ap-
plied to the enterprise, yedinonachaliye means that the plant director
has full authority and responsibility within the plant. His formal
powers and duties include the following: appointment and removal of
employees, issuance of internal orders and instructions binding upon
* As explained earlier (p. 6, above), this doctrine applies to all
levels in the managerial hierarchy, although Soviet leaders have long
stressed its particular applicability to the enterprise. The system
of yedinonachaliye was put into effect in 1934, replacing the so-called
"functional" system under which authority and responsibility were shared
by the heads of various plant departments. The letter system had re-
sulted in great managerial confusion and duplication. 10/
-13-
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
all employees, delegation of authority to the heads of shops and to
other units within the plant, management and control over the plant's
material and financial resources, and maintenance of discipline in
all phases of operations. In return for these delegated powers the
director is held responsible for the security of plant (state) property
entrusted to his care and for operating his plant in such a way as to
fulfill tasks established for the plant in its formal plan and through
special assignments. 11/
In reality, the doctrine of yedinonachaliye is merely a formal
device for centralizing authority and responsibility. Since the Soviet
firm and its management are an integral part of a centrally planned
economy, the plant director's managerial powers must be exercised with-
in the total context of the Soviet system. Hence he is bound by direc-
tives and regulations issued by higher bodies; his activities are con-
tinually subject to checks not only by his immediate superiors in the
chain of command but also by agencies especially charged with such
responsibilities (the Communist Party, Gosbank, the Ministry of State
Control, and others); he must pay attention to the opinions of the
Party and trade union groups in the plant and to the suggestions of
so-called "actives" and of the "masses"; he must support general policies
and campaigns espoused by the Party and central government (such as the
Stakhanovite movement and the encouragement of inventors and rationalizers)
regardless of the impact on plant operations; and finally, since superior
organs in the chain of command are coresponsible with the director for the
plant's performance, he must expect varying amounts of personal interven-
tion by superiors in the internal management of the plant when they con-
sider it necessary in order to ensure completion of the firm's tasks.
The third fundamental principle guiding the operations of Soviet
firms is embodied in the concept of economic accountability (khozraschet*),
which means that the firm must use business accounting techniques and
must manage its resources so as to realize maximum business profits with-
in the framework of its plan. Khozraschet thus is a device by which
Soviet leaders seek to achieve their goals with a minimum expenditure of
productive resources. Although the firm's monetary production costs and
* Although most enterprises operate on the basis of khozraschet considera-
tions, there are also some which are subsidized from the state budget, as
are institutions (uchrezhdeniya) such as postal and telegraph services,
schools, and scientific laboratories.
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2 -
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
profit are specified in its annual plan, one of plant management's
primary tasks is to strive for the largest possible reduction of actual
costs below planned costs, thereby maximizing unplanned profits. The
size of the differential between planned and actual costs, provided
product quality specifications are met, serves as one of the basic
measures of the success of the firm. 1?_/ Although earned profits belong
to the state, a fixed part is put at the disposal of the enterprise to
be spent for so-called "production-welfare necessities." 12/ Most of
the retained earnings are used for plant expansion and additions to
working capital, but a predetermined portion goes into the "director's
fund" to be spent for improvements in worker housing and community
facilities and for bonuses to meritorious employees.
C. Structure.*
The internal organization of the enterprise varies somewhat,
depending on the branch of industry, the type of product, the method
of production, the size of the enterprise, and other factors. 1L,[/ In
most industrial enterprises, however, the chain of command extends
downward from the director through the deputy director or chief engineer
to the shop or department chiefs and foremen. The enterprise director,
who is appointed by the supervisory minister with Party approval, has
full authority and responsibility within the plant. His principal duties
have been noted above.
In industrial enterprises the deputy to the director, usually the
chief engineer, is likewise appointed by the supervisory ministry subject
to Party approval and is in charge of the plant when the director is absent.
Primarily responsible for the technical phases of production, the chief
engineer exercises general supervision over all of the production shops
and service departments and is regarded as a highly important plant offi-
cial. 12/ In a large enterprise the chief engineer may have a deputy
(chief dispatcher) who plans and controls the daily scheduling of produc-
tion. 1.6./
Next in line of command are the chiefs of production shops, which
are considered independent units for accounting purposes and hence must
operate in accordance with the principles of khozraschet. 11/ The chief
works out the plan for his shop, sets norms and piece rates within prescribed
* See Figure 2, following p. 16.
-15-
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
limits, and has authority to hire and fire workers, impose administrative
penalties, and award bonuses. The final link in the chain of command is
the foreman, who heads a section within the shop and, nominally at least,
is "the full powered supervisor in the production section assigned to him
carrying the responsibility for fulfilling the plan in all of its indices." 1?./
All orders to individual workers are supposed to be channeled through the
foreman. The foreman's duties include the following: supervision over
the production process and the use of equipment in his section, assignment
of workers to specific tasks, hiring and discharge of workers (subject to
approval of the shop chief), rating of workers' efficiency and qualifica-
tions, and administering of rewards and penalties within prescribed limits.
In practice, however, foremen have not been permitted to exercise such
broad powers in many plants, and the Soviet press has often pointed out
the need for increasing the actual powers of foremen. 22/
In larger enterprises the heads of staff departments concerned
with general administration and services are sometimes called assistant
directors, although they are not part of the chain of command. The
following are the more important auxiliary departments: planning, which
coordinates all enterprise planning activities and prepares draft 5-year,
annual, quarterly, and monthly plans; technical control, which checks
the quality of output for conformance to specifications; labor and wages,
which works out problems of norms and piece rates and methods of raising
labor productivity; personnel, which is concerned with hiring, training,
and discharge of employees; and accounting, which maintains central book-
keeping for the whole enterprise. Additional departments include finance,
supply, sales, and capital construction.
IV. Formulation of the Enterprise Plan.
Soviet doctrine holds that the formation of economic plans necessarily
involves both "planning from above" and "planning from below," the former
to provide central direction and coordination for the economy and the
latter to ensure that the plans will be realistic. The final plans do,
in fact, result from a combination of the two kinds of planning. Planning
from above is manifested through plan directives from the Party Central
Committee and the Council of Ministers establishing over-all tasks for
each sector of the economy and through more detailed directives from
ministries and chief directorates to individual enterprises fixing
specific output goals and input limits to guide their detailed planning.
Planning from below is that done by enterprise management in embodying
-16-
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20: CIA-RDP79R01141A000700090002-2
TYPICAL UHUANILATIONAL 51 HUL: UHE OF A HEAVY INDUS! KY EN I El-C-1115E
IN THE USSR*
DIRECTOR
Assistant Director
for Supplies and
Equipment
Supply
Raw Materials
Equipment
Warehouse
Assistant Director
for Communal
Services
Armed Guard
Communal
Housing
Assistant Director
for Transport
Automotive
Transportation
Shop
Truck Shop
Railroad Shop
CHIEF ENGINEER
Department of
Finance
Department of
Technical Control
Department of
Planning
Department of
Labor and Wages
Department of
Personnel (Cadres)
Department of
Accounting
Central
Laboratory
Training
Department
Chief
Dispatcher
Technical
Department
(norms, etc.)
Production
Shop
Production Production
Shop Shop
Production
Shop
*Typical for machine-building and metalworking plants and for industry in general as to
over-all structure. Some variation among plants as to details. 2A/ ,
Chief Mechanic
Mechanical
Maintenance
Foundry Shop
Boilers
Department of
Capital Construction
Department of
Sales
Chief of Power
Communications
_I_Electrical
Maintenance
AMI
Water Supply
24186 7-56 Figure 2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20: CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
these directives in a detailed plan for plant operation and, if deemed
necessary, proposing modifications. Final plans are of course determined
from above.
The 5-year plans, representing perspective planning, are largely
made from above.* These plans give formal expression to the long-range
policy of the regime, fix the principal areas of concentration for the
period, and establish goals to serve as a source of inspiration for the
general public. The actual operation of the economy, however, is con-
ducted on the basis of the annual national economic plan, which is a
composite of the plans of all producing units and which, when approved
by the Supreme Soviet, becomes the law of the land. For the individual
industrial enterprise the counterpart of this plan is its annual tech-
nical-industrial-financial plan (Tekhpromfinplan), which serves as an
initial blueprint for the year's operations. The procedure by which
this plan is formulated serves not only to illustrate the role played
by enterprise directors in plan formation and the relative amount of
planning from below in the total planning process, but also reveals
many of the over-all problems inherent in present Soviet planning.
A. Functions and Components.
The functions of the annual enterprise plan are threefold. First,
it provides supporting details for the broader plans drafted at higher
levels, enabling the economic ministries and ultimately the highest plan-
ning agencies to evaluate and refine their respective drafts. Second, the
enterprise plan, after its approval by the Council of Ministers as part
of the ministerial plan, is a legal instrument of control used by the
ministry and the chief directorate in regulating the operations of the
enterprise. Third, it is the blueprint by which internal enterprise
management directs and controls all aspects of the operations of its
plant.
The enterprise plan has seven major components, as follows:
(1) a production plan, (2) a plan for utilization of production capacity,
(3) a technical development plan, (4) a plan for labor, (5) a plan for
materials, (6) a plan for production cost, and (7) a financial plan. 2.2_/
Each component includes a large amount of technical detail which con-
stitutes a binding commitment on the enterprise.
* The enterprises have recently been delegated authority to prepare,
drafts of their own 5-year plans'.
-17-
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
A companion piece to the enterprise plan is the detailed opera-
tional (operativnyy) plan. In contrast to the enterprise plan, which
fixes the plant technical, production, and financial tasks for each month,
quarter, and year, the operational plan establishes detailed assignments
for monthly, weekly, or 24-hour periods for the enterprise and for individ-
ual departments and shifts. The operational plan regulates the beginning
and end of each job, the operating hours of each machine, the flow of produc-
tion, and the allowable repair time. It also establishes with respect to
each production task detailed requirements for quantity, quality, and a
number of other factors. _21/
The requirements of the operational plan for a given month ap-
parently are not necessarily the same as those of the annual plan, for
plant directors have sometimes demanded higher monthly production from
particular plant departments than is required by the plant's Tekhprom-
finplan. ..1.1/ Such practices presumably are means of providing a cushion
against future contingencies that otherwise might adversely affect the
plant's fulfillment of the plan.
B. Governing Directives.
Annual planning at the ministerial level is governed by specific
assignments (or "indexes") developed by higher planning agencies. These
indexes establish minimum requirements for production by value and by
volume for each major commodity. They also specify the amount of materials,
equipment, manpower, and financial resources which a ministry will be
permitted to use for current output and for capital investment. These
specifications are based on the assumption that each ministry will be able
to achieve certain projected rates of improvement in labor productivity,
technical efficiency, and net cost. In the initial planning stage this
underlying assumption is binding upon the ministries, although the
opportunity to raise questions may arise in the review process.
