€¦ · books by victor perlo usa & ussr-the economic race dollars & sense of disarmament...

An lnlerview wilh

A, I. MIKIIYAl{Firsf Deputy Prime Minister of thc, U.S.S.R"

UICT(lR PERT(l

New yorkI NTER NATt ONAI- PU BtIS H ER S

tVICTOR PERLO

EconomyWorksln fnturuiew with

A. I. MikoyznFirst Deputy Prime Mi.misterof the U.S.S.R.

How thc Sovict

New York

INTERNATIONAL PUBLISHERS

CONTENTS

Introduction

ECONOMIC PLANNING

Decentralization, 14; Details of the System, 1E;Twenty Year Plan, 19; The Merging of SocialistProperty Forms, 22

SHORTCOMINGS

No Dead Ends in the U.S.S.R., 2G; RawMaterials, 28; Agriculture, 29; Black Markets,33; Quality of Construction, 34

EFFICIENCY AND INCENTIVE

Industrial Stimuli, 37; Overmanning, 39; Effi-ciency in Agriculture, 41; The Income Gap, 46

AMERICAN-SOVIET RELATIONS

American Example, 52; East-West Trade, b5;The American EeonomS bg; The SovietExample, 62

11

II.

36

51

III.

IV.Library of Congress Catalog Card Number 61-16824

Copyright 1961

by IUTBnUATIoNAL Purr,rsnpns Co., INc.

Printeil i,n the a.S.A.@ts20e

BOOKS BY VICTOR PERLO

USA & USSR-The Economic Race

Dollars & Sense of Disarmament (with Carl

The Empire of Hi,gh Finance

Lhe Income'Revolution'

The Negro in Southern Agriculture

American Imperialism

Marzani)

INTRODUCTION

This booklet presents the text and background of aninterview with Anastas I. Mikoyan, First Deputy Premierof the USSR, held in the Kremlin August 1, 1960.

I spent three months in the Soviet Union, at the invitationof the Institute of World Economics and fnternational Rela-tions in Moscow. As an economist, and author of variousbooks that have been published in the Russian language,I was given exce]lent cooperation in the pursuit of myprofessional research in the U.S.S.R.

I was able to study in unusual detail key features ofSoviet economic life and planning. I visited factories, farms,construction sites, and talked at all of these places withprofessional people, workers and farmers. I visited five majorcities and various smaller places, talking with economicplanners, professors, students, and "the man in the street."I also saw and enjoyed various cultural and recreationalfeatures of Soviet life.

f concentrated on seeking a rounded picture of the Sovietplanning system, and in exploring the shortcomings ofSoviet economic life which have been the subject of mostcriticism both in and out of the country.

Several long interviews with specialists of the State Plan-ning Committee and its Economic Research Institute werebuttressed by discussions with planners of Union Republics,Regional Economic Committees, city governments, factoriesand farms. Much was added by informal talks as well asorganized discussions with workers and students, who arevitally interested participants in the economic process.

A week before leaving, I found that I still lacked clarity

on a number of vital questions. I could not resolve someconflicting evidence and opinions in the ordinary course ofresearch.

I decided to seek help through an interview with Mr.Mikoyan. A veteran of 45 years in the Cornmunist Party,and a member of its Central Committee since 1919, hespecialized in questions of supply and trade during mostof this period. Anastas Mikoyan was first named Ministerof Trade in 7926, and retained similar titles thereafterexcept during the World War II and reconstruction periods,when he was on the top committees for these enorrnousordeals. Since 1958 he has had the more general title ofFirst Deputy Premier in the government of the USSR.

For a quarter of a century he has worked on problemsof economic relations with the western countries, especiallythe United States. He spent two months in this countryin 1936, and paid another major visit in 1959. On thisoccasion he made a favorable impression on the Americanpress and many business and political leaders, as well as thegeneral public which watohed him on television.

Perhaps sorne readers will remember the incident whenthe plane carrying him home was forced back by enginefailure over the Atlantic, and after some tense hours, landedin Newfoundland. Asked by correspondents if he was wor-ried, Mikoyan said not for himself-he had lived a long andfull life already. But he was concerned about young peopleon the flight, who still had their lives ahead of them.

I found this personal modesty a very real part of theman's character. He conveyed the impression of one humanbeing conversing with another equally deserving of con-sideration, not of an official granting an audience to avisitor.

At the time, in mid-summer, several of the top Govern-ment leaders were not in Moscow, so the responsibilitiesof a First Deputy Premier were heavy indeed. At 6 P.M.,after we had talked for one and one-half hours, he looked athis watch. The following conversation ensued:

Perlo: 'We have very little time left?Mikoyan: We have already exceeded it.Perlo: Should I skip some questions?Mikoyan: No, but make them brief. Of course, it ismainly my fault for answering the questions at suchlength.Perlo: I want to thank you for giving so much of yourtime.Mikoyan: Do not thank me. You are giving your time,too.

Actually, we continued to talk for another hour. When itwas time to go, Mr. Mikoyan said:

Mikoyan: Come back to see us again soon.Perlo: First I have to go home and do some work.Mikoyan: But you are working here. It is hard workto travel away frorn home for a long time. I was in theUnited States for two months in 1g86, and I know it ishard work. That was my second university. I didn,t goto the flrst-well, the revolution was my flrst university.

Actually, before the revolution he had graduated fromthe Armenian Theological Seminary in Tiflis (now Tbilisi),which, while not a university, was the only form of highereducation available at that time to most young intellectualsof Transcaucasia.

In the exchange of pleasantries before we began ourdiscussion, Mr. Mikoyan made some reference to his Arm-enian origin.

Perlo: Please do not think I am flattering you, but thebest jazz band I heard in the Soviet Union, in Sochi,had five Armenians out of seven members.Mihoyan: That reminds me of a story (vice-president)Nixon f,61fl ms-"In California, the Armenians have thereputation of being the most successful business men.If you want your affairs handled best, get an Armenianto do it for you." Nixon thought he was flattering me,

but actually he was praising the Armenians for charac-teristics that the Soviet people do not like, and whichare alien to the life of Soviet Armenia.

I had submitted my questions only a few days earlier.Despite the short notice, he agreed to see me the day beforeI left the Soviet Union. He answered most of my questionsfully, and in such a way as to resolve problems that werepreviously unclear to me. Moreover, he apparently hadstudied the questions, and knew what he wanted to say aboutthern.

Seeing that the discussion of the flrst two questions hadbeen very full, and fearing that there would not be timefor all of them, I started to skip the third question, whichwas not so important to me as some of the others. But Mr.Mikoyan caught me up on the suggestion:

Mikoyan: Do you mean to skip it just for the present,or for good ? Because I want to answer it.

