2: Profit as the Regulator of Production
2: Profit as the Regulator of Production
The abolition of centralised economic planning as the regulator of social production in the Soviet economy required its replacement by
Contemporary Soviet economists define profit in the Soviet economy as
an enterprise's surplus of income over expenditure:
"Profit is formed directly from the difference between the price and cost of production".
(L. Gatovsky: "The Role of Profit in a Socialist Economy", in: "Kommunist" (Communist), no. 18, 1962, in: M.E. Sharpe (Ed.): "Planning, Profit and Incentives in the USSR", Volume 1; New York; 1966; p. 98).
Already, at the 22nd. Congress of the CPSU in 1961, First
"We must elevate the importance of profit and profitability".
(N.S. Khrushchov: Report on the Programme of the CPSU, 22nd.
Congress CPSU; London; 1961; p.54).
This line was developed under the "economic reform" carried through by Khrushchov's successors. General Secretary
"Let us consider profit, one of the economic instruments of socialism. A considerable enhancement of its role in socialist economy is an indispensible requisite for cost accounting".
(Editorial: "Economic Policy and the Work of Communism", in: "Pravda" (Truth), January 14th., 1966, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p.11).
In fact, the term used to express the essence of the "economic reform"
"The essence of cost accounting is that any enterprise should cover its expenditures with its own income and should have a profit over and above this. The system of cost accounting makes every enterprise interested in obtaining a bigger profit".
(L. Gatovsky: p. cit.; p.90).
"Cost accounting (khozraschot) is a method of management applied at socialist enterprises which is based on measuring in money terms their inputs and results of their operation , on enterprises covering their expenditure with their own income, ensuring profitability".
(A.M. Rumyantsev: "Management of the Soviet Economy Today: Basic Principles", in: "Soviet Economic Reform: Progress and Problems"; Moscow; 1972; p.12).
"Cost accounting is a key method for managing the economy which... is based on measuring costs in monetary terms against the results of production activity from income and ensuring profitability of production".
(S. Kamenitser: "The Experience of Industrial Management in the Soviet Union"; Moscow 1975; p.130-1).
Under cost accounting,
"
(V. Trapeznikov: "For Flexible Economic Management of Enterprises", in: "Pravda" (Truth), August 17th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 196).
"Profit serves as the most generalising criterion of the enterprise's entire activity".
(L. Leontiev: "The Plan and Methods of Economic Management", in: "Pravda" (Truth), September 7th., 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 209).
"Profit generalises all aspects of operation".
(E.G. Liberman: "Are We Flirting with Capitalism? Profits and 'Profits' ", in: "Soviet Life", July 1965, in: M.E. Sharpe (Ed.) op. cit., Volume 1: p. 309).
"Profit reflects more fully and deeply important aspects in the operation of the socialist enterprises on a khozraschot basis....Profit serves as an indicator of production efficiency at a given enterprise".
(B. Sukharevsky: "New Elements in Economic Incentives", in: "Voprosy ekonomiki" (Problems of economics), No. 10, 1965, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p. 76).
"Under socialism profit... expresses.. the efficiency of the economic activity of each socialist enterprise"
(Editorial: "Economic Policy and Work for Communism", in: "Pravda" (Truth), January 14th., 1966, in: ibid.; p.11).
Nevertheless, contemporary Soviet sociologists, when writing of orthodox capitalist countries, continue to pour scorn on
"...attempts by experts in both the theory and practice of 'human relations' to conceal the fact that profit is the main goal and motive force of capitalist production. In their writings the concept of 'profit' is either not mentioned at all or approached as 'the social test of the utility of the enterprise and of effective organisation".
(N. Bogomolova: "Human Relations' Doctrine: Ideological Weapon of the Monopolies"; Moscow; 1973; p.63).
In fact, the particular aspect of profit which is taken by contemporary Soviet economists to express "the supreme criterion of the efficiency of an enterprise" is the
"If it is the profitableness of an enterprise as a whole that is assessed, it is advisable to relate profit to the value of the social productive assets the state placed at the disposal of the given enterprise.
By commensurating profit with the productive assets it is, in fact, the relative productivity of labour that is determined... It is quite natural that this accretion should be commensurated with the entire value of the fixed assets and circulating funds, inasmuch as they express all the resources applied in production".