Each ministry divides the projected production tasks and resources
among subordinate units. According to doctrine, the ministry distributes
assignments in the form of plan directives to the chief directorates,
which in turn reassign them to subordinate enterprises. The ministerial
plan directives are binding on chief directorates and enterprises during
this stage of the procedure. Although the directives do not elaborate
on technical or operational details, they specify for each firm the
annual production quotas (with semiannual, quarterly, and monthly break-
downs) and determine the allowable amount of materials, manpower, new
-18-
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
equipment, financial expenditures, and capital investment. 22/ Plan
directives from the ministry also prescribe the amount of technical
detail to be included in the individual enterprise plan. 2?/
In the determination of plan quotas, established norms for
production and utilization of resources are customarily taken into
consideration. According to basic Soviet doctrine, these norms must
be based on technical and productive capacity* rather than on statis-
tical data of past performance. ?SY This specifically precludes the
situation in which a new plan is necessarily based on the norms under-
lying an old plan. In many industries, moreover, plan directives
reportedly require higher norms each year by automatically raising
the plant's production goals by a fixed percentage. 2 Although
chief directorates may discuss such new norms with individual enter-
prises, this consultation does not enable plant managements to exert
much influence on their determination of norms, since the discussions
take place after production goals have already been fixed at higher
levels. Furthermore, any request for lower norms would necessarily
involve a suggestion to scale down production goals established by
higher agencies, a suggestion which there is considerable reluctance
to make. The ministries -- which decide whether the plant's proposals
for norm revision are acceptable -- have tended to insist on the ap-
plication of norms as initially fixed, in order to force higher produc-
tion goals in accordance with over-all national policy.
C. Drafting.
1. Participants.
Over-all planning responsibility at the enterprise level
rests with the enterprise director and may not be delegated. The
actual drafting of the plans, however, is done by the administrative
and technical departments of the enterprise. The plant's planning
department usually compiles the detailed data submitted by the tech-
nical departments into summary economic and financial estimates and
acts as a general coordinator in all planning matters. Soviet
* In Soviet usage, technical capacity is defined as the amount of
work which can be performed on given equipment in a prescribed
work area by a given labor shift. Productive capacity is defined
as the number of parts or units which can be produced by a given
shop or section fully exploiting its technical capacity. 21/
- 19 -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
literature emphasizes that shop leaders and workers likewise participate
in the planning process in large measure and that the Party and trade
unions exercise a "guiding and mobilizing" influence on it. 2/ Since
drafting of the plans is primarily a technical job and has to be per-
formed with tight deadlines, it is doubtful whether there is more than
token participation by the rank and file. The plant Party organizations,
being coresponsible for fulfillment or nonfulfillment of enterprise
plans, apparently are inclined to support management protests against
difficult norms or production assignments and usually do not interfere
in the planning process, provided the enterprise manager has made the
appropriate gestures to ensure their support. 11/
Planning commissions of local government executive com-
mittees may also be held responsible for faulty planning in enter-
prises falling under their territorial jurisdiction. 12/ Accordingly,
they seem to have taken an active interest in planning by these
establishments, but in general probably have tended to confine inter-
vention to steps considered necessary in the local public interest.
2. Procedure.
Officially, preparation of the draft plan begins when the
enterprise receives from the chief directorate figures establishing
production goals and input limits. Such control figures are not usually
received until March or April (or, in some cases, as late as May 110
of the year preceding the plan year, too late to enable the plant to
submit its complete draft plan on schedule. Nevertheless the plant must
proceed with preliminary drafting of its plan and is able to do so be-
cause most managers can secure informal indications of the probable
magnitude of their future production quota. With or without control
figures, the plant must begin preliminary planning early in the year
because certain measures which are essential to the successful execution
of the plan require considerable lead-time, principally the capital goods
requirements of the enterprise. Requirements for new construction like-
wise receive considerable attention during the preliminary planning stage.
The chief concern of the individual plant in the early
drafting stage is to develop in detail the various commitments in
the enterprise plan and to supply the chief directorate and the
ministry with the detailed information requested. Proper sequence
Is particularly important in drafting the several parts of the enter-
prise plan. Plans for pant capacity (new equipment and structures)
-20 -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E -C -R -E -T
precede all other sections because they establish physical limits on
production. Plans for production, utilization of capacity, and tech-
nological development follow, each worked out in considerable detail.
This much of the plan must be developed before plans for production
inputs (labor, power, materials, and financial expenditures) can be
prepared, because the production and technical sections of the plan
establish the requirements for detailed enumeration of production in-
puts. 34/ Estimates of requirements for electrical power, for example,
depend on the production assignments and technical processes adopted
for the various shops of the plant.
Responsibility for developing the technical details of dif-
ferent parts of the production plan usually falls to an experienced
engineer or group of engineers. In consultation with production shops
and other plant departments these engineers consider all questions con-
cerning capacity, production methods, and norms. If design specifica-
tions are impractical from a production standpoint, changes are request-
ed.. Questions which cannot be settled at the plant level are usually ?
referred to the ministry. After careful review by the chief engineer
and chief technician, the work of the engineers is compiled to form the
draft plans for production, utilization of capacity, and technical de-
velopment. Proper preparation of these sections is particularly vital
because lack of capacity and technical difficulties are usually the only
grounds upon which the plant management can sucessfully obtain adjust-
ments in production quotas. 35/
The economic and. financial sections of the plan -- that is,
those dealing with labor, power and materials costs and requirements,
and other financial matters -- are, as indicated above, derivative in
nature and cannot be drawn up in detail until the production and tech-
nological sections have been approved at higher levels. Although an
attempt is made to complete these derivative sections well before the
end of the year preceding the plan year, they are frequently not finally
approved for several months after the beginning of the plan year it-
self.* 37/
the majority of ministries the development
of technical-industrial-financial plans for 1954 was completed only in
the second quarter of 1954." 36/
-21 -
S -E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
50X1
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E-C -R -E-T
D. Review..
1. Timing.
The enterprise draft of the annual plan is submitted to the
chief directorate for review as soon as the production and technical
sections have been worked out in detail. (The economic and financial
sections, as stated above, are tentative at this stage.) Generally
speaking, the planning schedule of the Soldet economy appears to call
for submission of enterprise plans to the chief directorates during
June. 38/ Individual enterprises, however, often do not meet their
deadlines, probably largely because of the late receipt of specific
plan directives from superiors. 39/ Review of draft plans at the chief
directorate and ministerial level is probably carried on from June until
August. During this period the chief directorates are also preparing
their own sections of the ministerial plan for presentation to Gosplan
and to the Council of Ministers. Although evidence regarding the pre-
cise timing of this presentation is fragmentary, indications are that
it takes place in August. 40/ The central planning agency, after re-
viewing the ministerial draft plan, may issue to the ministry general
instructions for revision. The ministries then revise and resubmit
their plans. After final review of the revised draft plans the central
planning agency submits the completed national economic plan to the
Council of Ministers; apparently this must be done by 10 October. 41/
When ratified by the Council, the plan as a whole (specifically incor-
porating the plans of all ministries and enterprises) has the force of
law.
2. Procedure.
While awaiting approval of the basic parts of the enterprise
plan, plant officials must complete the economic and financial sections
and proceed with the draft of the operational plan. They must prepare
also the specific details of materials requisitions and contracts for.
the plan year. These activities are carried forward on the assumption
that the basic parts of the plan will be approved as submitted. In fact,
however, these parts are often substantially changed by higher author-
ities during the review procedure, thus necessitating extensive revi-
sions of the operational, economic, and financial plans. 42/
Since the review procedure takes so much time and so many
changes must usually be made in the original draft, the final enter-
prise plan often has not been completed and .approved until well into.
-22 -
S -E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
the plan year. Under these circumstances the enterprise has had to
proceed on the basis of informal indications from ministry officials
of the probable production schedule and resource allocations. During
the period of operation without an approved plan the plant has no for-
mal legal claim to labor, wages, supplies, or finances. Hence the
plant suffers delays in securing supplies and funds for payment of
wages and other financial obligations, since special authorization from
higher authorities is usually needed in such instances. Even after
approval of the plan the enterprise remains in this difficult position
for a while, because the approved plan must be registered with Gosbank
and the Ministry of Finance before financial resources called for by
the plan will be released.
An approved final annual plan for the firm does not nec-
essarily remain unchanged throughout the year. A firm's total produc-
tion obligations may be increased or the product mix altered as a result
of changes in plans for the whole economy, particularly in the priority
status of its various sectors. Also, the enterprise production plan
may sometimes be revised by central planning authorities if it becomes
obvious that essential materials or component parts cannot be made
available. In unusual circumstances, such as a major fire or other
natural catastrophe, the plant's commitments may even be reduced.
E. General Characteristics of the Present Planning Procedure.
From this analysis of the process of enterprise plan formulation
it is clear that Soviet planting procedures are heavily weighted in favor
of planning from above,. Although enterprise managements supply central
planners with the estimates and detail concerning plant .productive capac-
ity indispensable to realistic planning, most of the basic decisions
affecting each firm's plan are, made by the ministry and other higher
authorities, and apparently the firm has relatively little influence on
these decisions. The original draft plan submitted by the firm must con-
form to control figures fixed by higher authorities, who may make major
revisions at any stage of the drafting and review procedure. The plan
as finally approved may bear little resemblance to that originally sub-
mitted and may be unrealistic in terms of the capacity of the enter-
prise to fulfill it.* Consequently, because both the success of the
* The unrealistic nature of the plans for some enterprises may be one
of the reasons why firms fail to fulfill their plans. According to
Bulganin, "The proportion of enterprises which did not fulfill their
annual plans amounted in 1951 to 31 percent; in 1952 to 39 percent; in
1953 to 40 percent; in 1954 to 36 percent." 43/
- 23 -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E-C -R -E-T
firm and the income of its managerial officials depend on plan fulfill-
ment, the whole planning process becomes something of a tug-of-war, with
enterprise managers striving to establish- plan goals which they think
they can fulfill, and planning authorities seeking- to get the maximum
possible production out of the plant.
Both draft and final plans of the enterprise include a large
amount of minute detail, indicating a general policy of close control
by superior organs over each facet of the firm's operations.*. The
procedure by which these detailed plans are developed from initial
directives and draft proposals to finally approved plans becomes so
complex and time-consuming that enterprise plans often have not been
approved until after the beginning of the plan year. Such delays,
coupled with the probability that the final plan will differ from the
draft plan, lead to inefficiency in plant operation because the director
cannot lay out production schedules in advance on the basis of stable
expectations concerning tasks and resources. Furthermore, preparation
of such detailed and complex plans tends to inflate the planning staffs
of enterprises and diverts managerial and engineering personnel from
production work for long periods of time.
