After Nikita S. Khrushchev was removed in October 1964, Alexei N. Kosygin (1904–1980) became chairman of the USSR Council of the Ministers, as part of a duumvirate with Leonid Brezhnev. Within months the new leadership restored the industrial ministerial structure, which Khrushchev had replaced with regional sovnarkhozy (economic councils). Gosplan regained its prime role in economic planning.
In September 1965, Kosygin announced a comprehensive planning reform that implemented some of the ideas of the Kharkov economist Yevsey Liberman and many other industrial economists who had urged relying on the profit indicator instead of detailed and numerous directives, which often conflicted with each other. Profitability had for some time been one of the indicators of plan fulfillment, though the main indicator was still gross output (valovaya produktsia, or val for short), as compared with planned levels. Now the directives would be seven in number, with profitability on capital (at controlled prices, not market ones)—or sales, for consumer goods firms—to constitute the main bonus-forming indicator. Instead of four standard indicators for use of labor, there would be only one: the wage fund.
Other obligatory tasks were to be sales (realizatsiya ), assortment, payments to the budget, centralized investments, new techniques to be introduced, and mandatory supply tasks. The infamous val would be abandoned, along with the cost reduction target, both of which jeopardized quality of production. Depending on the enterprise's success in increasing sales and the profit rate—and subject to fulfillment of the other tasks in plan—retained profits would go to new investments, social facilities and housing, and extra worker bonuses. This provision was intended to enhance material incentives for those engaged at the enterprise. Though differentiated and quite complicated, these norms were supposed to be stable. After paying a new capital charge of 6 percent, more than half of net profits usually went to the state, however, not to enterprise funds. New enterprise whole prices would be announced by 1967 but still based on costs, not market scarcity. This would permit the end to subsidies for loss-making enterprises.
One advantage of the sovnarkhozy system was retained: The regional inter-industrial supply depots were preserved under the State Committee on Material Supplies (Gossnsab ). Wholesale trade was thereby to be expanded. Several other state committees were also established for price setting and for science and technology. Concern for technological change was also reflected in the creation of science-production associations, intended to make a better connection between research, technology, and the introduction of new goods.
No sooner were these reforms implemented than significant modifications had to be introduced to regulate the size and distribution of enterprise funds. New targets were added for consumer goods and quality; later in the 1970s, labor productivity, gross output, and other targets returned to the mandatory list. Supply problems persisted; little wholesale trade occurred.
Most specialists believe that the Kosygin reforms failed because of continuing imbalances between feasible supplies and the demands of the Party-controlled government, the unwillingness to release prices, and bureaucratic resistance to any radical change. But tinkering and experiments continued until 1982. Perestroika would revive many of the basic ideas of the Kosygin reforms, with a very different denouement: chaos and collapse rather than reversal and stagnation.
See also: economic growth, soviet; kosygin, alexei nikolayevich; liberman, yevsei grigorevich; perestroika; sovnarkhozy
Gregory, Paul R., and Stuart, Robert C. (1998). Russian and Soviet Economic Performance and Structure, 6th ed. Reading, MA: Addison-Wesley.
Nove, Alec. (1986). The Soviet Economic System, 3rd ed. Boston: Allen & Unwin.
Martin C. Spechler