Material balance planning substituted for the market as the mechanism for allocating goods in the Soviet economy. Gosplan, the State Planning Committee, was responsible each year for equating supply and demand for the thousands of raw materials and manufactured goods that were used domestically in production processes, allocated to satisfy consumer needs, or earmarked for export. The three-stage process of constructing the annual plan involved identifying the sources and uses for high-priority (funded commodities), medium-priority (planned commodities), and low-priority (decentrally planned) goods, and then establishing a balance between sources and uses. In the first stage, planners sent "control figures" down through the economic hierarchy to the enterprise. Control figures reflected the priorities of top political officials, specified initially as aggregate output targets or percentage growth rates for strategic sectors of the economy, and then disaggregated and matched with projected input requirements by Gosplan. In the second stage, Soviet enterprises provided a detailed listing of the input requirements necessary to fulfill their output targets. In the third stage, planners constructed a material balance that ensured an equilibrium between the planned output target and the material input requirements for all goods involved in the planning process.
In a market economy, prices adjust to eliminate surpluses or shortages; in the Soviet economy, planners adjusted physical quantities to equate supply and demand for each product. A material balance was achieved when the sources of supply (current production, Qt, inventories, Qt-1, and imports Mt) equaled the sources of demand (inter-industry demand, IDt, household demand, FDt, and exports, Xt). That is, a material balance existed on paper when, for each of the planned goods: Q t + Q t-1 + Mt = IDt + FDt + Xt.
The mechanics of establishing a material balance in practice was impeded by several planning policies. First, planners set annual output targets high relative to the productive capacity of the firm. If tire manufacturers failed to meet monthly or quarterly production quotas, for example, this adversely affected downstream firms (producers of cars, trucks, tractors, or bicycles) that relied on tires to fulfill their output targets, and reduced the availability of tires to consumers for replacement purposes. Second, planners constructed a bonus system that allowed additional payments as high as 60 percent of the monthly wage if output targets were fulfilled. Knowing that output targets would be high, managers over-ordered requisite inputs and under-reported their productive capacity during the second stage of the plan-formulation process. Third, when shortages arose, planners refrained from adjusting centrally determined prices of these "deficit" commodities (defitsitny ). Instead, they used a priority system to restrict the availability of deficit goods to low-priority sectors, typically those sectors most closely involving goods demanded by consumers.
See also: full economic accounting; gosplan; tech-promfinplan
Montias, John M. (1959). "Planning with Material Balances in Soviet-Type Economies." American Economic Review 49: 963–985.
Susan J. Linz
"Material Balances." Encyclopedia of Russian History. . Encyclopedia.com. (August 16, 2018). http://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/material-balances
"Material Balances." Encyclopedia of Russian History. . Retrieved August 16, 2018 from Encyclopedia.com: http://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/material-balances