F. Efforts to Improve Planning Procedure.
Soviet leaders have recognized for a long time the serious
shortcomings in the established procedures for formulating enterprise
plans and from time to time have taken steps to correct some of the
defects, apparently without great success.** During 1953-55 a number
of new measures were adopted to improve the quality of plans and to
shorten the plan-formulation period. Most notable of these was the
division (in 1955) of Gosplan into two committees, one concerned with
short-term planning and the other with long-term planning. In addition,
the number of indexes, or objectives, included in the national economic
plan and also in the plans of the ministries and chief directorates was
* The ministries have required enterprises to submit an enormous amount
of detail in their annual plans. the 50X1
Tekhpromfinplans for cement plants had kin 1954) b9 forms, and those
for peat enterprises had 79. 44/
** It is significant to note that a recent study of Soviet industrial
management based largely on information for the 19301s describes the same
shortcomings in planning as were found by the present study to be still
prevalent. 45/
- 24 -
S-E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C -R -E-T
greatly reduced. According to Finance Minister Zverev, the 1955 Plan
contained 46 percent fewer indexes than the 1954 Plan. 46/ The effect
of such reductions is to limit the amount of detail that is planned
centrally and thus to enhance the rights of the ministries, which now
can give final approval to many details formerly requiring the approval
of Gosplan or the Council of Ministers. At the same time the number of
forms and the amount of technical detail which the ministries must sub-
mit with their draft plans have been considerably reduced. Finally,
the ministries have been given the right, before transmitting the in-
dexes in the state plan to individual enterprises, to make partial changes
in respect to quarterly breakdowns and cost outlays for individual pro-
ducts. 47/
Similar decentralization in planning also has been extended
recently to the enterprise level. Formerly, 5-year plans were initi-
ated and almost exclusively drawn up by the ministries; now the enter-
prises are to prepare first drafts of their own 5-year plans. With
respect to the annual plan, the enterprise now must submit to the min-
istry proposals and estimates relating to only a limited number of basic
indexes -- for example, production output expressed in monetary costs
and in natural units, number of workers and employees, total wage fund,
and percentage increase in labor productivity. 48/. These estimates and
proposals are submitted over the joint signature of the enterprise dir-
ector, the secretary of the plant Party organization, and the chairman
of the plant trade union committee. In case of disagreement concerning
plan proposals, these organizations may submit dissenting opinions and
alternative recommendations. 49/ Following approval of the basic indexes
in the enterprise plan (by the ministry and by central planning author-
ities.as part of the over-all national plan), the plant itself works
out details of its complete technical-industrial-financial plan, which
is given final approval by the enterprise director and which is then
sent to the ministry merely for control purposes. The detailed enter-
prise plan must be completed not later than 1-1/2 months after approval
of the national plan.. 50/ Finally, the ministries have been charged
with the responsibility for reducing the number .of forms and the amount
of detail required in enterprise Tekhpromfinplans. 51/
Evidence concerning the difficulties and delays in implementing
the new, somewhat decentralized planning procedures is afforded by
Finance Minister Zverev's statement late in 1954 that, in spite of in-
creased authority in the planning field, the ministries were continuing
to refer many petty questions to higher authorities. He sharply cen-
sured them for attempting to anticipate every detail of enterprise
- 25
S-E-C -R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
operations, pointing out that the resultant demands for large amounts
of detailed data unduly prolonged and complicated the planning pro-
cess, 52/ It appears, however, that the new procedures have had some
effect in accelerating and simplifying the drafting of the plans for
1956, for according to Moscow radio, the national economic plan was
approved by the government on 16 November 1955, and "each enterprise
and construction site was informed of its tasks before the beginning
of the year." 53/
V. Implementation of the Enterprise Plan.
Plan fulfillment is the primary standard used in evaluating mana-
gerial personnel at each level of the hierarchy, and failure to fulfill
the plan may entail legal, political, or economic sanctions on all re-
sponsible parties. The emphasis on plan fulfillment and overfulfill-_
ment pervades the Soviet system to such an extent that managers at all
levels tend to weigh each decision on this balance. For the enterprise
director, an added incentive is provided by the fact that his personal
income is substantially dependent on the firm's accomplishment with
respect to the plan. When production difficulties threaten plan ful-
fillment and cannot be overcome through official channels, the director
has the difficult choice of deciding whether to use illegal or offi-
cially disapproved means to attain his objective. His choice is in-
fluenced by the knowledge that plan fulfillment covers many sins, but
failure, even without fault of his own, is seldom excused.
Once the enterprise plan has been approved, the director must pro-
ceed to carry it out in all detail -- that is, he must see to it that
the plant produces goods in the specified quantity, assortment, and
quality in the designated time with the prescribed productive resources.
But for the most part he cannot expect to program the year's operations
solely on the basis of the plan and to carry it out as he sees fit.
Since Soviet planning necessarily must be flexible, he faces the possi-
bility that his plan may be changed during the year, or, more probably,
that he will be required to deviate from the plan to meet priority
directives from superiors. He must also expect these superiors, partic-
ularly officials of the ministry and chief directorate, to intervene
to influence his day-to-day management of the plant when they consider
such action necessary, for their own success depends on success at the
enterprise level.
- 26 -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
A. Role of Supra-Plant Agencies in Coordination and Control
of Plant Production.
The Council of Ministers, as the top executive board for Soviet
industry, not only approves the annual enterprise economic plan and
subsequent formal changes in it, but also establishes current priorities
to govern specific production tasks. To implement new economic pro-
grams and revisions in policy the Council first issues broad general
decrees and follows them with detailed decrees fixing specific new as-
signments and revised resource allocations required by the new program.
From time to time the Council also issues special decrees, usually
issued to meet some especially critical situation.
In addition to issuing such decrees, the Council of Ministers
may use less formal methods to order changes in official plans and
allocations in order to cope with spot problems. The Council also
initiates national drives to improve unsatisfactory operational prac-
tices and orders ministerial officials to follow up Council decrees
with specific instructions to subordinate chief directoratesand enter-
prises. Finally, the Council issues general regulations to govern
enterprise production procedures and practices. By means of these var-
ious techniques the Council of Ministers is able to achieve some measure
of flexibility.in the implementation of over-all plans and to make such
plans dynamic. Should production problems of great urgency arise or
should plan revisions become imperative, the Council can quickly mobi-
lize the resources necessary to meet the situation.
Each industrial ministry maintains direct control over sub-
ordinate enterprises and makes many basic operational decisions for
them. Not only does it require elaborate and systematic reporting by
each enterprise, but also it keeps close check on the status of the pro-
duction program and provides needed support to the enterprises. The
minister also receives complaints from plant management concerning such
matters as rejection of a request or failure of a chief directorate or
a ministerial department to provide adequate support to the plant.
The ministerial collegium considers all major policy problems
and maintains a continuing check on plan implementation. 54/ It may
modify enterprise operational plans, consider the fate of major offi-
cials of plants consistently failing to meet obligations, and deal with
specific production problems. Although important questions are settled
at formal collegium meetings, most of the collegium's surveillance and
control functions probably are performed by those deputy ministers and
heads of chief directorates having direct line responsibility.
-27-
S -E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E-C -R -E -T
The production department of the ministry is the staff arm of
the minister, having over-all responsibility for ensuring completion
of the ministerial production plan. Although not in the direct chain
of command between the minister and the plant, this department handles
problems immediately related to the implementation of current production
plans of subordinate enterprises. Its ability to coordinate the as?
-
signment of production orders among plants is limited, however, since
it cannot reject demands from higher levels for acceleration of delivery
schedules or changes in priorities. Nevertheless, it can sometimes help
a plant by giving advance warning of impending changes in orders or by
supporting plant officials in their dealings with the ministry.
The chief directorate, though a separate link in the chain of
managerial command, is frequently bypassed in ministry-enterprise re-
lations. This practice has apparently resulted in a considerable amount
of duplication of effort in the day-to-day implementation of plans. 22/
The principal difference between the activities of the chief directorate
and those of the minister and ministerial production department seems
to be one of intensity rather than subject matter. The measures usually
taken by the chief directorates probably are more specific and continu-
ous. The routine operations of the chief directorate include thorough
examination of plant preparations for executing the production program,
day-to-day checks on the progress of all phases of work under the plan,
and occasional on-the-spot investigations. Finally, the directorate
attempts to ensure completion of all production orders on schedule,
acting in this connection as a high-level expediter in supply matters.
B. Plant Production Scheduling.
Ministries, chief directorates, and enterprises alike base de-
cisions concerning production schedules upon the annual plan and its
quarterly and annual production quotas. They must also observe any
supplementary directives of governmental and Party organs. The annual
production quotas set in the enterprise plan can be changed only by the
Council of Ministers, but considerable flexibility exists with respect
to quarterly and monthly production and delivery schedules. The formal
production schedule of the enterprise originates in the ministerial
operational plan, which contains itemized monthly production and deliv-
ery schedules for all subordinate plants. On the basis of these sched-
ules the planning department of the enterprise draws up 10-day opera-
tional plans for each production shop and for the plant as a whole. 56/
A production progress report must be submitted to the chief directorate
and to the ministry for each 10-day period or oftener. 57/
- 28 -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E -C -R -E -T
If an enterprise cannot meet production schedules, it may peti-
tion its chief directorate and its ministry for a reduction. The min-
istry may grant such a petition within the framework of the national
plan, by deferring production from one month or quarter to the next.
If approval of such a deferral would threaten fulfillment of the annual
enterprise plan, however, the ministry may refer the petition to the
Council of Ministers for decision.
Available evidence indicates that planned production scheduling
and scheduling control in the enterprise is frequently interfered with
in a manner irreconcilable with orderly production. Plants often re-
ceive orders from officials of the ministry and the chief directorate
requiring the manufacture and shipment of items irrespective of planned
delivery schedules. 58/ The plant director may protest to the minis-
try -- probably without much seccess, however, because such special
orders may result from pressure by top Party and government officials.
He must then deviate from the planned production schedule and prepare
for the consequences as best he can. Under these circumstances, es-
tablished production schedules are less meaningful in practice than
they are in appearance.*
The plant's planned production schedule also often has to be
rearranged to meet demands of the ministry or chief directorate that
the plant overfulf ill its plan. Although these demands are usually
couched as "requests," plant officials can ill afford to ignore them.
Such requests are frequently used by the ministry as a means of shift-
ing assignments from less efficient to more efficient producers who are
expected to be able to cope with the added production load.
Finally, radical rescheduling of plant production may be
required by shifts in over-all national economic policy. As soon as
a new policy is announced, ministerial and chief directorate officials
may be expected to try to implement it at once by issuing directives
to the enterprises to adjust production and delivery schedules.
Apparently, detailed planning for these necessary adjustments cannot
* Such unscheduled orders and revisions in plans may explain in part
the prevalence of shturmovshchina (storming) in Soviet industry, where-
by planned output is accomplished mainly during the last half of the
month rather than being distributed evenly throughout the period. Ir-
regular and belated delivery of supplies also contributes to this prac-
tice. 59/
- 29 -
S -E -C -R -E -T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E -C -R -E -T
usually precede public announcement, and production may be disrupted
during the time that new schedules are being developed. Soviet leaders
apparently consider such temporary disruptions not too high a price to
pay for the psychological benefits to be derived from the speedy
announcement of a new economic policy, thus permitting inauguration of
public drives for its immediate implementation.
C. Procurement of Supplies and Equipment.
Strict central control is exercised over allocation of supplies
and equipment required by the individual enterprise in implementing its
plan. A long list of critical items ("funded commodities"*) has in the
past been directly allocated by Gosplan in accordance with the national
economic plan; presumably this function is now performed by the recently
established Gosekonomkomissiya. To secure allocation of funded commod-
ities, the individual enterprise includes in its draft plan specific
material requirements which are reviewed and collated in the ministry
and then are submitted to the central planning authorities as part of
the annual plan. Finally approved commodity allocations are made by
means of special vouchers, first to the ministries and then to enter-
prises in accordance with norms or "coefficients" fixed in the plan.
