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G. WARREN NUTTER, How Soviet Planning Works - Ralph Raico, New Individualist Review [1961]

Edition used:

New Individualist Review, editor-in-chief Ralph Raico, introduction by Milton Friedman (Indianapolis: Liberty Fund, 1981).

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How Soviet Planning Works

G. WARREN NUTTER*

IN AN AGE OF romantic pragmatism, such as we now endure, keeping faith with logic, principles, or the facts is likely to be considered a curious eccentricity, perhaps deserving tolerance on occasion but seldom worthy of emulation. Nothing succeeds, in such an age, quite like success. Surely, nothing fails like failure. Never mind if you are wrong as long as you succeed. Right or wrong, beware only of failure.

Rationalization waxes as reason wanes, and here enters the role of the intellectual; for he is set off from other mortals as much by his impressive powers of rationalization as by anything else. To him, failure is no more difficult to “explain” after the fact than is success, even when the one historically follows the other and the two “explanations” are mutually inconsistent. Hence we grow accustomed to the spectacle of intellectuals scurrying to get off one bandwagon that has stalled and onto another that is gathering speed.

As a case in point, when it was popular only a short time ago to believe that the Soviet economy was sweeping all before it, the main body of Western intellectuals spoke almost of one voice in praising the Soviet brand of central planning as the reason for success. In urging their own countries to heed this unmistakable lesson of history. Learned acticles were even being written on “why Stalin was necessary.” Now the mob has swung around in the opposite direction; now they accuse this same system of bringing about inevitable economic failure and applaud Soviet officials for talking about reform. Why this change in attitude, one might ask? Can it be simply because it is no longer popular to view Soviet economic performance as an unprecedented and unmarred string of successes? The failures that were always there to be seen by the discerning eye have become too apparent to be hidden from anybody by propaganda. In many ways there is little difference in the realm of intellectual discussion between what goes on inside and outside the Soviet world. The basic difference, perhaps, is the intensity of argument. Formerly Soviet literature contained the most uncritical adulation of centralized planning. Now it contains the most severe criticism.

BUT THIS IS ALL BY way of introduction, because I want to discuss another, though related, kind of romanticizing that has helped make scholars blind to what was really happening in the Soviet economy. I have in mind the propensity to idealize, to elevate form above substance, to impute purpose to chance—in brief, to see order in disorder or even in chaos. The point is that Western scholars have not, as a rule, seen the Soviet system for what it really is: a set of institutions that has arisen out of an historical process of trial and error, and survived the various tests along the way. Their vision of the system has instead been almost idyllic, imposing a logic of design, a purity of function, and a simplicity of structure that have little or nothing to do with reality. Thus, the typical textbook on the Soviet economy has an early chapter on central planning that usually begins with a discussion of what one would want to do if one ran an economy; continues with an analysis of how one could efficiently do this by somehow solving an impressive array of simultaneous equations; and concludes with a description of how Soviet planning performs these functions. In other words, the actual system is made to conform with a preconceived ideal whether it does or not.

Perhaps a better way to understand central planning would be to start with the definition given by Mark Spade in his charming little book Business for Pleasure, the sequel to How to Run a Bassoon Factory.1 Spade says: “The difference between an unplanned business and a planned one is this: (1) In an unplanned business things just happen, i.e. they crop up . . . . On the other hand: (2) In a planned business things still happen and crop up and so on, but you know exactly what would have been the state of affairs if they hadn’t.” There is, of course, more to the matter than this, but not as far as planning itself is concerned. We all know about the “best laid plans of mice and men,” and yet we persist in applying the term “planning” to quite different social processes. We forget that this word was put into currency for its propaganda value, not its descriptive accuracy.

Instead of talking about planning, central or otherwise, we should be talking about ways of organizing social activity. At base, social organization must be achieved through custom, contract, or authority. No society has ever existed—or could exist—that relied on one principle to the full exclusion of the others, and hence the only sensible way to distinguish societies is in terms of the different roles played by each.