So I withdrew my proposal, and we went ahead with allthe questions in the original order.

In answering my questions, the Soviet leader assumeda certain background knowledge on my part. Doubtless manyreaders also know much of the history and general structureof Soviet economy. But to eliminate possible confusion, Ishall present a minimum of the specific background of eachquestion; as well as a brief general survey of the historyand structure of the Soviet planning system.

Present at the interview were A. A. Arzumanyan, directorof the Institute of World Economics and International Rela-tions, and Boris Krylov, an official of the State Committeefor Cultural Relations with Foreign Countries. The excellenttranslation was done by the economist, V. D. Kazakevich,who was for many years a resident of the United States.

There. was no stenographic text of the interview. How-ever, I did take complete notes, which are close to beingword for word. Mikoyan authorized complete publication,

except for one mention of an administrative action that hadnot yet been taken.

The interview is presented in full. However, f have takenthe liberty of changing the order of questions and of divid-ing some questions and answers into parts so as to obtaina more coherent and systematic presentation.

This interview should be of particular interest to Amer-icans on several accounts:

It is the most authoritative interview concerning Sovietplanning and economic questions obtained by an Americansince that country's decentralization and reorganization ofplanning.

It explains fundamental features of economic policy andmethods which represent the new roads Soviet economy istreading.

It provides answers to certain socio-economic questionsabout Soviet life which have preoccupied many Americancommentators.

It brings out the all-around interest of Soviet leaders inthe positive aspects of American industry and agriculture,and underlines those areas in which the productive struc-tures of the two countries are drawing together or maycomplernent each other.

I. ECONOMIC PLANNING

The history of economic planning, properly speaking,starts with the first Soviet 5-Year Plan in 1928. Therehave been altogether six five-year plans, and the present7-y'ear plan, and single year plans within them.

Socialist economic planning, as it has evolved in theUSSR, has a distinct meaning. After it achieved substantialsuccesses, the idea of planning became popular in thecapitalist lands also. We have in America a National Plan-ning Association, and in New York a Regional Plan Associa-tion. Corporations now generally establish investment plans;and sorne make more elaborate plans covering the productionof goods, and their distribution among various markets,budgets of income and outgo, etc.

These are not plans in the same sense as socialist planning,because they have enormous "open ends," where the plannerdoes not exercise control, but merely estimates what willhappen. In the last analysis, a corporation plan requires thesale of goods, but the market demand is mightily influencedby factors wholly outside the control of a single corpora-tion's executives . This is just one of many such "openends."

The objective of corporate planning is to maximize profits.firis conflicts with the plans of rival corporations to maxi-mize their proflts, with the endeavors of employees to ob-tain higher wages and farmers to obtain higher prices. Andthe ultimate level of productive activity is determinecl lessby corporate plans than by market forces r,vhich fluctuatein ways that are usually not predicted accurately.

Thus we find that the actual production of autos by

11

t2 IIOW THE SOVIET ECONOMY WORKS

General Motors varies widely from its "plan" for the year.A Soviet econornic plan covers almost all areas of economic

life-all kinds of production, all geographic sections of thecountry, all factors of production. It embrasss-anfl balances

-raw materials and finished goods, new investment fundsand machinery; workers and jobs; costs and prices; thevalue of consumers goods and the amount of wages andfarm income paid out to buy them; the volume of trans-actions and the amount of money in circulation.

The plan is real, because all of the relevant factors arecontrolled by the planners. It is more than a prediction. Itis a set of econornic operating instructions.

The planning'process has improved greatly since it started.It has become more complex, more all-embracing, moreexact. The first Five-Year Plan was overfulfllled in general-but with wide irregularities between various major items.The present seven-year plan is being fulfilled or modestlyoverfulfilled in most respects, and the planned balances arebeing closely adhered to.

The object of planning is not the special interest of aparticular individual or group, but the general advance ofwell-being and economic strength all along the line. Thisobject is in harmony with the process of rapidly raisingproduction. It avoids any basic contradictions, such as theperiodic marl<et gluts and overproduction of capitalism. Iteliminates the labor-employer battle which makes reallyfull emplo5,ment intolerable to the private corporation.

That's why it works-in theory. In practice, of course,there are many difficulties, miscalculations, and failures ofpeople to perform as expected. But these are difficultiespreventing 700% accuracy, not contradictions preventingthe general fulflllment of the plan.

To summarize, effective planning must harmonize all ma-jor economic elements and must include control over them.What kind of control ? Within the American corporate set-up there is the absolute centralized power of the Board ofDirectors over certain economic factors alongside of a lack

ECoNOMIC PLANNING 13

of substantial influence over other important factors. ManyAmericans have been told, and believe, that the centralizedcontrol exercised by the government in Moscow over theentire Soviet economy is also complete and arbitrary. Butthat opinion is inaccurate. From the early beginning, theidea in the Soviet Union was to involve the masses of thepublic in the planning process, and to enlist their participa-tion-indeed their enthusiasm and drive-in the carryingout of the plan.

Everything is added up in the center, econornic arrange-ments are enforced from the center, balances are establishedand checks made from the center. But the tens of millionsof participants in the periphery develop the details whichare used in the center; negotiate with the center in thebalancing of the plan; accept their respective parts of itwhich they have done much to assign to themseives; andstrive to carry it out because they want to and are convincedthey should, rather than because they are ordered to.

This is the method of democratic centralism as developed

by the Communists. During the war and immediate post-war years, the democratic part of the formula was pushed

into the background. Extreme centralism, necessary in a

bitter and tense military conflict, was continued too longand too much for the maximum advantage. Meanwhilechanging conditions made a new kind of decentralizationtechnically necessary.

When Soviet industry was still little developed, and thenumber of major enterprises fairly small, it was possible

to keep track of things from Moscow. Also it was necessarybecause lesser centers lacked people with the technical skillsfor scientific econornic planning.

But today there are tens of thousands of majon enterprises, and hundreds of new ones are added each year. It isimpossible for any single group in one center to keep trackof all the details of all these enterprises. Moreover, theSoviet Union now has a very large corps of scientifically

74 How rHE sovrET EcoNoMy wonns

trained people. So decentralization is both necessary andtechnically possible.

Decentralization

This was the first theme Mikoyan touched on in answerto my opening question:

Q. Please give me your assessment of the changes in themethods of planning now underway.A. Since 1953 there has been a basic change in themethod of planning. Previously, there were excessivedetails, worked out centrally, for each locality. Even thedetails of sowing for the collective farms and of catile_raising for each farm were spelled out. Now only theIeading amounts are specifie,J centrally, leaving thedetails to the local organs. Of course, the leadingfigures influence vrhat the local organs do.

