Russia: Borrowing from the Capitalists

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Born in the Ukraine's Volyn in 1897, Liberman attended a gymnasium and took a law degree at Kiev University, went on to study engineering in Kharkov. For some 15 years he worked in various factories near by, including six years as planning chief in a large farm machinery plant. After a wartime stint in a Moscow government job, Liberman went back to the Engineering Institute in Kharkov as a teacher and part-time factory consultant, earning his doctorate in economics in 1956 and the title of professor in 1959.

The provincial professor's 1956 essay went virtually unnoticed—except by some far more influential economists in Moscow who had already been rethinking the system. Perhaps the most important was Vasily Nemchinov, a mathematical eminence grise regarded as the dean of Soviet economists. He saw in Liberman a potential stalking horse for all the reformers, invited him to Moscow. When in 1962 the economy's growing malaise could no longer be ignored by the Kremlin, Nemchinov persuaded Khrushchev to give Liberman's theories a showcase in Pravda. On Sept. 9, 1962, Liberman's "The Plan, Profits and Bonuses" was published, and the great debate began.

What's Good for the Factory. Profits had long been used in Russia, but only as one among a dozen capriciously applied, yardsticks for determining plant efficiency. Liberman urged that profit be made the prime element, arguing that "the higher the profits, the greater the incentive" to quality and efficiency. "What is good for the factory is good for the society," Liberman insisted.

One by one, other economists leaped into the fray, blasting the "cult of the plan," and insisting that plant managers be given more autonomy. The eminent Nemchinov himself, fast going blind and nearing the end of his life (he died last October at the age of 70), called for something very close to a state-owned market economy. Planning decrees would be replaced by contracts between enterprises and the government, with the lowest bidder getting a particular job—and setting its prices as a result.

Charging Interest. Except for the cardinal Red principle of state ownership of property, no part of the Soviet economic edifice was eventually spared the reformers' wrecking balls. One editor proposed abolition of Russia's 50% consumer goods tax, argued that all Soviet revenues could be derived from a profits tax, once profit was made the universal indicator. Denouncing the fact that under planning today, over one-fifth of Russia's factories operate at a subsidized loss, he urged that government funds be rechanneled into firms running in the black.

An important bureaucrat took these ideas a logical step farther, demanding an interest charge on capital and prices rooted in economic reality rather than planning fiction. Academician Vadim Trapeznikov, revered in Russia as the "father of Soviet automation," threw his weight in with the reformers all along the line, noting that "one hears the view that interest on capital is a concept of capitalistic society." Wrong, he insisted. "In fact, the form here is identical, but the essence is different."