There is, however, a point to visualizing pure forms of social organization, if only to get our thinking straight. Let us start with an imaginary society ruled solely by authority. This would be best described as a corporate or hierarchical order. Everything that is done is done in response to an order passed down from a superior to a subordinate. Everybody has a boss—everybody, that is, except the supreme boss. The prototype is a military force, and a society exclusively run by a corporate order would simply be an army.

BY CONTRAST, ORGANIZATION by contract means a social order based on mutual interaction or voluntary association, whichever way one wishes to think of it The purest form is the ideal market place, where individuals freely exchange their wares for mutual benefit.

No one but a diehard and deluded anarchist can conceive of a society based solely on contract No one but a demented and doomed dictator can conceive of one based solely on authority. In any event, there are no historical examples of either, and there will never be any. All this is painfully obvious, not to mention trite. The family itself is an authoritarian body, though it may not always be clear who is the boss A private enterprise—the organizing entity in a market economy—is also a corporate form; and no authoritarian system of any size can survive without some markets and other realms of mutual interaction within it.

But to get down to cases The Soviet system may be described as basically a corporate order with a large area of contractual and customary behavior—some authorized, some merely tolerated, and some strictly illicit. The functioning of the economy is necessarily conditioned by this mixture of elements, and it is misleading to neglect any of them. As in the case of all economic systems, organization of the Soviet economy has three aspects. First of all, there must be planning or thinking ahead. Second, there must be basic decisions on what the economy is to try to do. Third, there must be administrative direction of activity.

Planning, in the narrow sense used here, is essentially a staff function. Somebody sits down and reviews the record of past performance, imagines how things have or could be changed to alter that performance, and maps out a program or programs designed to achieve goals supplied by somebody else. No society can keep going unless somebody, somewhere is looking ahead in some degree, but this is just another way of saying that man differs from other animals in at least this respect. It is equally clear that no society can run on planning alone.

Obviously somebody has to have the power to decide which program is to be followed. In the Soviet Union, this power is focused in a small self-perpetuating elite, and ultimately in the hands of one man or, at most, a small committee of men. Yet this group cannot decide everything. Like the great generals of history, it must leave small decisions to lieutenants if it is to make the big ones. The cardinal decisions, as far as the economic sphere is concerned, is how the fruits of social activity are to be divided, first, between the state and the populace, and, second, between the present and future in each case. The overriding objective is reasonably clear and simple enhancement of Soviet power, and thereby the power of the elite; but there remains the more important question of how this goal can be realized. In particular, there is the annoying problem of how to get the right mixture of power now and power in the future.

Let us put the problem in its crudest form. Military force is surely a key element in Soviet power, yet a smaller force now makes possible a larger one in the future. Similarly, the volume of goods available both now and in the future is not independent of what is given to the populace. The basic question boils down to this: When, in point of time, should the power of the state be maximized? The subsidiary problem is then how to arrange affairs to get the desired result. These are the kinds of decisions the Soviet planners must make, and they make them on the basis of the configuration they perceive in the giant chess game they are playing with the world. Just as to plan is not to decide, so to decide is not to do. Somebody has to get things done—to organize and manage activities with at least the intent of fulfilling basic decisions. This, in fact, is what most people seem to have in mind when they speak of “central planning”; and so I want to center the remainder of my remarks on how the Soviet economy runs.

FIRST, LET ME REPEAT my opinion that one gains little in understanding from abstract theorizing about central planning. Perhaps there will be a time when it will be relevant to talk about how Kosygin, or somebody else, optimized this or that through material balances or electronic computers or input-output techniques or linear programming or some as yet undiscovered but revolutionary device of social engineering; but that time is not now, and it was less so every year one goes back in Soviet history. Let me further state—as a simple act of faith, if you will—my conviction that it is beyond the ingenuity of man, no matter how far the science of social engineering may progress, to devise ways of running a society as large as the Soviet Union without significant recourse to contract or custom. Unless, that is, one is willing to abandon altogether the notions of efficiency and rationality, and to quit raising the question of how end results are related to original intentions.