One can summarize the process under the captionof decentralization, or democratic centralism-the liq-uidation of burocratic faults and the return to demo_cratic centralism as in the flrst ten to flfteen years ofSoviet power, the return to the teachings of Lenin.

A word at this point about the planning organs to whichMr. Mikoyan referred. The central planning body sincethe 1920's has been the State Planning Committee, a bodyof leading industrial executives, engineers, and economists,buttressed by a staff of industrial specialists running intothe thousands and a special economic research institute.Structurally, it has certain resemblances to our wartimeWar Production Board, but functionally its operations aremore comprehensive and its power more decisive. Thiscommittee is usually referred to as the Gosplan, based onthe first syllables of its Russian title. Since that term hasbecome common in American references also, we will use itin this booklet.

The decentralization referred to achieved deeisive organ-

ECONOMIC PLANNING lb

izational form in 1957. Previously the center of power in boththe short-range planning and administration of industry hadbeen in the hands of a score of ministries in Mosco'w, eachresponsible for a major industry.

Now these ministries were abolished, and most of theirpersonnel sent to work in particular enterprises or in localorgans of planning and administration. Nationally, therole of the Gosplan was greatly increased. And much greaterresponsibilities were placed on the regional Gosplans of the15 Union Republics of the USSR and on District EconornicCouncils created in 104 economic districts of the country,many of which correspond with the existi4g administrativedistricts called oblasts.

Finally, the role of each enterprise, and the workerswithin that enterprise, was greatly increased. Mikoyan,continuing his answer, explained essential features of thedivision of labor:

A. The plans are discussed in each area, enterp ise, etc.Their plans, born at the point of production, come to thecenter. When we add thern up we get disproportions.Each detail is right, but the sum has faults. For ex-ample, one Union Republic has a process that can beaccomplished only if raw materials are supplied byanother. The center must coordinate.

This is an example of the balance method of planning,of which Mr. Mikoyan had more to say later.

Details of the System

Seeking further details, I asked:

Q. I am especially interested in the distribution of func-tions in the planning process, and in the role of variousnew organs which have been established.A. The work of the Gosplan and of the District Eco-nomic Councils revolves around four central thernes:1. Current planning-annual and quarterly.

16 Ho\ry THE sovrET ECoNoMy woRKs

2. Perspective or long-range plans of 5, 7, or 20 years.3. Balance problems.4. The administration of industry.

Now the Gosplan has functions 1 and 3, current plan_ning and balance problems, Up to 19bT job B was in thehands of the Central Ministries. Now, in addition to thecentral responsibility of Gosplan, much of the workon job 3 has been transferred to the Union Republics.They have also taken over from the former ministriesjob 4, the administration of industry.

Now the scheme on the level of the Union Republicis as follows:

The Gosplan of the Union Republic handles jobs (1)and (2), both current and perspective planning, whilethe District Economic Councils handle both (B) and(4), balance problems and administration. In the threeIarge republics, the Russian tr'ederation, Ukraine, andKazakhstan, there is a variation. In these there havereoently been organized general, republic-wide economiccouncils which have authority and responsibilty forjobs (3) and (4), supervising the local district eco-nomics councils in that respect.

Doubtless details of this fairly new division of laborwill be amended further following more experience with itsoperation. Obviously, when responsibilty is divided so manyways, there is plenty of room for jealousy and burocraticsquabbles. In talking with heads of each of the differenttypes of planning organizations, located in various partsof the Soviet Union, I found a surprising absence of anysyrnptoms of this kind of friction. Instead, the universallyexpressed attitude was one of mutual respect for andcooperation with the other participants in the planningprocess. Of course, there is a natural tendency to cover upsquabbles and make favorable impressions on a foreignguest. Discounting this, I still felt that the expressed atti-tude was sincere, and represented that which prevailed.

EC0NoMIC PLANNING 77

After all, the job of planning a socialist economy is enor-mously complex, and any reasonable participant in it wouldwelcome having limits on his personal responsibility andbeing able to work cooperatively with those whose tasksmesh with his own.

Mr. Mikoyan went on to explain in more detail what ismeant by "balance problems." I have read economic treatisesby Soviet planners on the "balance method', as a technique.Mr. Mikoyan explained it as a living process:

A. Balance problems mean the coordination of planswith the economic activities of various enterprises.This really means aid to fulfill the plan, to liquidatedifficulties, and to organize division of labor, specializa.tion, etc.

This process is full of oontradictions and clashesof interest. For example, an enterprise does not wantto transfer to a new line of output; it is comfortable inthe old. The Director says OK, but look at all thedifficulties; it will take two or three years to make theswitch. We must try to persuade him to speed up theprocess. We argue, dissect the question from all sides,enter into its ,essence. Finally there is agreement.Also there are repercussions on other enterprises,the need for fuel, raw materials, etc. All this isabsolutely necessary in order to get technical progress.

On this theme of technical progress, more later. Asidefrorn the four-way division of labor, Mikoyan stressed theimportance of the central planning bodies in determiningnew investments which are so decisive in establishing thecharacter and degree of economic growth:

A. The role of the center is to direct new productionto where less investment is required, not too rnuchinvestment; to choose between spots for mineral de-velopment on the basis of costs of output, transportcosts, and other economic factors. This is not a stricfly

4

r/

I$,r

18 How THE sovIET ECoNoMY woRxs

peaceful process. Each struggles for his particularplans and plant-inside the All-Union Gosplan and theGosplans of the Union Republics, until a decision isreached. Most issues can be smoothed out by argumentand flgures, but sometimes the Government must makethe decision.

Next Mikoyan discussed the extremely interesting ques-tion of planning flexibility.

A. The plan is much more elastic today. Formerly onecould not change the plan during the year. Now DistrictEconomic Councils and Union Republics may changethe plan during the year. In some cases they must notifythe center of the change. In other cases ',yhen it affectsother areas, they must get the permission of the center.

If the plan is underfulfilled because of bad work,no changes are permitted. But if the plan is under-fulfllled for lack of products that did not grow andfor which one cannot get substitutes, one must changethe plan. Or, if supply exceeds demand, one must changethe plan . . . of course, one can also lower the price orraise exports, or curtail production, or sorne combina-tion of these.

An example is bicycles. We decided to make 3r/2million bicycles per year. Previously there were longwaiting lines for bicycles. Soon there was an over-supply. We lowered the price, with some success,but still there were too many. So we cut productionto 2 million bicycles per year, improved the quality,and advertised-although weakly.

This example of the bicycles exemplifled a vital changein the economic situation of the Soviet Union. Until fairlyrecently, while production of almost all commodities wasgrowing, there was not enough of anything to meet thedemand. It was, in a sense, a shortage econorny, and theproblem of planning was to make the maximum use of

EcoNoMIc PLANNING 19

materials and flnished goods which were not sufficient tomeet all demands.