(E.G. Liberman: "Plan, Direct Ties and Profitability", in: "Pravda" (Truth), November 21st., 1965, in: "The Soviet Economic Reform: Main Features and Aims", Moscow; 1967; p.55).
"The most generalised index of an enterprise's activity is the index of profitability, computed as a ratio of profits to production assets".
(P. Bunich: "Economic Stimuli to Increase the Effectiveness of Capital Investments and the Output-to-Capital Ratio", in: "Voprosy ekonomiki" (Problems of Economics), No. 12, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 189).
As some Soviet economists have pointed out, the index of profitability is merely a euphemism for what is called, in orthodox capitalist countries, the
"The rate of surplus value measured against the total capital is called the rate of profit....Surplus value and profit are actually the same thing and numerically equal".
(K. Marx: "Capital", Volume 3; London; 1974; p.43, 48).
"This index (i.e., the index of profitability - WBB) .. is widely used in capitalist countries (for this is neither more nor less than the rate of profit on invested capital)"
(I. Kasitsky: "The Main Question: Criteria for Premiums and Indices Planned for Enterprises", in: "Voprosy ekonomiki" (Problems of Economics), No. 11, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 139).
Contemporary Soviet economists assert that,
"An obvious belittling and, at times, outright ignoring of the importance of profit... were characteristic of the period of the cult of Stalin's personality... Profit .. was regarded as a purely formal category".
(L. Gatovsky: op. cit., p. 95).
And they attribute this to "lack of regard" for "immutable" economic laws during the period when Stalin was General Secretary of the CPSU:
"The problem which we now face in determining if profit should be the basic index in judging the work of an enterprise can be attributed in no small way to the lack of regard for the immutable law of economic construction during the Stalin era. This immutable law, regardless of the system under which it operates, is universal; an economy must produce more than is expended on production; and it is this principle, however unheeded it has been in the past, that theoretically provides the foundation for the acceptance of profits today in the Soviet Union".
(L. Leontiev: "Pravda" (Truth), July 10th., 1964, in: J.L. Felker: "Soviet Economic Controversies". Cambridge (USA); 1966; p. 77-8).
The implication that Stalin had a "lack of regard" for objective economic laws is certainly untrue, although he did not regard most of them as "immutable", but as relative to a definite historical period:
"Marxism regards laws of science -- whether they be laws of natural science or laws of political economy -- as the reflection of objective processes which take place independently of the will of man. Man may discover these laws, get to know them, study them, reckon with them in his activities and utilise them in the interests of society, but he cannot change or abolish them....The laws of economic development.. are objective laws...One of the distinguishing features of political economy is that its laws, unlike those of natural science, are impermanent, that they, or at least the majority of them, operate for a definite historical period, after which they give place to new laws".
(J.V. Stalin: "Economic Problems of Socialism in the USSR"; Moscow; 1952; p. 6. 7. 8).
In fact, what was regarded as
The "economic law" which Stalin is charged with disregarding is one invented by the new breed of Soviet economists: that in a socialist society
production should be regulated by the law of value, manifested in the profitability of individual enterprises.That Stalin
rejected this concept is very true.
"Totally incorrect.. is the asertion that under our present economic system.. the law of value regulates the 'proportions' of labour distributed among the various branches of production. If this were true, it would be incomprehensible why our light industries, which are most profitable, are not being develped to their utmost, and why preference is given to our heavy industries, which are often less profitable, and sometimes altogether unprofitable.
If this were true, it would be incomprehensible why a number of our heavy industry plants which are still unprofitable.. are not closed down, and why new light industry plants, which would certainly be profitable..., are not opened.
If this were true, it would be incomprehensible why workers are not transferred from plants that are less profitable, but very necessary to our national economy, to plants which are more profitable -- in accordance with the law of value, which supposedly regulates the 'proportions' of labour distributed among the branches of production".
(J.V. Stalin: ibid.; p. 27-8).
Since, under the socialist system, profits in general, both high and low, accrued to the state, what was of major significance was not the profitability of individual enterprises or of individual sectors of industry over a short term but
"If profitableness is considered not from the standpoint of individual plants or industries, and not over a period of one year, but from the standpoint of the entire national economy and over a period of, say, ten or fifteen years, which is the only correct approach to the question, then the temporary and unstable profitableness of some plants or industries is beneath all comparison with that higher form of stable and permanent profitableness which we get from the operation of the law of balanced development of the national economy and from economic planning....