Severe penalties are provided for using funded commodities for purposes
other than those specifically approved. 61/ "Quota" commodities (a
large category of items somewhat less scarce than funded commodities)
may be sold by producing ministries directly to consumer ministries
without specific central government approval of each sale. Ministries,
in turn, allocate such goods to subordinate chief directorates and
firms in accordance with specifications in their plans. Other commod-
ities may be procured by ministries and subordinate enterprises directly
from producing cooperatives and local industrial plants without formal
allocation. 62/
Besides this formal system of allocating materials and equip-
ment, the Soviet government also maintains centrally controlled re-
serves, which may be used to meet unforeseen supply problems. "Reserves
of the Council of Ministers)" essentially a part of the plant inventory,
* From time to time the USSR has attempted to reduce the number of
funded commodities. some time in
1953 "A number of items of equipment and supply ... are being taken
off the Council of Ministers' controlled list and transferred to the
jurisdiction of the Ministers themselves." 60/
- 30 -
S-E-C -R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
50X1
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
may be used (with special authorization from the Council) to satisfy
needs arising in the process of carrying out the plan -- for example,
to meet unplanned assignments or to overfulfill the plan. 63/ In addi-
tion, state reserves are maintained by the Chief Directorate of State
Material ,Reserves for mobilization and similar emergencies and may be
made available to enterprises for critical current production require-
ments, with the approval of the Council of Ministers.
The procurement of allocated goods -- that is, their physical
acquisition by the enterprise -- is closely controlled by the ministry
through a staff department of supply (Glavsnab*). After receipt of
orders from chief directorates or enterprises, Glavsnab negotiates
"general economic or business contracts" (khozyaystvennyy dogovor) with
supply ministries. 64/ These contracts stipulate the quantity and assort-
ment of materials to be supplied and their specifications, delivery
dates, and penalties for nonfulfillment. In some cases, chief direc-
torates of the consuming industry also conclude general contracts with
suppliers through their own supply departments. In case of standardized
articles, enterprise management participates in the negotiation of the
contract only if its requirements differ significantly from the kind of
goods available from supply departments of superior organs and covered
by their general contracts. In the case of nonstandardized articles
the consumer enterprise may negotiate (with the permission of its min-
isterial supply department) a local contract directly with the produc-
ing enterprise. Such local contracts, however, merely supplement the
general contracts by stipulating detailed technical and sales terms-,
including the conditions under which orders may be canceled or damages
claimed for contract violation. The ministerial supply department fixes
the amount of goods that may be bought and designates the supplier for
the enterprise.**
* Glavsnab is sometimes also referred to as chief directorate of sup-
or main administration of supply. For the sake of clarity the term
"department of supply" will be used in this report.
** For many years, consumer enterprises frequently negotiated contracts
directly with producers. In 1949, however, the Council of Ministers
directed khozraschet enterprises (those operating under cost accounting)
to minimize direct contracting, which allegedly had resulted in inade-
quate control, wasteful precontract negotiations, and other evils. 65/
Since then, direct contracts have been confined primarily to special
cases -- for example, instances in which equipment is manufactured on
the individual specifications of the consumer -- and such contracts are
now subject to careful review by ministerial officials.
-31-
S-E-C -R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S7E-IC -R -E -T
Goods acquired through general contracts negotiated by the sup-
ply departments of the ministry or chief directorate usually are deliv-
ered to them and distributed to consumer enterprises through a network
of regional offices, depots, and warehouses. Other items are delivered
directly to the ultimate consumers.*
Top officials of the ministry seem to play an active role with
respect to procurement. 66/ They may sometimes appeal to higher govern-
mental authorities on behalf of consumer firms under their supervision,
in order to expedite supplies from producer ministries. Also they may
order subordinate producer firms to make priority deliveries to desig-
nated consumers. They also decide disputes over allocations and pri-
orities submitted from lower levels. In dealing with spot problems of
enterprises, they act as expediters (especially in interministerial
transactions), adjust priorities, and sometimes allocate specific items
to an enterprise directly or through its supervisory chief directorate.
They also give special attention to the control and the maximum utili-
zation of enterprise inventories, supervising interplant programs under
which enterprises with a surplus of a given commodity must upon request
relinquish it to those in short supply.
Although procurement officially is chiefly the responsibility
of higher echelons, in actual practice individual enterprises must take
many steps of their own to ensure that required materials will be avail-
able when needed. They must often find a suitable supplier when a local
contract is to be made and must persuade the supply department to make
necessary contract arrangements. Enterprise officials usually must
follow up requests for allocation and delivery of goods in order to make
sure that needed raw materials and equipment will be available. When
such action does not lead to timely delivery, enterprise directors
sometimes appeal to top Party and government leaders for help. 67/
Enterprises also have often found it necessary to follow up interventions
made by superiors in their behalf by sending a representative to the
supplier to ensure the timely production and delivery of ordered goods. 68/
* Enterprises are required to submit regular inventory reports to the
supply department of the ministry. These reports enable the ministry
to redistribute scarce materials among subordinate enterprises when
necessary.
-32 -
S -E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C -R -E-T
In spite of efforts of this kind, supply problems frequently
have disrupted production, even in relatively favored sectors of the
economy. A recent Soviet survey of the machine-building industry re-
vealed that 30 percent of the idleness of workers in that industry had
been due to ill-timed provision of materials. The director of the
important Stalin Motor Plant in Moscow has stated that he sometimes has
to spend as much as nine-tenths of his working day on supply problems. 69/
Under such circumstances it is not surprising that plant offi-
cials frequently resort to supply practices which are improper under
Soviet rules. One of the most common is to overstate material require-
ments in preparing annual and quarterly plans. A second practice is
the employment of "pushers" at supply organs and important supplier
plants; their job is to see to it that the firm gets ordered materials
on schedule. Still another widely used technique is the use of blat
(improper influence), whereby managerial officials of one plant attempt
to persuade those of another to supply needed items by promising to
grant special favors in return. 70/
Another practice arising from the uncertainties and shortcomings
of regular supply channels is the tendency of industrial enterprises to
produce many of their own materials and parts, even though they could
be made more cheaply by outside suppliers. A factory frequently oper-
ates its own small foundry or castings shop, for example, in spite of
the fact that it can obtain such components from other firms at lower
cost (though probably with less assurance). During the past year,
Soviet leaders have shown great concern over the growing tendency to-
ward such vertical integration in industry. In a speech to the plenary
session of the Central Committee of the Communist Party in July 1955,
Premier Bulganin discussed this problem at some length and urged the
ministries to take steps to increase the number of specialized plants. 71/
Following up the points made by Bulganin, the Central Committee adopted
resolutions obligating the ministries and central planning agencies to
take steps to increase specialization in Soviet industry and eliminate
unjustified and inefficient instances of vertical production. 2/
Other resolutions also obligated these organs and the enter-
prises to find means for regularizing provision of supplies -- measures
which, if successful, would remove one of the main motives for firms to
produce their own raw materials and parts.
-33-
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
In any attempt to determine the causes of the supply difficul-
ties discussed above,* it must be recognized that the USSR is attempting
to secure a maximum rate of economic growth and maximum production from
the given production establishment. Attempts to maximize growth inev-
tably lead to limitation upon certain lines of capital expansion and
encouragement of others. A detailed system for allocation and distrib-
ution of critical materials is indispensable to such a program of forced
growth. Given the absence of consumer choice and conventional market
controls, moreover, a planned economy must develop a structure to sub-
stitute for the market mechanism. The system of allocation employed
by the USSR is capable of effecting the distribution of production
materials, although it is cumbersome compared to a simple market sys-
tem. **
Although the system undoubtedly has injected some semblance of
order into plan implementation, it does not appear to function nearly
so smoothly as Soviet leaders intended. Part of the malfunctioning is
inevitable in an economy operating at full capacity with scarce re-
sources, but part also seems to be attributable to inadequate planning
for materials distribution and to overlapping and duplication of effort
among supply agencies of ministries, chief directorates, and enter-
prises. In the procurement field, probably more than any other, the
individual enterprise has had to use its own ingenuity to assure it-
self production materials, with the result that a wide variety of ille-
gal and officially censured practices have become a regular feature of
the system. The sufferance of such practices by top Soviet managers is
a tacit admission that is considered expedient to permit the development
of needed flexibility in this way.
* It is significant to note that the shortcomings in the supply and
distribution system found to be currently prevalent in the USSR are
essentially the same as those found in a recent study to be prevalent
during the 1930's. 73/
** It should be implicitly recognized that the expenditure entailed in
maintaining and reporting upon elaborate central and regional markets
is tremendously high and is a cost the USSR avoids by the existing
organization. The recurring difficulties with a continuous flow of
supplies are more a result of Soviet pressure to force higher pro-
duction from the economy than they are an indictment of the mechanism
or the procedures.
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C -R -E-T
D. Quality Control and Inspection.
The principal technique for quality control in the USSR is the
establishment by the government of legally binding standards -- that is,
rules and technical specifications for the measurement of quality -- for
all important products. The prevailing quality standard for a given
product is the All-Union State Standard (COST), which defines technical
properties and sets minimum quality requirements to which the product
must conform. A published GOST will usually include the following:
(1) description of the product; (2) physical and mechanical specifi-
cations; (3) sampling rules or testing methods; and ()4) rules for pack-
aging, transportation, and storage. 74/ Where GOST standards do not
apply, technical specifications, consisting of a detailed description
of the product and consituent materials, are fixed by contract between
producer and consumer enterprises.
Top Party and government echelons have attached great impor-
tance to quality control. The State Committee for Standardization,
Measures, and Measuring Instruments (attached to the Council of Min-
isters) enforces compliance by the ministries with the rules governing
technical standards, while ministries and chief directorates supervise
the inspection systems and practices in the plants. 75/ Each industrial
enterprise maintains a department of technical control (OTK) which oper-
ates under a kind of dual subordination, in that the chief of the OTK,
though administratively subordinate to the enterprise director, receives
substantive instructions from the chief of inspection in the ministry
and may correspond on matters of quality and rejects directly with the
ministry and other outside agencies. 76/ His reports go to both the
enterprise director and the chief of inspection. The enterprise direc-
tor may rescind decisions of the OTK chief, but the latter may appeal
to the ministerial chief of inspection if he considers the director's
action unwarranted. 77/
In practice, ministries probably tend to restrict their quality
control activities to establishing general inspection policies and to
acting as arbiters in technical questions leaving the actual control of
plant inspection activities to the chief directorates.
The OTK performs three general types of inspection activities.
The first is the preliminary inspection of semifinished parts and as-
semblies for the purpose of preventing further processing of poor-qual-
ity items. The second involves spot checks to ascertain the observance
of technological rules and to prevent violations which might increase
-35-
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
the rejection rate. The third is a complete examination of finished
products, including checks on the thoroughness of preliminary and inter-
mediate inspections and tests to determine compliance with dimensional
tolerances, material specifications, and other technical standards.
Before the OTK check the production foreman makes his own examination
and affixes his personal stamp. Especially complex units also require
stamping by the shop chief. After final inspection the product is
stamped by the OTK control foreman and either sent to the shop ware-
house or shipped to the customer.