Already by 1960, however, according to informationgiven me by the Gosplan people, there were 1,000 com-modities or varieties of commodities with production ceilingson them because the level of output had already reachedthe level of demand.

The appearance of arnple supplies in many lines hasenabled industries to build up more adequate reserve stocks,avoiding periodic shortages, and permitting a faster rateof economic growth. At the same time, it has put to anew practical test the full employment policy and practiceof socialism. And socialism has passed that test. Thanks tosocialist planning and the continuous rapid growth in over-all demand, every worker released from production of sur_plus bicycles or any other commodity has been immediatelyand without any loss of pay rate transferred to other workin the same factory or town, or, w"hen necessary, becauseof the closing down of an inefficient mine, has been givenample choice of other locations fo work.

Mention of advertising led Mr. Mikoyan to the first ofseveral references showing the very great Soviet interestin American technical and engineering progress, even to alimited extent in the area of advertising which has beensubject to much Soviet criticism:

A. Soviet advertising will grow, but not like Americanadvertising. Only that which is useful for consumption,health, living standards, cultural and moral levelswill be used. We must develop advertising. We will tryto take over some of the techniques of American adver_tising, but insist on a different content.

Twenty Year Plan

I then asked Mr. Mikoyan about the 20-year plan. I firstheard of it in Tashkent. Subsequently, in several cities Ivisited, officials mentioned that they were working on it.

20 HOW THE SOVIET ECONOMY WORKS

I later learned that in Rumania and Czechoslovakia expertsare also working on a 15-20 Year Plan which presumablywill tie in with the Soviet 20-Year Plan. Isolated roughpreliminary figures have been published. For example, in1960 the USSR produced 292 billion kilowatt hours ofelectricity, the United States around 850 million kilowatthours. By 1980, say the Soviet planners, they will produce2,300 billion kilowatt hours, 2.7 times as much as we do now,and about as much as American utility experts expect theUnited States will produce then.

Q. What is the significance of the 20-Year Plan thatis now being worked on?A. The 2}-Year Plzrn will bc the skeleton of a new Partyprogram. It will be rcady in 1961. Certain figures arealready in existence, but they are the raw materialsfor the plan. Thc scopc is already set out in one ofPremier Khrushchcv's reports-that we expect todouble American prorluction by 1980.

He meant to double the amount Soviet leaders estimatethe United Statcs will produce in 1980. This means at leastto triple present American production and to multiplytheir own industrial production more than five times fromthe 1960 levcl.

Now it has been confirmed publicly that the draft ofthis 20-Year Plan will be completed and unveiled at theCommunist Party Congress to be held in October 1961, atwhich the new party program will also be subrnitted fordiscussion and prospective adoption.

Mr. Khrushchev has announced that the plan and theprogram will be geared to the full-scale building of a Com-munist society. By this is meant the arrival at the stagewhere there is such a sufficiency of goods and such adevelopment in human beings, that the slogan "from eachaccording to his ability, to each according to his needs,"can become operative.

To reach such advanced levels, the Twenty-Year Plan

ECONOMIC PLANNING 2I

will involve far-reaching changes in the structure andmethods of production arising from the fullest planned ap-plication of the scientific-technical revolution to Sovieteconomic life. My next question dealt with this crucialproblem:

Q. Has there been an increase in the role of the scien-tific bodies in the planning process ? It seemed to mefrom reading the decisions of the July 1960 Plenarymeeting of the Central Committee of the CommunistParty, that new committees with a scientiflc orienta-tion were given very prorninent responsibilities inplanning, sometimes ahead of the Gosplan. However,the Gosplan people I discussed it with denied that anyfunctions had been taken from them.A. We have been searching and groping for the solutionto the problem of putting technical progress in theforefront of planning. And we finally have the solution !

That is, the State Scientific-Economic Council, theorgan for long-term perspective thinking and planning.The term scientiflc is not in its official title, but it isunofficially referred to in ihat way. Indicative of itscomposition and emphasis is the fact that the Presidentof the Academy of Sciences is a member. The Gosplanhas }ianded over long-term perspective planning to thisnew body an<i concentrates on short-term planning.

This, by the way, supplies the answer to those observantreaders who wondered why no locus of responsibility wasmentioned before for job 2, the job of long-term planning,in Mr. Miko5,2n's description of the division of planningwork on a national level.

In my opinion, this new body described by Mr. Mikoyan,and the other actions that have gone along with its establish-ment, are perhaps the most important of all the changesin Soviet planning methods.

Science has come to the fore in other ways also. As pre-viously mentioned, the central ministries of different indus-

22 HOW THE SOVIET ECONO}TY WORXS

tries were abolished in 19bZ to do away with an over_powerful, over-centthe full developmemost important ofright. They werecommittees which act as coordinators, clearing houses anCstimulators for the application of the most advanced tech-niques and methods in all the plants of the given industry.

Similarly, the communist labor brigades which are be-

to prepare themselves for advanced participation in theexpected upcoming era o[:rl]-around automation and complexmechanization of production.

The Merging of Socialist l)roperty Forms

ECONoMIC PLANNING 23

and their working personnel have enjoyed considerable gainsin earnings, so that in many areas they are clearly betteroff than collective farmers.

Besides the collective farms which still predominate inagriculture, a small amount of handicraft-type productionand some retail trade is owned and operated by cooperatives.In Soviet terminology, state and cooperative enterprises arereferred to as the two forms of socialist property.

Soviet theorists have long considered it logical that in thetransition to Communist society these two forms of propertymust merge, while differing considerably concerning thetime and method of that merger. Certainly, this will makepossible a deeisive advance in the precision of planningwhich becomes more and more important as the economybecomes more co nplex and more subject to the influenceof the exact sciences.

My visits to collective and state farms, and conversationswith leaders in research in agricultural econornics, led me toa rather startling hypothesis which I put to Mr. Mikoyan:

Q. From observations on some agricultural enterprises,and frorn discussions, I have the tentative opinion thatsome time between 1965 and 1970 the essential differ-ences between the two forms of socialist property willbe eliminated in most of the USSR. Please tell meyour opinion about this.A. I agree. If not fully, it will be approaching this point.

So far as I know, this was the first statement for publica-tion by any Soviet leader pointing towards such an earlyperspective for the drawing together of state and collectivefarming. But this is foreshadowed by a number of trendsin collective farms. fn many of them farmers are shiftingto a scheme whereby they receive most of their incomein the form of monthly wage advances. This, together withthe establishment of substantial insurance reserves by thefarmers, provides these collective farms with a stabilityof income, regardless of weather vagaries, never known in


private farming or in the earlier stages of collective farming.Moreover, this is happening among the more efficient farm-ers who enjoy the highest incomes. At the same time, in anumber of areas where collective farms are small and lessprosperous, they are merging into powerful, high wage-paying state farms.