Whatever may be the ultimate limits of a corporate order, the fact is that the Soviet economy is run only in part by command and obedience. It is also run by adjustment and even by inertia. There is no more sense in attributing all good or ill in the Soviet economy to centralized direction, without regard to the role played by markets and related institutions, than there is in saying that a man stays alive by breathing in, regardless of what he does about breathing out.

Markets pervade the Soviet economy, and their role has steadily grown since the early thirties. Some, like the socalled collective farm market, are open and legitimate. Others pass through the various shades of gray. Who has not heard of the “fixers” and “pushers”—the tolkachi? Of institutionalized influence peddling—the system of blat? Of the elaborate markets for exchanging apartments? Of “speculators” and other entrepreneurs, who sometimes achieve momentary fame on their day of execution? And so on and on. It is literally inconceivable that centralized direction could have functioned as well as it has without these pervasive, built-in shock absorbers and flexible linkages. I recall the words of a disillusioned young Russian engineer who, while vacationing in Yalta some eight years ago, struck up a brief acquaintance with me. “You know what communism means?” he asked me. “Communism means.” he said without waiting for an answer, “that if you have enough money, you can buy whatever you want.” And there was the collective farm manager whom I asked about planning in agriculture. “Of course, there are agricultural plans,” he replied. “But,” he added, “they depend on the weather.”

LET US TURN TO another widespread misconception about Soviet planning. Textbooks often describe Soviet economic programs, as if they were a series of boxes within boxes. According to this view the first box to be built is the grandest one of all: the long-range plan, formerly for five years and now for seven. Even this box is said to have its general contours determined by a fifteen or twenty-year plan. Once the long-range plan is constructed, the only problem remaining, we are told, is to fit the smaller boxes inside it, one for each successively smaller time period. The actual schedules of day-to-day activity—the quarterly and monthly plans—are viewed as miniatures of the grander scheme.

This all sounds fine, and it would make sense except for one troublesome detail: the system just does not happen to work this way. Western scholars in general have merely repeated in their writings what they have read in Soviet textbooks. Until very recently, they have not studied in depth, using the most primary sources available, how the system actually works.2

THE LONG-RANGE PLAN is a hazy vision of things it would be nice to have. It sets forth, for a limited number of key items, targets to keep one’s eye on. In other words, it gives something to shoot at and shout about—something concrete that the populace and economic agencies can be exhorted to attain. In no other important sense can it be considered a blueprint of the economic program for the intervening years. It does not attempt, for instance, to set a time schedule of achievements.

Now, consider two additional things: first, goals for the future grow out of experience of the past; and, second, it takes time to prepare reports on accomplishments and prospects. The result is that a goodly portion of the period being planned for is eaten away by preparation of plans. It is not unusual for a longrange plan to be published as late as a year after the period has started.

What, then, keeps things going in the meantime? The technical answer is current plans, on an annual, quarterly, and monthly basis. But these plans obviously have to be drawn up before there is a long-range plan of which they are supposed to be a carefully fitted part. And this is not the end: current plans also take time to draw up. The first quarter may be over before the annual plan is ready, the first month before the quarterly plan is ready, and so on. By that time, what has actually taken place is likely to be rather different from what has emerged as the plan. So the plan has to be revised to correspond with actual performance, and the process repeats itself. Through this constant readjustment of current plans to achievements, plans and performance converge in the course of the year. No wonder Pravda can publish such high percentages of plan fulfillment at the end of each year. The plan referred to is, of course, the final revised version.

Similiarly, in the course of either a short or a long period, plans can be attained—if this should remain an overriding objective—by the rather simple expedient of letting things slide in those large areas where no precise goals are set, or where the goals have a relatively low priority. There are plenty of built-in shock absorbers—or residual claimants, if you will—to dampen the blows of miscalculation. If this does not work, there always remains the expedient of throwing the whole plan away and starting over, as was done, for example, in 1957 and 1958. The question to ask, of course, is: Which is chicken and which is egg? Does performance derive from plan or plan from performance? The answer is that the relation goes both ways, though it is much stronger, in my opinion, from performance to plan than from plan to performance.