Defective products are classified as total or as correctable
rejects. Total rejects are placed in special locked bins or warehouses
under the control of designated OTK officials. 78/ A rejection certif-
icate is made out stating the nature and cause of the defect and de-
signating responsible individuals who are then usually billed for the
direct cost. Thus, if a machinist performing the final operation on a
part was at fault, he is billed for all preceding work, including the
cost of the materials. Similarly, if the technical staff designed a
faulty special reamer used by a lathe operator with the approval of the
foreman, the cost of the resultant rejects is levied against the design-
er, lathe operator, and foreman. In practice, the costs often exceed
the individual ability to pay, and the plant makes up the difference. 79/
Correctable rejects are returned to the shop with specific instructions
for correction and usually are reworked, even though the cost of rework-
ing may exceed the cost of scrapping. 80/
Since the OTK is responsible for the prevention as well as the
detection of substandard production, it has a direct interest in keeping
the number of rejects down, an interest which it shares with the rest
of the enterprise. 81/ Accordingly, the OTK chief and the enterprise
director may informally agree upon the number of rejects that can be
safely reported, and the OTK may occasionally ignore defective products
which are not too far below standard. Such manipulations can be carried
through successfully only if the plant has funds and supplies suffi-
cient to replace the concealed rejects. 82/
Customers and purchasing agencies examine finished products and
testing procedures in plants from which they buy. If the order is for
large or particularly important equipment, acceptance of the goods may
be handled by an ad hoc committee composed of representatives of the
customer, the supervisory chief directorate and ministry, a central
-36-
S-E-C -R -E -T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
governmental design bureau,* and the producer. Military customers also
may exercise continuing supervision over the production of ordered
items. If a disagreement about the quality of a delivery cannot be
settled at the plant level, it is taken up by the chief directorates or
ministries concerned and may be referred for final decision to the State
Arbitration Commission (Gosarbitrazh), attached to the Council of Min-
isters.
The enterprise central accounting office receives a copy of
each OTK rejection slip and charges net reject losses to the cost of
the production order. Rejects may not be included in plan fulfillment
figures, nor is allownace for the cost of reworking correctable rejects
made in the enterprise plan. 83/ Delivery of low-quality or incomplete
products not only is a crime for which the enterprise director, chief
engineer, and OTK chief may be imprisoned but is also a breach of con-
tract, obligating the enterprise concerned to rework or replace the
rejects and to pay a fine to the customer or to the government in the
case of illegally concluded contracts. 84/
E. Role of the Manager.
Soviet doctrine concerning economic administration envisages
that the individual enterprise shall be "centrally managed" but "opera-
tionally independent." Centralized managementlexpressed principally
through the planning process, is essential to etsure coordination of
enterprise activities with the rest of the economy, and operational
independence is necessary to achieve maximum efficiency in the use of
scarce economic resources by encouraging initiative at the producing
level. These principles are considered to be not conflicting, but com-
plementary, and establishment of the proper interrelationship between
them is deemed a necessary condition for successful oper&tion of
socialist industry. 8
* Specialized central design bureaus are attached to industrial minis-
tries to assist chief directorates and enterprises in solving partic-
ularly difficult technical problems. Their role is primarily that of
a consultant, and their recommendations generally are not put into
force without prior acceptance by the chief directorate and the enter-
prise concerned.
-37-
S -E-C -R -E -T.
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E -C -R -E-T
Achievement of such a proper balance has proved exceedingly
difficult, and in day-to-day implementation of plans the operational
independence of firms, until recently, has tended to give way to cen-
tralized management. Evidence of this shift is provided in two ways.
First, the formal rights allowed the enterprise director in carrying
out the work of his plant have been severely' limited. For example,
until late in 1955 he did not have the right to transfer administrative
and technical employees from one shop or department to another, nor
could he usually alter their salaries; he could not on his awn initia-
tive use working capital funds to purchase needed items of equipment
costing more than 300 rubles; and many restrictions were placed on his
use of the director's fund. In recent years, plant managers, as well as
top Soviet leaders, have frequently complained that such restrictions
on the powers delegated to enterprise directors hamper initiative and
prevent the speedy solution of urgent problems arising almost daily in
the plant. 86/ They have stressed the need for increasing the rights
of enterprise managers and the importance of the principle of one-man
management on the enterprise level.
In fact, recently (in July 1955) the Plenum of the Central Com-
mittee of the Communist Party adopted a resolution calling for extension
of the rights of enterprise directors. 87/ Shortly thereafter the
powers of enterprise managers were considerably broadened, and it was
announced that a new statute was being prepared to define in more com-
plete detail the status of the individual enterprise and the rights of
its director. Although only fragmentary information is available con-
cerning the nature of the newly granted powers, they are known to in-
clude the following 88/: (1) the enterprise may accept orders for
production of goods from materials supplied by the consumer or from the
firm's own supplies, provided such acceptance will not interfere with
plan fulfillment; (2) working capital funds may be used to purchase
certain kinds of equipment costing not more than 500 rubles; (3) the
technological process of production may be altered, provided product
quality is not impaired or production costs increased; (4) delivery
schedules within a quarter may be modified, in agreement with the cus-
tomer; (5) the structure of the staffs of shops and departments may be
established and altered within the limits of the firm's plan for labor;
(6) wage funds saved during one quarter of the year may be used to pay
wages in subsequent quarters; and (7) under certain conditions, surplus
materials and equipment not used by the enterprise may be sold.
Second, the nature of the day-to-day relationships between the
enterprise and its supervising agencies provides further evidence that
in practice the principle of centralized management has tended to tri-
-38-
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E -C -R -E-T
umph over that of operational independence. In supervising plan imple-
mentation and the execution of supplemental directives by the enter-
prise, officials of the ministry and chief directorate have frequently
exercised what the Soviet press terms "petty tutelage" over the firm.
Judging from criticism found in the Soviet press, supervisory officials
seem to bombard the enterprise managements with directives, quasi-
directives, and detailed instructions for carrying out the orders, which
sometimes have been conflicting. The extent and closeness of such
supervisory activity undoubtedly is related to the success of the enter-
prise in fulfilling its assigned tasks; superior organs will tend to
leave sucessful firms alone, but to supervise unsuccessful ones in
minute detail.
Although enterprise management has tended to regard many of the
activities of ministry and chief directorate officials as unwarranted
interference in the internal affairs of the firm, many such actions
undoubtedly were justified from the broader point of view of these
superiors. To ensure fulfillment of the plan for the ministry as a
whole, ministry officials sometimes have had to shift assignments or
materials allocations from one plant to another. Such shifts may be
disastrous from the point of view of the plant directors concerned, but
necessary from the point of view of the ministry. The tendency of su-
perior organs to keep close watch over subordinate firms and to inter-
vene in their activities when deemed necessary stems from the fact that
these organs, too, are judged on their success in fulfilling assigned
tasks; a firm's failures are their failures, which they seek to prevent
by all possible means.
Even without the burden of excessive interference by supervisory
organs, the position of the enterprise manager in the USSR is not envi-
able. Smooth and orderly operation of the plant according to plan is
seldom possible. Among the factors likely to cause interruptions of
planned production schedules are the following: difficulties in ob-
taining trained manpower; belated delivery and poor quality.of supplies
and equipment; and numerous requests for, information and reports from
central and local organs, requiring much time in preparation. In addi-
tion to these more or less chronic difficulties, the plant is often re-
quired to deviate from its plan in order to fulfill higher priority
orders levied by superiors. Sometimes its plan may be formally changed
or additional resources allocated, but often the firm must complete both
the plan and the priority orders as best it can.
-39-
S -E -C -R -E -T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
The fact that industrial enterprises usually manage nevertheless
to fulfill assignments attests to the ingenuity of enterprise manage-
ment and to the large measure of flexibility that in practice has be-
come an informal part of the Soviet system. To fulfill both planned
and unplanned tasks, enterprise managers often have to resort to a
variety of improper and illegal practices, which are overlooked by
superior organs as long as the plant is successful. Higher authorities
apparently try to select as plant directors persons whom they expect to
display initiative and assume responsibility for getting things done in
one way or another. 89/
The new powers granted to enterprise directors following the
July Plenum are intended to increase the operational independence of
firms. Likewise, the broader authority in the field of planning and
allocation of resources which was recently accorded the economic min-
istries* is designed to reduce centralization of management and de-
cision-making. Through these measures for limited decentralization of
economic management, Soviet leaders evidently hope to improve over-all
economic efficiency by encouraging intiative at the producing level and
by reducing delays and waste motion caused by the constant referral of
a host of minor problems to successively higher levels for decision.
The realization of these hopes depends on the extent to which lower and
intermediate-level management actually exercises its increased authority.
Enterprise managers accustomed to being closely controlled and to co-
ordinating each step with higher authorities may be reluctant to act on
the broader authority officially accorded them. Similarly, officials
of ministries and chief directorates may hesitate to give up close con-
trol over enterprise affairs, since they still retain over-all respon-
sibility for plan fulfillment, and the consequences of failure are
serious. Indeed, some recent statements by Soviet leaders suggest that
the new measures for decentralization are not being implemented as
rapidly as desired.**
VI. Management of the Enterprise Labor Force.
A plan for, labor is one of the basic components of the enterprise
Tekhpromfinplan. It includes measures for increasing labor productivity,
estimates of the total labor force and the number in each ,important
occupational group, the total wage fund and the average for each worker
* See pp. 24-25, above.
** See p. 25, above.
-40 -
S-E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
category, the plan for training workers, the sources for recruitment of
additional personnel, and the plan for social and cultural benefits for
workers. Implementation of these plans covers a wide range of activi-
ties and responsibilities of plant management, the most important ones
being the following: establishment of the plant's table of organization
and recruitment of a labor force; training, assignment, and dismissal
of employees; remuneration of employees; maintenance of internal plant
discipline; and establishment and maintenance of channels for worker-
management communication. In some of these areas the plant director
has been allowed wide latitude for action, but in others his authority
is limited to a greater or lesser extent by provisions of Soviet labor
law; by proscriptions imposed by supervisory organs; and by controls,
both latent and actual, exercised by Party, trade union, and finance
agents.
A. Establishment of a Labor Force.
The size and distribution of the plant's labor force is governed
by the limits set forth in its annual plan for labor and by its approved
table of organization. The staffing pattern must conform to that es-
tablished for comparable enterprises by the ministry and the State
Tables of Organization Commission.* The plant's table of organization
(applicable only to administrative-management personnel) must be regis-
tered annually with finance offices of the city or rayon governments
and is subject to close surveillance by these organs. To circumvent
the stringent controls over the employment of such nonproduction work-
ers, plant managers have adopted a variety of ingenious and illegal
measures for inflating administrative-management staffs. 91/ If dis-
covered, these practices are forbidden, and the guilty officials may be
fined or imprisoned. To cope withthis recurrent problem of inflated
white-collar staffs, not only in the enterprises but throughout the
state apparatus, the government in recent years also has ordered annual
reductions in the number of such positions.* These orders are
* The State Tables of Organization Commission, formerly attached to
the Council of Ministers, was subordinated to the Ministry of Finance
in 1953.
** In a report to the Supreme Soviet on the proposed State Budget for
1956, Finance Minister Zverev stated: "The number employed in the admin-
istrative apparatus of enterprises, establishments, and organizations
has been cut in the course of two years /1954-557 by nearly 750,000.
A considerable number of these have been transferred from the adminis-
trative apparatus to production. Savings connected with the above re-
ductions amounted to over 7.2 billion rubles per annum." 22/
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
implemented at the enterprise level by the plant director, who must
abolish the prescribed number of positions in the designated time,
dismiss the employees affected and find other jobs for them, submit
detailed progress reports to the ministry, and transfer payroll funds
saved in this way to the state budget.