All this is happening without special fanfare, rvithoutgoals to merge a certain nurnber of farms each year, andwithout undue pressure from the center or local officials.But it is developing a force and momentum which arisesfrom the self-interest of thc farmers themselves, and whichimpressed this observcr sulliciently to lead to the abovequoted question.

In January, 1961, Premier Khrushchev made this perspec-tive a matter of basic ltolicy lvhen he said:

Our Party has wurl<crl out ways of elevating collective-farm and cooyrcr:rtivc lrropcrt.y to the level of publicproperty trn<l orrl,lirrurl thc prospects of their mergerinto singlc Communist property.

II. SHORTCOMINGS

I did not need to ask this very busy man to spend timetelling me about the successes of Soviet economy. I knewabout them, had written about them, and saw them withmy o\vn eyes. Overall, Soviet economy has been the mostsuccessful in the history of mankind. It has accomplishedan economic growth several times faster than that of anyprevious social system. It has enabled the general popula-tion to achieve improved material and cultural standardsmore rapidly and universally than in any previous epoch.

I concentrated, instead, on asking questions about difficultproblems and shortcomings in execution which Soviet lead-ers had encountered in guiding their country's economiclife. Over the years, all too many American specialists onSoviet affairs have concentrated their attention on dif-ficulties and shortcomings to such an extent as to gro-tesquely distort the overall picture. That was never difficultto do. The Communist method of criticism and self-criticismensures the appearance of a vast volume of material expos-ing weaknesses and discussing methods of overcomingthem.

By selective culling of the Soviet press, hostile com-mentators can easily, and often do, convey to their readersan impression of general failnre and imminent breakdown.To many people prominent in Arnerican politics and business,this became a form of self-delusion, rudely shattered inrecent years by the dramatic revelation of certain Sovietaccomplishments. But much of, that delusion remains and Imust, in all honesty, warn my readers against drawing sucha one-sided view from my discussion of Soviet economicweaknesses.

25

26 HOW THE SOVIET ECONOMY WOR,KS

At the same time, Americans have a legitimate interestin knowing the real facts about supposed shortcomings inSoviet economic life which have appeared so much in ourpress. For example, shortcomings in Soviet agriculture werea major point of American comment early in 1961. I hopethat the discussion in this and the following chapter willprove helpful in appraising such questions.

I will call attention to one general feature of Mikoyan'sapproach to all of these questisns-n6ng of them are causesof gloorn. Instead he sees the positive side of all of them.With a social system-socialism-and a politico-economicapproach which he regards as scicntific, he is convinced thatall of these obstarles can be ovcrcome. Ttrereby each short-coming becomes a reserve for progress. Its elimination auto-matically brings about an :r<lvancc in the total economicsituation. Mikoyan in this intcrview, and Soviet leadersgenerally, frequently usc thc tcrm "rcserve" in this sense.

And it is only fair to say that Mr. Mikoyan has amplegrounds for his confidcnce in the history of unbeilevableobstacles overcome, ancl gi:rnt forward strides made in theprocess. His answer t<l the first question in this categoryreflects that confidcncc:

No Dead Ends in the U.S.S.R.

Q. Pleasc tell me your opinions about the main weak-nesses and shortcomings of the economic developmentand planning of the USSR, by which I mean problemsthat are not only as yet unsolved, but for which themain lines of the solution are not yet in sight.A. There are no such problems. All problems can besolved. Only different periods of time and differentamounts of effort are required. Some require deepercalculation, but there are no dead ends.

On reviewing this answer, I think there was a slightmisunderstanding. Mr. Mikoyan 'was answering a question

SH0RTCOMINGS 27

about problems that could not be solved; whereas the ques-

tion dealt with problems not yet solved in principle.Nevertheless the answer is of considerable interest. It

reflects that fundamental confidence in the ability of sci-entiflcally guided human beings ultimately to solve allproblems and overcome all obstacles.

Mikoyan went on to give an example of an earlier prob-lem that had been solved, frankly admitting a mistake ofSoviet authorities in the process:

A. Once we concentrated on coal because we thoughtthere was not enough oil and gas. But now gas and oilare discovered almost daily so there is no point in con-centrating on coal. In chemistry, we relied on coal andwater. Now there is the question of petrochemical devel-opment. One can say that here we made a subjectiveerror from not knowing or understanding the problem.Now we understand it better. Now we must catch up.We are building very large pipe lines for gas and oil,like the 2,000 km. pipe line from the Caucasus toLeningrad, one from the Carpathians to the BalticRepublics, and one from Bashkiria to Berlin, Budapest,and Bratislava.

This shifting of the fuel balance from coal to gas andoil is one of several major structural shifts in Sovietindustry which are taking place today. They are vital partsof the application of the scientific-technical revolution toSoviet economy. And they are quite essential for the tealiza-tion of the Soviet goal of overtaking the United Stateseconomically.

During the decade 1940-1950, while Soviet industry was

concentrating on surviving the Nazis' wartime blows andthen on reconstruction, American industry was not .onlygrowing, but undergoing the most rapid technological trans-formation in its history. Thus, while Soviet industry had

restored the prewar percentage of American production by

28 How rHE sovrET ECoNoMy woBr(s

1950 or shortly thereafter, it was considerably fartherbehind the United States technically than in 1940.

Since then, and especially since 19bb, Soviet industryhas also been advancing technically and structurally at anaccelerating pace, gaining on the United States in thisrespect as wcll as quantitatively.

It appears now that such shifts as Mr. Mikoyan describedare taking place with great speed in the Soviet Union. Othersare all-around electrification, development of plastics andlight metals, and application of automation and computertechniques to industrial production and control.

For the long run, most significtnt of all is the extremelyrapid rise in the numbcr and <1r-riLIit.y of trained scientific_technical personncl, anrl thc lead which the USSR hasestablished over all other countries in the extent of sci_entiflc-engineering r:rlur::tl;ion.

If prescnt trcnrlsr corrt,inrrc, thc USSR will catch up toand surpass thc llnil,crI Stiutcs in industrial technique, en_gineering anrl str.uct,ul.o as rvell as in the crude quantityof production within thc foreseeable future.

Raw Materiitl;During 1957, rcports of the United Nations ancl economic

reports ol'Sovict leaders stressed difficulties with rawmaterials. Thc I'abrication of goods tended to expand moreeasily than thc supply of raw materials. There is a simpleeconomic r()ason for the difficulty. It requires more invest_ment of capital to produce a dollar's worth of raw materialin a mine or power station than it does to add a dollar toits value through fabrication in a factory.