In brief, there can be no doubt that under our present socialist conditions of production, the law of value cannot be a 'regulator of proportions' of labour distributed among the various branches of production....
The aim of socialist production is not profit, but man and his needs".
(J.V. Stalin: ibid.; p. 28-9, 86)
Contemporary Soviet propagandists claim that, in rejecting the "distortions of economic theory associated with
"V.I. Lenin pointed out that each enterprise must function on a profitable basis, i.e., it should completely cover its expenditures from its income and should make a profit".
(A.N. Kosygin: "On Improving Industrial Management, Perfecting Planning and Enhancing Economic Incentives in Industrial Production", in: "Izvestia" (News), September 28th., 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2, p. 21).
And since it was undoubtedly Lenin's aim that Soviet society should advance to communism, these propagandists claim that, by "returning to Lenin's concept
It is, indeed, true that in January 1922 Lenin referred to
"...the urgent need to... make every state enterprise pay its way and show a profit".
(V.I. Lenin: "The Role and Functions of the Trade Unions under the New Economic Policy", in: "Colected Works", Volume 33; Moscow; 1973; p. 185-6).
If, however, a few more words are quoted from this passage,
"A free market and capitalism, both subject to state control (by a state representing the interests of the working class -- WBB) are now being permitted and are developing; on the other hand, the socialist state enterprises are being put on what is called a profit basis...
In view of the urgent need to ... make every state enterprise pay its way and show a profit, and in view of the inevitable rise in narrow departmental interests and excessive departmental zeal, this circumstance is bound to create a certain conflict of interests in matters concerning labour conditions between the masses of the workers and directors and managers of the state enterprises, or the government departments in charge of them. Therefore, as regards the socialised enterprises, it is undoubtedly the duty of the trade unions to protect the interests of the working people".
(V.I. Lenin: ibid.; p. 184, 185-6).
Thus, in contrast to the contemporary Soviet propagandists -- who present the enhancement of the role of profit of individual enterprises as "a measure for the development of socialism", even of "the advance to communism",
Under the new system of cost accounting, however,
profit -- now presented as "the supreme criterion of the efficiency of an enterprise" -- has replaced centralised economic planning as the regulator of social production:
"A way out of the apparent contradictions has been suggested in our press in the form of a kind of automatic 'self-regulator'... The role of such an automatic self-regulator, it is claimed, can be performed by profitability... In the profitability controversy some economists have based their objections to making it a regulator of social production on the contention that profit is a capitalist category. Such objections, of course, are untenable".
(B. Sukharevsky: "On Improving the Forms and Methods of Material Incentives", in: "Voprosy ekonomiki" (Problems of economics), No. 11, 1962, in: M.E. Sharpe (Ed.) op. cit., Volume 1; p. 116-7, 118).
"Production will be subordinated to changes in profits".
(G. Kosiachenko: "Important Conditions for Improvement of Planning", in: "Voprosy ekonomiki" (Problems of Economics), No. 11, 1962, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 158).
"The utilisation of profit to achieve the aims of socialist production, its adaption to the planned guidance of the economy and to serving socialist distribution according to work, inevitably presupposes the elaboration of a special mechanism"
(B. Sukharevsky: "New Elements in Economic Incentives", in: "Voprosy ekonomiki" (Problems of Economics), No. 10, 1965, in: "The Soviet Economic Reform: Main Features and Aims"; Moscow; 1967; p. 78).
The
"The entire system of economic levers must be regulated... in such a way as to make it advantageous for enterprises to fulfil.. the national economic plan".
(V.S. Nemchinov: "Socialist Economic Management and Production Planning", in: "Kommunist" (Communist), No. 5, 1964, in: M.E. Sharpe (Ed.): op. cit., Volume 1; p. 188-9).
"To exert effective economic influence on economic activity,
(V. Trapeznikov: op. cit.; p. 196).
"It is possible... to set up the enterprise in such economic conditions whereby the enterprise, guided by its own interests, would.... choose the optimal course of fulfilling the economic plan....
Under conditions of cost accountability, the sum total of economic levers in the long run influences the enterprise through.... profit".
(B. Sukharevsky: "The Enterprise and Material Stimulation", in: "Ekonomicheskaya gazeta" (Economic gazette), No. 49, 1965, in: M.E. Sharpe (Ed.): op. cit., Volume 2; p. 205, 206).