Following approval of the plant's labor plan and table of organ-
ization the plant director must employ workers in strict accord with
these directives.* The plant's labor force is drawn primarily from the
local population; like their Western counterparts, Soviet firms in need
of workers advertise in newspapers or over the radio. Although recruit-
ment is the responsibility of the enterprise director, he may obtain
important assistance from the supervising chief directorate, ministry,
and other agencies concerned with centralized direction of the labor
force. Engineering and technical workers graduating from universities
and other schools are allocated among enterprises by the economic min-
istries and the directors of the schools. In order to secure such
specialists the enterprise must submit annual lists of requirements to
the ministry. In addition to placing recent graduates, the ministry,
through its department of supervisory personnel, assists the enterprise
in obtaining managerial employees and others with special skills. 94/
A plant unable to obtain unskilled or semiskilled employees
locally may request the ministry to recruit such workers through the
organized recruitment program. This program is operated on a nation-
wide basis by the Chief Directorate for Organized Recruitment of Man-
power (Glavorgnabor**) through local units attached to city, kray, and
oblast executive committees. Workers are recruited under individual
1- to 3-year employment contracts in accordance with the specifications
of the enterprise.
Although the plant director is allowed wide latitude in the
hiring of rank-and-file office and plant workers, his appointments to
many managerial and technical positions in the plant require approval
* In August 1955, enterprise managers were given the right to "estab-
lish and alter the structure and staffs of shops and divisions of a
plant administration within the limits of the enterprise's plan for
labor" and to "economize on the wage fund received in the preceding
quarters for the payment of wages in the subsequent quarters of the
same year." .2./
** Attached to the Council of Ministers.
S-E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C -R -E-T
of the ministry and the Party. In addition, the ministry appoints
recent graduates from the universities and technical schools, assign-
ments of particular individuals often being made in accord with the
wishes of Party officials.*
B. Assignment, Transfer, and Dismissal of Plant Employees.
The enterprise director distributes manual employees among the
various departments and positions in the plant in a manner which, in
his opinion, will ensure efficient operation and plan fulfillment.
Shop chiefs and foremen, under the general supervision of the director,
do the same within their domains. The director's liberty to take per-
sonnel action, however, is limited by the provisions of Soviet labor
law and other regulations in much the same way as the freedom of his
Western counterpart is limited by law and by provisions of collective
bargaining agreements. Soviet labor law provides that, except under
explicitly defined conditions, a Soviet worker may not be transferred
from one job to another or from one plant to another without his con-
sent. 96/ Young specialists assigned to the plant from the universities
and technical schools may not be transferred to administrative work or
to jobs outside their speciality. The plant director may not send admin-
istrative-management employees (including engineering-technical workers)
on detached duty without permission of the chief directorate.
The plant director may not dismiss an employee against his will
except on grounds specified in Soviet labor law. 'Until recently,** an
employee could not quit his job without authorization of his employer,
who had full authority to refuse any request for a release not based
on legal grounds making release mandatory (health, personal hardship,
or entrance in school). Although plant directors were responsible for
ensuring that approval of a request for release did not adversely affect
the interests of the enterprise, they apparently exercised their author-
ity quite freely, judging from press reports of high labor turnover in
Soviet factories. 2f1/
the Party Central Committee 50X1
placed three-fifths of the university graduates in 1939 and that it
intervened in 1940 to force the Minister of the Chemical Industry to
send engineering graduates to a certain plant. 95/
** A Supreme Soviet decree of 11 May 1956 gives employees the right to
leave their jobs by merely giving 2 weeks' notice to the plant director. 97/
-43-
S -E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E-C -R -E-T
Skilled workers, being less easily replaceable, were undoubtedly re-
leased with much more reluctance than were unskilled workers. Offi-
cials of the ministry and of the Communist Party sometimes order a
plant director to transfer or discharge a designated employee or to
"freely release" those who volunteered for work on high-priority pro-
jects. 99/
C. Training.
Securing of manpower trained to run machines and factories has
been one of the critical problems of Soviet industrial development.
During the early decades of industrialization the training of workers
was, of sheer necessity, primarily the responsibility of the plants
where they were to work, but the government has gradually taken over a
major share of this responsibility. Generally speaking, it may be said
that two training systems are now in operation, one formal and the other
informal. The formal system comprises technical schools under the dir-
ection of the economic ministries and the Ministry of Higher Education
and labor reserve schools under the Chief Directorate of Labor Reserves.*
Certain types of labor reserve schools are often attached directly to
industrial enterprises. Plant managers, consequently, must take care
of them to some extent, even though they have no over-all responsibility
for their administration. 100/ -
In addition to formal training of young employees in special
schools, workers receive informal training in the plants, partly on-
the-job and partly through course work. Provisions for training new
personnel and "raising of workers' skills" are part of the annual enter-
prise plan and must be implemented and fulfilled like the other parts.
Enterprise managers seem to have considerable latitude in working out
training programs and to take an active and constructive interest in
them. 101/ Ministries also aid in training by establishing special
courses to teach Stakhanovite work methods and new techniques.
D. Wage and Salary Determination.
Enterprise directors have only limited authority to fix wages.
The compensation of employees is determined by a wage and salary-system
established by the economic ministries on the basis of principles laid
down by the central government. White collar workers are usually paid
* Attached to the Council of Ministers.
-44-
S -E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E -C -R-E -T
flat monthly salaries fixed by the ministry and set forth in the enter-
prise plan and table of organization. The enterprise manager may not
change these rates, though under certain conditions he may sometimes be
allowed to grant "personal rates," which exceed the official rates. If
he wants to depart from the governmental rules under other circumstances,
he must rely on one of the various methods which managers have developed
to circumvent the existing stringent controls.* 102/ In the case of
production workers, however, he has more leeway to manipulate the compen-
sation of individuals, since he determines the job classification and
wage category of the worker as well as the work norms, and since, further,
the ministerial standard schedules cannot in practice take care of each
individual situation.
In addition to the basic wage or salary, employees may receive
various bonuses and premiums which are financed either from the direc-
tor's fund or from special funds. The enterprise director supposedly
may pay the bonuses, within the legal framework, as he thinks best. In
practice, however, his discretion is limited by the necessity in some
cases to consult with the plant's trade union, and by interferences of
the chief directorate and ministry. 103/ Bonuses for top managerial
personnel in the plant (the director, deputy director, chief engineer,
chief accountant, and chiefs of planning and production) are awarded by
the ministry.
Plant employees also receive overtime pay and various fringe
benefits. As a rule, the enterprise director Trust secure advance
authorization for overtime work from both the 'chief directorate and the
central committee of his workers' trade union. He is apparently author-
ized to order emergency overtime work on his own initiative, however,
provided he has wage funds covering the cost and the plant trade union
committee approves. Although the prerequisite of trade union approval
appears to be a mere formality, the union may intercede if it believes
that the amount of overtime work is excessive. 1241 Major changes in
the workday or workweek may be imposed by order of the Council of
Ministers or the ministry. Fringe benefits (such as night shift bonus
and vacation pay) are fixed by law or ministerial regulation, and plant
management may not deviate from them.
* The chronic problem of overexpenditure of wage funds and its conse-
quences, as well as recent efforts to cope with the problem, is discussed
in more detail on pp. 53-54 below.
-45 -
S -E -C -R -E -T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
E. Labor-Management Relations.
Soviet labor law defines the actions of workers which consti-
tute violations of labor discipline and fixes penalties for them. The
managerial staff in individual enterprises has the right and the duty
to punish contravening employees. Failure to do so may result in
imposition of reprimands, fines, or prison sentences. Although the
internal plant managements apparently have authority commensurate with
this responsibility, they seem to have been lenient whenever they con-
sidered this expedient. They have been particularly reluctant to punish
every instance of absenteeism or unauthorized changing of jobs and
thereby have taken the risk of being punished themselves. 105/ Plant
trade union committees must support management's efforts to maintain
labor discipline, since safeguarding of the latter is one of the major
functions of Soviet unionism. Individual workers may file appeals
against disciplinary punishment with the intraplant conflicts commissions
and the people's courts.
As a more positive means of creating and preserving an atmos-
phere suitable to promote maximum output, the internal enterprise man-
agements attempt to maintain communications systems designed not only
to get their point of view to the workers but also to get the latters'
point of view to management. Communications channels are inherent in
the established chain of command and in the role played by the factory
trade union committee (zavkom). In addition, widespread use is made of
the "production conference," which may be called at the initiative of
management, the trade union, or the Party group in the plant. These
conferences are held regularly or intermittently to consider reports by
management concerning production and workers' welfare matters and to
discuss production problems, operational changes proposed by management,
and workers' suggestions and criticisms. Although some of these arrange-
ments have been subject to criticism, they seem, by and large, to have
functioned fairly satisfactorily and to have provided an element of
strength in the operation of Soviet industry. 106/
Wherever employees have to perform work under the direction of
superiors, the will of one man is subordinated to that of another, and
friction cannot be avoided, irrespective of the prevailing economic,
social, and political system. The same conflicts or grievances there-
fore arise in the day-to-day working relations of Soviet plant manage-
ments and workers as arise between Western employers and their personnel,
and similar methods or grievance procedures are used to adjust them.
The standard method provides for the submission of complaints to
-46-
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C -R -E-T
successively higher levels until they are adjusted or referred to final
decision by a neutral agency. In the USSR the grievance is first pre-
sented to the plant trade union organizer, who may take it up with the
plant trade union committee or discuss it directly with management. If
the matter cannot be adjusted in this stage, it may be submitted in a
more formal manner to the plant appraisement and conflicts commission
(RKK). This bipartite body is composed of representatives of the union
and of management in equal numbers and may be invoked not only by labor
but also by management to obtain, for example, punishment of workers
for violating rules of employment or for damaging enterprise property.
Decisions of the RKK, which must be unanimous, are binding. If a unan-
imous decision cannot be reached or if the complainant is not satisfied
with the award, the issue may be referred for final decision to higher
levels of the trade union or to the people's court. The commission, in
addition to settling grievances, has the power to decide whether a
worker may be discharged for lack of qualification or reasons of health.
Without its affirmative decision, such a discharge is not legally
valid. 107/
The general practice of attempting to settle issues outside of
prescribed channels, already noted in connection with production and
supply matters, is also present in the field of labor-management dis-
putes. Workers have complained directly to the Kremlin, the All-Union
Central Council of Trade Unions, and the ministry, not only in matters
over which the RKK and the courts have no jurisdiction,* but also con-
cerning issues which should have been settled through the grievance pro-
cedure. Officials on high administrative levels have accepted such
complaints and have channeled them back for investigation. By and large,
extensive use is apparently made of the grievance machinery.
workers have been fairly successful in grievance
proceedings, though declare the system to be unsatis-
factory. 108/ On balance, the operation of the machinery for settlement
of disputes probably affects worker morale favorably and thei-eby con-
tributes to labor productivity.
* A number of issues have been considered not suitable to be deter-
mined by the RKK and have been excluded from its jurisdiction. Examples
are disputes about norms set by management, dismissal and reinstatement
of certain types of managerial employees, changes in official wage and
salary scales, and discharges resulting from reduction in force.
S -E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
50X1
50X1
50X1
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
F. Function of the Manager.
A steady increase in the productivity of labor has been a con-
tinuing objective of Soviet economic policy; an increase of 50 percent
is scheduled for the industrial sector of the economy during the Sixth
Five Year Plan period. Although the principal methods of increasing
productivity are through mechanization and improved production and sup-
ply scheduling, important contributions can also be made through improv-
ing the management of labor itself. At the plant level the director is
responsible for implementing the plan for increasing labor productivity,
and in many aspects of this task he has been accorded commensurate
authority and considerable freedom of action. His rights to deploy his
labor force within the plant and to reward individual effort, however,
have been greatly restricted, although a recent delegation of authority
in this regard has lessened these restrictions.