This difference applies both to capitalism and to socialism,but its effect in an advanced capitalist country is screenedby cyclical movements and chronic overcapacity. In a social_ist country, where production generally increases severaltimes more rapidly than under capitalism, the problembecomes quite acute, and must be handled by accurateeconomic planning and plan execution.

SHORTCOMINGS 29

Beginning in 1958, reports showed a great improvementin Soviet raw material supply. Naturally, I was interestedin confirming this. In none of the factories I visited did Ifrnd any holdups in activity due to material or fuel short-age. In the Likhachov truck factory in Moscow, I was givena detailed pictufe of a successful inventory control system.Still, in statements of other officials and in some observa-tions, I found conflicting evidence which I tried to resolvein the next question:

Q. Responsible officials and some factory directors havetold me that adequate reserves of raw materials havebeen established in both industry and agriculture andthat shortages of raw materials are no ).onger inter-fering with production. At the Mettalist Turbine Plantin Leningrad, I noticed frorn the chart on the rvall anuneven rhythm, with lower output in the flrst tendays of each month than later in the month. Theengineer attributed it to last-minute deliveries of com-ponents by suppliers, which held up production for thefirst few days of the following month.

Please give me your opinion as to the stage of de-

velopment of this raw material situation'A. There are elements of truth in both kinds of state-ment. As a rule the supply of raw materials does notlimit production, but there are many exceptions. Ifyou take ores and textile materials, you have oversupplyin some places and shortages in others. You cannoteconomically move ores far, so it is difficult to liquidatea deficit. But textiles are easy to move and transport.

AgricultureThe most critical questions of raw material supply center

arountl agricultural products, and Mr. Mikoyan devotedmuch more time to discussing this:

Q. The report of the Central Statistical Board on pro-

duction in the flrst half of 1960 emphasized the impact

30 rrow rHE sovrET ECoNoMy won,Ks

of feed shortages in preventing a rise in milk pro-duction. This is a particular case on which I wouldappreciate your comments.A. The feed problem as a whole is solved, but in thefirst half of 1960 there was a shortage of fresh foodfor cattle. Here are the reasons:

1. Climatic conditions this year. 2. A late spring, sothat the insurance funds of feed grains proved inade-quate in some places. 3. The plan for increasing thenumber of cattle was overfulfilled, creating a shortageof fodder, of hay and silage. Some areas have greatreserves, but one cannot transport hay and silage greatdistances. Grain can be transported, so we use somestate reserves, paid for with money loaned to the farms.4. Finally, in some arc:rs we worked poorly. Some partyleaders will havc to lool< for other jobs after the nextconferences. Thcrc will always be such. On the wholethe cadres arc grlorl, bctter than ever before. So logicallyyou cannot usc that as a reason for doing poorly thisyear in comp:rrison with last year.

The main conference took place flve months later, in theJanuary, 1961, plenary meeting of the Communist partyCentral Committee. This meeting concentrated on farmquestions, and was attended by a thousand persons. Besidesparty officials, farm leaders and outstanding farm workersfrom all parts of the country attended.

Details of this conference were published in the Sovietpress, as fully as Congressional proceedings in vV'ashingtonare printed in the Congressional Record.

The discussion concentrated on thoroughly analyzing thereasons for failures in some areas, while finding out justwhat had been done to achieve success in other places.Concrete plans for 1961 were worked out as the main prac-tical objective of the conference. premier Khrushchev actedas leader of this discussion because he is eminently qualifiedon the subject. He does an incredible amount of work

SHoRTCoMINGS 31

visiting farms in all parts of the country, studying theresults of agricultural research institutes, and discussingexperiences with farmers. He shows an ability to rememberand synthesize this vast body of collective experiencewhich would be remarkable if it was the Premier's onlyactivity.

Reports in the American press gave a tendentious pres-entation of this, picturing Khrushchev as the "big boss"arbitrarily laying down the law and flying into a rage atfailures. The accounts in the New York Times, apparentlyderived from the Soviet-published texts, used narrowly se-lected extracts so as to create an impression of universalfailure, venality and villainy by farm leaders everywhere,and vindictiveness by Khrushchev in dealing with thesituation.

In fact, most speakers at the conference were well re-ceived, greeted with applause for their accomplishmentsand their creative suggestions. A few reporters who triedto cover up shortcomings with generalities were scolded, butnot in insulting terms. Sorne farm area party leaders who,through apparent negligence, had failed to prevent seriouscrop or animal losses in their districts, were transferredfrom their jobs and replaced with men having better tech-nical training, and a better chance to win the confidence ofthe rural population in the area. Those dismissed were not"purged," but given other jobs, although sometimes at alower rank.

Mr. Mikoyan commented on the turnover in leading per-sonnel as follows:

A. An American said that sometimes the director ofan enterprise in the USSR knows his business betterthan the owner of a business in America. In Americahe knows what he must know. Here he must know morethan he must know.

We are struggling all the time to renew cadres withyoung and able people. The Party is busy with that.

.fO

of

32 HO\4T THE SOVIET DCONOMY WORKS

As I interpret Mr. Mikoyan's remark, it is not sufficientfor a Soviet director to know how to run his plant efficientlyand with satisfactory production results. He must also havea broad political-economic scope, considering interests overand above those of his enterprise and always ready to trynew and improved methods of doing things.

Mikoyan put the feed difficulties in perspective:

A. To return to the food supply, otr the whole theharvest is good. There is some spottiness, but in themain areas there is a good harvest.

And the statistics bore this out. The grain crop, whilebelow the all-time record of 1958, was 6'/o higher thanthe good crop of 1959. Production of animal productsequalled the record 1959 level, and sales to the state-which determines the readily available low-cost public supply

-of meat increased 5'f,, of dairy products 67o, and ofeggs l5'1,.

Since the nurrber oI head of livestock, especially sociallyowned livestoclr, incrcnsed substantially, and stocks of silageand fodder increased sharply, prospects are that pro-duction of animal products can increase substantially again,as thcy did tor most of the years since 1953.

Some of the comments in the American press suggestedthat thc Soviet population has been reduced to eatingbread und potatoes. I myself was in the Soviet Union at thespring pcriod when food difficulties were most pronounced,and could see how well the Soviet people were eating,including the plentiful volume of dairy products beingconsumed. Moreover, statistics for the first half year showeda sharp rise in retail sales of meat and milk, despite thetemporary stagnation of milk production. So I asked for anexplanation:

Q. I saw frorn the first half-year economic report thatthere was a very large increase in retail sales of dairyproducts, and wondered how that was possible with no

SHORTCOMINGS

increase in milk production during the first halfthe year.A. State reserves were thrown into the market. Duringthe second half of this year we will largely, but notwholly, refill the state milk reseryes.

