Ruble Control

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RUBLE CONTROL

The Soviet economy was predominantly centrally controlled, with production and supply targets set using physical indicators or quasi-physical units, and with prices fixed according to criteria that were far removed from any consideration of the demand and supply equilibrium. Given the dual monetary circulation in the economy, only physical or quasi-physical units were to be used inside the state sector. Households, on the other hand, participated in a mostly fixed-price cash economy. Central control of monetary units was called ruble control. It aimed both at the quasi-physical monetary units used for decision-making within the state sector and the mostly fixed-price monetary units that the household sector faced.

In the broad sense of the phrase, ruble control thus included central control over any activities that used monetary units. This primarily encompassed prices, wages, costs, profits, investment, and finance, as well as credits. Because the use of monetary units is broadly pervasive in a multiresource and multiproduct economy, the field of ruble control was extensive, even in a centrally managed economy. In addition to being another general control tool, ruble control was supposed to focus on improving efficiency and equilibrium in the economy. The more the economy moved from direct central control of entrepreneurial and other behaviors to the more indirect control based on prices and other monetary units, the more the importance of ruble control tended to grow. However, the monetary units used were administratively determined, and enterprises had soft budget constraints with little real decision-making independence, so that ruble control remained just one more way of implementing central management, and did not become an element of market relations.

Because the centrally managed economy had a wide variety of monetary units, ruble control also had a large number of subjects, from business enterprises to governmental ministries to the State Bank. The variety of controlling agencies and their always badly defined prerogatives, as well as the inevitable divergence of interests among these disparate groups, meant that ruble control was far from an optimal management tool. Different controllers sent different or even contradictory commands, giving subordinated units at least some decision-making room. Businesses had an impact at the planning stage on the directives and parameters that would ultimately be given to them. In addition, since these enterprises had soft budget constraints, the availability of finance was not a binding constraint if a priority target threatened to go unfulfilled. This is because, although costs were theoretically under ruble control, they could be exceeded if necessary in order to meet output targets. Soviet leaders thought they could well accept inefficiency if that helped them to reach goals with a higher priority, because they believed that resources were in almost unlimited supply. In other words, central management was based on priority thinking, and ruble control had to accommodate the established priorities.

The negative consequences of this logic were visible from the very beginning of central management. Already by 1931, many proposals were circulated for enhancing ruble control. Among these were more rational pricing, fuller cost-accounting, and better coordination of different controls, as well as increased decentralization, at least in plan fulfillment. It is revealing about the priority-planning logic that very similar, even identical proposals for rationalizing central management were put forward during all the waves of Soviet reform discussion until the 1980s. Still, in the early 1980s the system functioned very much as it had fifty years earlier, with one crucial difference: Mass terror had been abolished and increased consumption had become a priority. On one hand, this had made ruble control more important. On the other, by weakening other controls and by increasing the autonomy both of managers and households, these developments had made ruble control more difficult. There were markets and quasi-markets, but market-based policy instruments remained absent.

See also: hard budget constraints; monetary system, soviet; repressed inflation