Plant trade union and Party groups having the same over-all
objective as management -- namely, plan fulfillment -- support manage-
ment efforts to train workers, to promote maximum output at minimum
cost, and to maintain labor discipline. There is no evidence that
trade unions interfere in areas that are management prerogatives or
attempt to assume managerial responsibilities. The Party intervenes
in personnel matters, thus posing an actual or potential limitation on
management's right to hire and fire employees. On the other hand, both
the Party and the trade union aid management by mobilizing workers in
support of production objectives and other tasks.
VII. External Controls over Plan Implementation.
In Soviet ideology the concept of control signifies essentially
(1) the process of checking on fulfillment of central government and
Party decisions by individuals and institutions and their adherence to
relevant laws and regulations and to the various forms of "Socialist
discipline" and (2) the imposition of necessary restraints. As already
evident, state control over plan implementation in the individual indus-
trial enterprise is obtained primarily through the day-to-day exercise
of the supervisory functions of the responsible chief directorate and
ministry. Besides the controls normally inherent in an established'
chain of command, two other direct means are employed: one is the "con-
-48-
S-E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C -R-E-T
trol by the ruble" exercised by banking and financial organs,* and the
other is the inspection system of the Ministry of State Control. Less
formal and direct, although no less effective, are the all-pervasive
surveillance and control activities of local and territorial units of
the Communist Party. The cost of maintaining such a complex control
apparatus is considerable, but is indispensable to a centrally planned
and centrally administered economy such as that of the USSR.
A. Gosbank.
The State Bank, or Gosbank,** is the central Soviet banking
institution and as such serves as a master clearing house for Soviet
Industry. The Bank's principal task is to perform normal banking func-
tions for its customers -- that is, to execute settlement payments be-
tween enterprises, to provide them with cash, and to extend short-term
credits. Each industrial enterprise maintains a bank account (settle-
ment or clearing account), in which are deposited the working-capital
funds allotted by the annual enterprise plan, the receipts from the sale
of goods and services, and the proceeds of loans authorized in the
firm's credit plan or otherwise approved.
Virtually all payments between individual enterprises must be
transacted through debits and credits to the appropriate bank accounts,
cash being used usually only for payment for wages. The enterprise must
use its financial resources for purposes specified in its plan or other-
wise authorized. If the balance in a firm's settlement account becomes
insufficient to meet all .its obligations, Gosbank will insist upon obser-
vance of the priorities established by the government in a resolution of
21 August 1954, which assigned first priority to wage payments, second
to debts due other enterprises, XXX and third to repayment of bank
* Control by the ruble is a broad concept, embracing essentially
all aspects of control that stem from the facts that money (the ruble)
is used as a means of account in the Soviet system and that monetary
units are employed to measure success of enterprise operations. Thus
the concept includes not only controls over credit and cash expenditures
exercised by the banks, but also controls exercised through budgets,
cost-accounting, and profits. 109/
** Attached to the Council of Ministers.
*** Enforcement of contract obligations is the responsibility of the
State Arbitration Commission and not of Gosbank. Should an enterprise
refuse to pay for a purchase, however, the Bank is supposed to check
on the legality of such refusal. 110/
-49-
S-E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E -C -R -E -T
loans. 111/ This order of payment priority emphasizes the fact that in
the Soviet economy, considerations related to continued production and
unhampered operations in the enterprises take precedence over financial
considerations.
Through performance of its normal banking functions, however,
Gosbank exercises a much larger measure of control over the affairs of
industrial enterprises than do the banks in capitalist economies. In
administering the settlement account of an enterprise the Bank must
make sure that the firm is observing its production and financial plans
and that payments are being made only for authorized purposes. This
form of control by the ruble is accomplished through exercise of the
Bank's authority to extend short-term credit and regulate cash expen-
ditures.
1. Short-Term Credits.
Gosbank grants credits to individual enterprises in accor-
dance with the limits and purposes stipulated in the annual enterprise
plan or on the basis of supplemental authorizations of the supervising
chief directorate and ministry.* Loans may be granted to augment work-
ing capital, to finance goods in transit, and to pay for above-norm raw
material stocks, inventories, and production expenses. 113/ Individual
loans are usually granted for specified purposes, bear interest, and are
secured by approved collateral. In connection with such secured loans
the enterprise must make a full disclosure to the Bank with respect to
collateral, to supplement the Bank's almost complete knowledge of the
firm's transaction pattern. In addition to credits specifically auth-
orized in the enterprise plan, the Bank may grant unplanned loans for
special purposes, upon authorization of the enterprise's supervising
chief directorate or ministry. 114/
* Long-term loans for capital construction and other purposes are made
by a special institution, Prombank, which exercises with respect to such
loans controls over the enterprise similar to those exercised by Gosbank
with respect to short-term loans. Thus Prombank sees to it that loan
proceeds are used for the purposes designated, that price lists are
observed, and that investment projects are undertaken and completed in
accordance with the enterprise plan for capital construction. lig/
- 50 -
S-E-C -R -E -T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-RDP79R01141A000700090002-2
S-E-C -R -E-T
In giving credit to an enterprise the Bank is empowered
to inquire into the firm's financial position and its utilization of
physical production resources. The Bank may investigate to ascertain
whether excess inventories or stocks of raw materials are being main-
tained and whether the enterprise is fulfilling its obligations to
other enterprises, to the Bank, and to the state on schedule. The
Bank makes monthly checks of the security of its loans by detailed
examination of enterprise operational reports. 115/ Finally, the Bank
must make sure that loans are used for the purposes authorized.* The
effectiveness of such bank control over enterprise affairs is enhanced
by the Bank's right to apply credit sanctions and to debit the firm's
settlement account when deemed necessary to force repayment of loans
or other obligations.
In order to strengthen the hand of Gosbank, the extension
of credit between enterprises is strictly proscribed. The control func-
tions of the banking system are further enhanced by provision for the
Bank to supply through credits a specified proportion of the normal
working capital funds for those enterprises, chiefly in heavy industry
and trade, that do not experience seasonal variations in working capital
requirements. The effect of this provision is to give the Bank a fixed
share in every purchase of materials and in all of the firm's goods in
process and inventories, with the concomitant right to keep close watch
over the firm's activities. 116/
In its loan activities, Gosbank also strives to improve the
financial efficiency of the enterprise. For this purpose it has estab-
lished three "regimes of credit," namely, the "preferential" (1'gotnyy),
the "regular" (obychnyy), and the "special" (osobyy) regimes. 117/
Enterprises which are fulfilling their profit and cost reduction plans
and maintaining their working capital may be placed under the prefer-
ential regime, thus enabling them to obtain additional loans relatively
easily in time of financial strain. Firms which fail in any of these
tasks but nevertheless fulfill their production plan are put under the
regular regime. Inefficient enterprises (that is, those failing to
fulfill their plans or to repay creditors) may be placed under the
"special regime of crediting" (osobyy rezhim kreditirovaniya), under
* One method used by the Bank to ensure that credits are used for the
purpose authorized is the issuance of a "limited checkbook," which can
be used as scrip to purchase only a designated type of service.
-51 -
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C -R-E-T
which financial pressure is applied "to improve efficiency or to force
fihe7 enterprise out of operation." 118/ A firm is placed under the
special regime by order of the Bank, and while in this status it cannot
obtain credit without a specific guarantee from its chief directorate
or ministry. In the absence of a guarantee the Bank must stop all credit
to the firm and recall credits previously issued; these measures are
tantamount to declaring the firm bankrupt. Even though a guarantee from
higher administrative organs is received, the Bank nevertheless inten-
sifies its observation of the firm's operations and imposes various
kinds of sanctions if malpractices are found. If, for example, the
firm defaults on payments to suppliers, the Bank may impose the "system
of responsible custody," by which the firm is charged by bank order with
the safe custody of the goods in question until payment is made 119/;
this means that the goods cannot be used in production. The Bank also
may require an enterprise under the special regime to pay suppliers for
ordered materials in advance of their delivery.
If an enterprise improves its operations sufficiently within
6 months after having been placed under the special regime, it is re-
stored to a regular regime status. Otherwise,the Bank will either con-
tinue the special regime or declare the enterprise bankrupt. 120/ In
the latter case, the enterprise loses its right to dispose freely of
current income, and Gosbank may stop credits, control settlement account
expenditures closely, sell material assets, and direct payments strictly
according to priority. In addition, responsible officers of the enter-
prise may be publicly stigmatized by the Soviet press for inefficiency
and malfeasance in office. Finally, the Ministry of State Control
(Goskontrol) may take up the case for investigation and appropriate
legal action.
2. Cash Operations.
Except for small petty cash funds used by enterprises for
minor expense items, all cash transactions of industrial enterprises
are subject to control by the banking system. The only important use of
cash by enterprises is for payment of wages and salaries,* and Gosbank
disburses cash for this purpose in accordance with the wage plan of the
enterprise. To secure the necessary cash, the enterprise must prebent
* Cash disbursements for wages seem to comprise up to 90 percent of
Gosbank's total cash outlay each year. 121/
-52 -
S-E-C -R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
two documents to the Bank each month: one is the registration card
received from the appropriate local agency of the Ministry of Finance
indicating the proper registration of the plant's table of organization
and other details of its annual labor and wage plan*; and the other is
a certificate, signed by the enterprise director and the senior account-
ant, setting forth the planned wage fund, the wage obligations actually
incurred, and the percentage of plan fulfillment during the month. 123/
By checking the information contained in these documents against the
wage fund allotment under the cash plan, the Bank can determine the
correct amount that should be disbursed from the enterprise account,
making due allowance for the extent of plan fulfillment.
9
DisbArsements may exceed the planned wage fund for the month
to the extent warranted by overfulfillment of the firm's production plan.
According to the basic decree governing wage funds, such overexpenditures
may be covered automatically by the Bank for the first month; after that,
a ministerial guarantee is required.** Provision is also made to cover
overexpenditures for reasons other than plan overfulfillment. For any
month following a month in which the enterprise did not exceed its wage
fund, the Bank may permit an overexpenditure up to 10 percent of the
allotted monthly wage fund (primary overexpenditure). Additional dis-
bursements require authorization from the appropriate ministry, 125/
which either will supply the necessary funds from its own resources or
will order the plant to make up the overexpenditure by using funds
allocated to a succeeding quarter. By provisions of the decree of
1 August 54 the enterprise must make up such overexpenditures during a
3-5 month period by increasing labor productivity or reducing wage
costs. 126/
* Agents of local finance agencies exercise important control over
enterprise staffs and wage funds, particularly those involving admin-
istrative-management employees. In this connection these agencies
(1) examine in detail the registration statements of the enterprise and
may order changes in the proposed tables of organization, (2) check on
enterprise compliance with government decrees ordering reductions in
administrative-management staffs, and (3) conduct periodic inspections
in the enterprises to uncover violations of approved staffing patterns
and expenditures. 122/
** A redistribution of funds within the ministry will generally be
arranged to make up for the unplanned wage expenditures. 124/
-53-
S -E -C -R -E -T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
Thus recurrent wage overexpenditures are possible, with or
without simultaneous overfulfillment of plans and with or without spe-
cific ministerial sanction. Apparenty, chief directorates and minis-
tries authorize wage fund overexpenditures rather freely in cases where
a ministerial guarantee is required. The ministries seem to be more
concerned with maximizing production than with strict compliance with
fixed wage fund limits and therefore tend to lend assistance to enter-
prises in financial difficulty.