It is amazing how publicists in this country, graspingat a straw of Soviet self-criticism, are able to invent a farm"crisis" in the Soviet Union. All that happened is that farmproduction failed to meet the planned goals of increasefor 1960, and that Soviet government and farm leadersare determined to make it up by an extra increase in 1961.

Despite our higher overall farm production, the Sovietagricultural situation compares favorably with ours inmany other ways. Here we have strenuous government ef-forts to curtail farm production and reduce the mountainousstockpile of surpluses, declining farm incomes, governmentefforts to raise farm prices and hence food prices to the pop-ulation, tens of millions who are undernourished, and manymillions who are subsisting on an unhealthy survival diet ofthe most unappetizing of the food surpluses.

Capitalism seems to have put our agriculture into a realcrisis for which none of its leaders can even promise a solu-tion. Socialism seems to create a situation where peoplecan work together to cure difficulties.

Black Markets

At the end of the interview Mr. Mikoyan asked me somequcstions, one of which belongs in this chapter:

Mikoyan: What single thing about the Soviet economyimpressed you most unfavorably?l)erlo: I found most disagreeable the black market op-t'rirtors who loiter in front of hotels and offer tourists40 rubles to the dollar. I imagine the amount of moneyl,hc.y steal from the state is not serious. But they domrrr:h damage to the prestige of the Soviet Union. Hereis rr strong, powerful, country, but some of its citizens

34 HOW THE SOVIET ECONOMY WOBKS

treat its currency as disrespectfully as if they were insome weak, dependent country.Mikoyan: We hate it. They are a handful, scum on thesurface of our society. They represent nothing, no trendamong our people. But harsh measures will not do. Wecannot "ctack down." We have our legal standards. Butwe must not ignore this. We must find ways of dealingwith the question effectively, and according to law. Onemust take better measures.

Later in 1960, Soviet press reports told of arrests ofalleged black-market ringleaders. Time will tell whetherthese measures have really been successful. The latenessof the hour prevented my exploring the economic rootsof the black market with Mr. Mikoyan. It is widely believedthat black market foreign currencies are sold by the dealersto Soviet citizens who wish to buy foreign merchandisewhen abroad, in excess of the foreign currency officiallyalloted to them. If so, the economic basis of the businesswill be ended when the Soviet Union produces as wide a

variety of goods as the most advanced capitalist countries,so that the tastes of those who wish to imitate the latestwestern fashions can be appeased.

A group of nine were indicted in May 1961, after prelimi-nary investigation revealed their dealings in gold and for-eign currencies had exceeded 20 million old rubles.

Quality of Construction

I continued with another criticism which is made bymany foreign visitors to the Soviet Union:

Perlo: I do want to mention one more criticism, the un-even quality of construction work. While I saw some ex-amples of excellent workmanship, I saw a poor finish onhousing construction in a number of places, and in somenew hotels, poor plumbing. I have discussed this withconstruction engineers, and feel that a key requirement

sHoRTCoMrNcs 35

is to develop a tradition and style of skilled crafts-mansilip.Mikoyan: In 1949-50 only 360,000 square meters ofhousing space was built in Moscow per year. Now it is3 million square meters. The vast majority of buildingworkers are new people, without a skilled tradition. Thebad quality of building is removable and will be re-moved. We are now making a great struggle to im-prove its quality.

Incidentally, all of the considerable number of inhabitedapartments I visited in the Soviet Union were of goodquality, as were most of the hotels. I visited two hotels withpoorly connected plumbing and poorly installed tile workwhich showed visible signs of deterioration after a fewyears. These were in Uzbekistan where there are highlyskilled craftsmen in the traditional style who built themagnificent opera house in the central Plaza of Tashkent.But there are not yet enough skilled building craftsmen inmodern materials and techniques for the first-quality con-struction on a vast scale which the times call for.

One must remember that nationally, 3,000,000 housingunits per year are being built in the Soviet lJnion, whichpace suggests the essential elimination of the urban housingshortage in that country during the 1960s. One might sug-gest that the 15 million Arnerican families living in sub-standard or dilapidated dwellings, in urban and rural slumsand blighted areas, would welcome the construction ofapartments in this country, for rentals amounting to 3-5%of wages, as in the USSR. They would be pleased withthese apartments, if made available to them without dis-crimination, even if they had the shortcomings in finish ofa certain proportion of the new Soviet dwellings.

I

III. EFFICIENCY AND INCENTIYES

Industrial labor productivity in the Soviet Union wasstill, in 1958, less than half that in the United States.If the USSR is to surpass the United States economically,it must also catch up in labor productivity. Actually, gainsin labor productivity in the Soviet Union in recent yearshave been little short of astounding. Over two-thirds ofthe production gains have come from this source, and lessthan one-third from expansion of the labor force.

Rapid introduction of advanced equipment, and applica-tion of science to industry, constitute only half the secretof this swift advance in productivity. The other, and char-acteristically socialist half, is the conscious participationof a large part of the labor force in attempts to raiseproductivity.

I was particularly interested in studying this latterfactor which relates to the socio-econornic issue betweencapitalism and socialism that is most discussed in thiscountry, the issue of incentives. Supporters of capitalismassert that the incentive of proflts spurs people to greatproduction achievements. However, in capitalist practice,that incentive can only be operative for a rather smallminority of the population having access to ownership ofmeans of production. The majority under this system, whowork for wages or salaries, are given material incentivesfor higher productivity-as piece work wages-and sub-jected to various pressures to stimulate more intense labor.As against this, fear of unemployment, of "working oneselfout of a job," induces workers under capitalism to resist

EFFICIENCY AND INCENTIVES 37

increases in productivity, and at any rate to refrain fromconscious initiatives to develop ways of raising it.Industrial Stimuli

In the Soviet Union, of course, the possibility of makinga private profit in the sense of capitalism is excluded as anincentive. Instead, there is a system of materiatr and moralincentives designed to stimulate conscious participation bythe majority of workers in raising productivity. The neg-ative factor, fear of unemployment, is non-existent. Con-sequently there is every opportunity for these stimuli to besuccessful, if they are correctly conceived and applied.

Piece rates are still widely applied and figure in the pat-tern of incentives. But actually they are being de-emphasizednow. Attention is concentrated partly on the participationof workers in developing new and improved methods ofproduction in their particular operation, methods whichsave labor and materials. Literally millions of new ideas areput forth by workers each year, and many of them areadopted. Bonuses are paid the workers related to theeconomies realized. The system of bonuses was inadequateand too narrowly conceived; but while I was in the SovietUnion, a major conference was held at which the generallines for broadening and enlarging the system of incentivesfor introduction of better technique were agreed on.