THE CRITICAL ELEMENT of muddling through can be shown in another way. Let us ask the question: What are the agencies that draw up plans, make basic economic decisions, and run things? As far as planning is concerned, the name Gosplan—State Planning Agency—immediately pops to mind: but one grows dizzy tracing out the shifting assignments and personnel of this agency in the postwar period alone. The terms of reference for this agency were changed no fewer than eight times between 1945 and 1964, almost once every two years.

Let me illustrate. In 1945 Gosplan had four major tasks: (1) planning of supplies, (2) planning on a current basis, (3) planning on a longe-range basis, and (4) compiling and processing statistics. The planning of supplies was withdrawn in 1946, processing of statistics in 1947. In 1953, planning of supplies was reassigned to Gosplan, only to be withdrawn two years later along with current planning. At this low point in 1955 and 1956, Gosplan was responsible for long-range planning alone, but in 1957, both planning of supplies and current planning were returned to its province. Three years later, it was relieved of its duties in long-range planning and restricted to planning of supplies and current planning. After another two years, its role was precisely reversed: It was made responsible solely for long-range planning. Finally, in 1964 its duties were expanded to encompass part but not all of current planning. There has, of course, been rather more stability in the decision-making nexus, essentially the Presidium of the Communist Party and of the Council of Ministries. Here important shake-ups have occurred only four times. At the level of actual administration, however, there has been vacillation back and forth between territorial and functional principles of organization since 1957, and no equilibrium arrangement is in sight. This is to say nothing of the frequent reorganizations of ministries, state committees, and the like, and the constant reshuffling of personnel.

Let me try to disarm my critics in advance by admitting that I have exaggerated elements of disorder in the Soviet system to make a point. Make due allowance, if you will, for this exaggeration. Is it even so possible to visualize Soviet planning as a process with dominant order, purposes, and continuity? I think not. Let us describe it for what it is: a set of institutions that has arisen out of an historical process of trial and error and survived the various tests along the way. These institutions make the economy go, sometimes reasonably well and sometimes quite poorly. Beneath everything there is the elemental force of momentum, which carries the economy forward from one day to the next whether plans have been properly attended to or not. Then, also, there are the many loose and flexible links that allow bending without breaking.

THIS IS FAR FROM THE picture conjured up by loose talk about theories of central planning. There is no command headquarters in the Soviet economy where brilliant scholar-leaders are solving a horde of simultaneous equations, pausing intermittently to issue the orders that mathematical solutions say will optimize something or other. Nor is there a simple mechanism whereby these orders are transmitted or carried out. If I may now conclude where I began, I would stress again the mischief of romanticizing. If they had faced the facts in the first place, would the intellectuals of our society have fallen down so badly in their job of guiding public understanding of the Soviet economy? Perhaps so. But at least they would have an honorable excuse.

WHAT YOU CAN DO TO HELP NIR . . .

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[* ] G. Warren Nutter, professor of economics at the University of Virginia, is an authority on economic planning in the Soviet Union, and the author of Growth of Industrial Production in the Soviet Union.

[1 ] N. Balchin (pseud. M. Spade), How to Run a Bassoon Factory; or, Business Explained and Business for Pleasure (London: H. Hamilton, 1956).

[2 ] In fact, to my knowledge the only scholar to devote himself in earnest to this task is Eugene Zaleski of the National Center of Scientific Research in France. To anyone who wants to know the true mechanics of the Soviet planning process. I strongly commend Zaleski’s treatise Planification de la croissance et fluctuations économiques en U.R.S.S., a work to appear in three volumes. The first volume was published in French in 1962, and an English translation is now in press. I will try here merely to sketch, in boldest outline, the basic characteristics of the process- at least, as I understand it.