Overexpenditure of planned wage funds has been a recurrent
problem in the USSR. total wage aver- 50X1
expenditures during the first 9 months of 1953 amounted to "millions
of rubles." 127/ Above-plan wage payments of such a magnitude con-
tribute to inflationary pressures in the Soviet economy, where consumer
goods have been perennially in short supply. To cope with the problem
of wage fund overexpenditures and other critical problems in the labor
field a State Committee for Questions of Labor and Wages (attached to
the Council of Ministers) was established in May 1955. This Committee
is engaged in a basic revision of the whole wage structure for the
purpose, among others, of reducing the pressure for wage-fund over-
payment which stems from the nature of the wage system. The Committee
also undoubtedly will approach the problem in another way through
exercise of its duty "to inspect and check the work of Ministries de-
partments and enterprises on questions of labor and wages." 128/
In spite of the possibilities for exceeding planned wage
allotments, enterprise managers apparently have found the controls over
staffs and wage funds to be relatively tight. Accordingly, they have
engaged in a variety of illegal and improper practices in order to pro-
vide more flexibility in staffing and to enhance their ability to offer
financial incentives to obtain workers and to reward performance. Some
of these practices include the manipulation of gross output figures so
as to justify higher wage outlays, the diversion of funds for leave pay
to cover regular wage payments, and the padding of payrolls and improper
upgrading of workers. 129/ Gosbank, together with agents of the Ministry
of State Control and the Ministry of Finance, is empowered to inspect
the premises of enterprises for possible violation of financial and
table-of-organization discipline and to report any discrepancies to
the supervisory ministry for appropriate action. 112/
-54-
S -E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
B. Ministry of State Control.
The Ministry of State Control (Goskontrol) cooperates closely
with the Ministry of Finance and the Committee on Party Control of the
Party's Central Committee in "combatting bureaucratism, red tape, lax-
ity of direction, and the embezzlementof state funds and material
assets." 131/ Goskontrol has the power to make on-the-spot inspections,
audit books, and operate a system of periodic control over industrial
enterprises and all other state establishments. The purpose of the
inspection system is to promote fulfillment of government decrees and
production goals through exposure and elimination of defects in the
financial and production operations of enterprises. 132/
Goskontrol schedules routine quarterly, semiannual, or annual
inspections of enterprises, covering mainly financial and production
aspects of plant operation. Since Goskontrol is primarily concerned
with questions of management and production, however, its financial
audits are less detailed than those of the Ministry of Finance, except
in cases of suspected embezzlement or fraud. In connection with routine
inspections, Goskontrol is empowered to examine in detail all phases of
enterprise operations. Its inspectors thus are constantly on the look-
out for malpractices, such as production of goods not specified by the
plan, padding of production norms, unneccessary increases in the amount
of raw materials used in manufactured articles, and overproducing cer-
tain components of a product and underproducing others. 133/ Inspectors
also determine whether the productive capacity of a plant is being fully
utilized and may suggest means for utilizing idle capacity and recom-
mend the introduction of new production techniques. Goskontrol's rou-
tine inspections are all-pervasive; they cover the following, for
example: adherence to quality standards (particularly for consumer
goods); general storage facilities, stockpiled raw materials, and fuel
reserves; the condition and use of equipment; the shipment of manu-
factured goods, including reasons for any delay; the preparedness of
the enterprise to receive new workers; and dining room, dormitory, and
medical facilities.
In addition to regular routine inspections, Goskontrol also
conducts unscheduled or special inspections of enterprises and other
state institutions. Such inspections may result from a complaint con-
cerning illegal practices or operating deficiencies or from an admin-
istrative order to investigate a given situation. Local government and
Party organs apparently have the right to request unscheduled inspections
at any time and for almost any reason. Inspection orders are also
-55-
S-E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C -R -E-T
issued by the Council of Ministers itself, usually for the purpose of
improving the administrative apparatus and procedures of state insti-
tutions.
If illegal practices or serious operational defects are found
in the course of either routine or special inspections, a detailed
report, called an inspection akt, is prepared by the responsible in-
spector. Such a report amounts to a bill of indictment and not only
contains findings of fact, but also attempts to determine the causes
of shortcomings and to assign guilt. 134/ All statements in the report
must be supported by appropriate financial and production data and by
photostat copies of relevant documents. Copies of the akt are sent to
Goskontrol headquarters, to the director of the enterprise concerned,
to administrative agencies supervising the enterprise, and to local
government and Party organs. 135/ Managerial officials are given an
opportunity to offer explanations for defects in enterprise operations
reported in the akt. 136/
The inspection akt serves as an order to the enterprise director
to correct the operating defects designated and contains recommendations
for that purpose. Compliance with the akt is checked by a subsequent
inspection and if necessary, Goskontrol-winust force" the agencies super-
vising the enterprise to enforce observance. 137/ It also has the right
to issue "compulsory orders" to ministries directing them to remedy
discovered deficiencies either in their awn operations or in those of
subordinate agencies. 138/ If these measures are not sufficient or if
serious questions of legality are involved, Goskontrol may impose fines
or reductions in salary on responsible officials, may petition the
Council of Ministers for their dismissal, or may demand institutions
of court proceedings. 139/ As a result of findings in the course of
regular or special inspections or on specific orders of the government,
Goskontrol may institute continuous control over production activities
in individual enterprises. When efficiency is improved satisfactorily
and quotas are met, the continuous control is discontinued, and Goskon-
trol returns to the system of periodic inspections.
Continuous control probably is undertaken to overcome specific
difficulties in meeting production goals and represents an attempt to
obtain an expeditious solution to critical production problems. Thus
-56-
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E-C -R-Er
Goskontrol seems to function as a kind of trouble-shooter to deal with
emergency situations, as well as an agency to provide a continuing check
on the implementation of government and Party decision-.*
C. Communist Party.
The territorial and local organs of the Party apparatus provide
still another means through which Soviet leaders check on the implemen-
tation of government and Party decisions and the adherence of state
institutions and Soviet citizens to all phases of Party policy. With
respect to the individual enterprise, the factory and territorial organ-
izations of the Party function essentially as examiners, trouble-shooters,
and expediters. Since Party organizations share responsibilities for
plan fulfillment with the enterprise management and its superiors, they
must keep continuous watch over all aspects of enterprise affairs, pro-
vide aid in case of difficulties, and keep superiors in the chain of
Party command informed concerning activities at the producing level. 142/
In addition to direct plan fulfillment, Party organizations are also
coresponsible with management for the execution of all other government
orders, decrees, and campaigns.
The role of local Party groups in relation to enterprise manage-
ment, however, is somewhat ambivalent. 143/ On the one hand, they share
the plant manager's interest in successful performance of the plant in
all phases of its activities. To this end, they often provide important
aid by "mobilizing" plant employees in support or production goals,
expediting the receipt of necessary raw materials, aiding in the solu-
tion of financial problems, and assisting in obtaining additional em-
ployees for the plant. Party channels provide enterprise management
with an avenue through which to direct complaints or to attempt the
solution of problems not remediable through regular administrative
channels. Ltli/ In this aspect of its activities the Party group not
only must uncover operating shortcomings which may threaten the suc-
cess of the plant, but also must render assistance in overcoming them
by "doing all it can to help the management."1)12/
* In 19511., certain unspecified functions of Goskontrol were transferred
to Gosbank in connection with a broad reorganization and some decentral-
ization of banking operations. 140/ In a speech made in May 1955, how-
ever, Khrushchev stated that the Ministry of State Control "must be used
more fully" with respect to the governmentwide drive to increase pro-
duction and economic efficiency. 141/
-57-
S-E-C -R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S-E-C-R-E-T
On the other hand, the Party groups must act on the basis of
interests which are broader than those of the immediate plant management
and may even be antagonistic. Because these groups respond to pressures
along Party lines rather than administrative lines, they must support
over-all Party goals of maximizing total output in indicated directions
at a minimum expenditure of resources. Hence they exert pressure on
management to increase its plan "voluntarily," to overfulfill its plan,
to encourage Stakhanovites and rationalizers with the ultimate purpose
of raising work norms, and to uncover and expose instances of violations
of Socialist discipline in all its ramifications. In carrying out these
aspects of their activities the officials of local Party groups have no
authority to overrule decisions of plant management, 146/ for in accord-
ance with the doctrine of yedinonachaliye the director's decisions are
binding within the plant. These groups, nevertheless, are in a position
to exert great influence on his decisions and even to bring about their
reversal. As a result of the Party's checking and "mobilizing" activ-
ities, for example, the director may have to include goals in the draft
plan which he thinks unwise or adopt "suggestions" for changes in work
processes which he may not like. 147/ Moreover, his appointments and
dismissals of key lieutenants usually must conform to Party wishes.
In carrying out their dual role of partner and controller in
relation to the enterprise, local Party officials must steer some kind
of a middle course. They must not usurp the powers of enterprise dir-
ectors or goad them unduly, since they will share the blame for any
subsequent failures. On the other hand, they must not pass up oppor-
tunities for uncovering and "mobilizing" hidden productive reserves.
Their task is probably facilitated by the fact that enterprise directors
are usually Party members and presumably are subject to some of the same
pressures as those to which local Party officials respond. 148/ In
practice, however, this middle course apparently has proved difficult
to achieve. In his report to the Plenum of the Communist Party in July
1955, Bulganin criticized local Party units for excesses in both dir-
ections. 149/ Accordingly, a subsequent resolution of the Party Central
Committee called for measures to be taken to "raise standards of Party
guidance of industry." 150/ In order to maintain adequate control while
providing some measure of decentralization in economic planning and plan
implementation, the role of local Party units apparently is to be
strengthened in ways not yet made clear. 121/
-58-
S -E-C -R -E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
S -E-C -R -E-T
D. Effectiveness of Controls.
In managing their Socialist economy, Soviet leaders have sub-
stituted planning and highly centralized administration for a market
(price) mechanism and have established a comprehensive, rigid, and
complex structure of controls designed to channel day-to-day activities
of enterprises in accordance with predetermined policies. The enter-
prise is subject not only to controls imposed by superior organs in
the chain of administrative command, but also to inspections, super-
vision, and constraints exercised by a number of external agencies
established primarily or even exclusively for that purpose. In so
complex. a structure there is bound to be overlapping and duplication
of activities. Plant management has often complained of the "petty
tutelage" over its operations exercised by some of the ,controlling
,agencies and has alleged that they cause unwarranted work for plant
managerial personnel and interfere with plan fulfillment. 12/
Soviet rulers have attempted periodically to cope with the pro-
blem of high costs of administering direct controls by reducing the
number of controllers, but not the number of controls. Indeed, the role
of the principal external controlling agencies -- Gosbank, the Ministry
of State Control, and local units of the Party -- apparently is being
increased concomitantly with the decentralization of responsibilities
for planning and plan implementation that is taking place in the
hierarchy directly engaged in managing Soviet industry. The burden
of increased controls may offset in some respects the added author-
ity and responsibility given to lower level management and frustrate
the hoped-for gain in efficiency and flexibility at the enterprise
level.
-59-
S-E-C-R-E-T
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
R
Next 9 Page(s) In Document Denied
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
50X1
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2
SECRET
SECRET
Declassified in Part - Sanitized Copy Approved for Release 2013/05/20:
CIA-RDP79R01141A000700090002-2