The second focus of attention is on workers studying forhigher skill qualiflcations, with a view to gradually raisingall labor to the level of engineering and technical labor,rather than crude manual labor. With the higher skill qual-iflcations, of course, comes the material reward of a higherwage. Many millions of workers are carrying outserious studies along these lines, in a movement of workerseducation never even approached before in history. Workersgo to evening school or take correspondence courses. Theyare aided, not only by free tuition, but by such amazingf,eatures as that which provides the correspondence studentwith 40 days of review study at the school during working

36


hours, while his salary is paid by the factory. (If he fails inthe course, he must refund this).

The prime moral incentive is the identiflcation of theindividual with society, his conviction that the factoriesand farms are collectively his and his fellows', that thegovernment truly represents him and his interests, thatthe aims of building Communist society and a peaceful worldare eminently worthwhile objects to which one can devotea lifetime.

The leading practitioners and organizers of this moralforce are the members of the Communist Pafty and YoungCommunist League who are supported actively by rnanynon-party people, and generally, by the great majority ofthe population. During the 1959 period a new form oforganization of this force has arisen in industry-the Com-munist Brigades of Labor. A great advance quantitativelyand qualitatively over the Stakhanovite movement of the1930s, these brigades of lakror represent a powerful forcethat is evident to a visitor to any Soviet factory.

Each brigade of labor represents a group of workers(typically numbering 6-15), logically teamed in relation totheir function. Their title springs initially from successfulcompetition with other teams in overfulfilling productiongoals. But much more is required. Such brigades are ex-pected to initiate irnproved production techniques. Theirmembers are expected to study in order to advance theirskills. And they are required to live according to communitystandards of moral and neighborly conduct.

When I was in the Soviet Union, already one-fourth toone-third of the workers in most factories I visited weremembers of such brigades, and soon thereafter the move-ment for establishing entire shops and factories of com-munist labor brigades arose.

From visual evidence, I could clearly see that the majorityof Soviet workers were trying to do a good job, that soldier-ing on the job was certainly al, a minimum. I had discussedthe wage incentive systems and the Communist Labor Brig-


and thought I understoodadesthem.

various authorities,

Overrnanning

The questions left in my mind which I put to Mr. Mikoyan,concerned human and organizational shortcornings in theworking out of this system of incentives:

Q. I have heard criticisms of the quality of organiza-tion of work in Soviet factories, of overmanning infactories, and of lazy workers and farmers, and haveobserved cases of these weaknesses. For example, inTashkent a French engineer claimed that these faultswere apparent at a local building materials plant hevisited professionally. He said the management couldnot fire a lazy worker.

A Soviet economist with whom I discussed it elaimedthe French engineer was correct, and the chairman ofan excellent collective farm said the farmers were tookindhearted, and wouldn't expel a slacker.

On the other hand, the workers of the Likhachovtruck factory insisted that lazy workers are not aproblem. They handle backward workers by educationand persuasion, and where that fails, by transferirngthem to lower-paying work which helps them see thelie:ht. I cannot assess the prevalence or seriousness ofthe difficulties mentioned. Please give me your appraisal.A. The auto workers have the correct point of view.The lazy workers are not even a minority. They areexceptions. But directors of some factories keep extraworkers. This would account for some seeming to standaround, or for the overmanning of machines. If youhave difficulties with human reserves you can use"storm" tactics and go over the top. We must flght thisby establishing lirnits on employment related to pro-duction, and not permit employment over the norm.Now if a factory director hires more than such a limit,

I

I

40 How rHE sovrEr ECoNoMy woRKs

the bank will not give him money for wages.

Q. I saw a letter in the Economic Gazette complainingabout such a refusal. Is there any appeat?A. One can appeal by going to the District EconomicCouncil. This body will study the appeal, and if it isserious, will give the money for the additional workers.But sometimes a director is given a wide limit and canabuse it.

Another factor which makes for seeming overman-ning is that while we have been quite successful inrnechanizing basic tasks, there is still backwardness inthe auxiliary tasks, so \\re have many extra workers onthis auxiliary work. There is better organization ofmechanization in Amcrica.

There is no problcm of laziness as such. And we haveall kinds of metrns of bringing up people. The Party,the Trade lJniorrs, the Young Communist League, allcan bring pressure and bring people to their senses.

But for the reasons mentioned, in a great numberof places we have too many people. By the end of theyear, wc will cut the working day by one hour but raiseproductivity per man by 7 percent. Ho.,v is that possihle ?

Only by utilizing the unused reserves. We forced theclosing of gaps.

The actual results fell sornewhat short of Mikoyan'sestimate, although the goal for raising labor productivityprovided in the Seven-Year Plan was fulfilled. In 1960,the working day was cut from 8 to 7 hours (or in under-ground mining, etc., from 7 to 6 hours) for at least half ofall workers, completing the universal reduction in hoursstarted in 1959. Despite the shorter work-week, produc-tivity per industrial worker increased more than 5 per cent.Productivity per man-hour increased more than 10 percent, and in the final quarter of the year, \2 per cent overthe corresponding quarter of 1959.

Of course, this cut in the workweek leaves workers with

EFFICIENCY AND INCENTIvES 4L

much more time to study and to enjoy life generally. By thebeginning of 1961 the average workweek in the Sovieteconomy was 39.4 hours. In the United States, in October1960, among non-farm wage and salary workers not engagedin part-time work, the Labor Department reported an aver-age of 44.1 hours, or 4.7 hours more than in the SovietUnion. Working hours for farm people and for self-employedwere much longer in the United States. In most othercapitalist countries, the working week is even longer thanin the United States.

Summing up on the matter of industrial efficiency, Mr.Mikoyan said:

A. Since 1917 industrial labor productivity has risenelevenfold. The Seven-Year Plan calls for 70% of t]nerise in output to result from higher productivity oflabor instead of from hiring new people. There is nolimit to this process. It must continue year after year.Previously the growth in productivity was 4-5% peryear, now it is 6-7 %, because of a faster growth intechnical progress.

Thus the USSR is confounding those American criticswho were convinced its growth would slow down when it re-ached a reasonably advanced stage of industrialization. To-day Soviet industry, at 65% of the American level, must bereckoned as advanced. And it is growing faster than in theyears irnmediately before the Seven-Year Plan, not slower.

Efficiency in Agriculture

Following his discussion of industrial productivity, Mr.Mikoyan turned to the question of working morale anddiscipline in agriculture :

A. Agriculture is a different problem. The director ofa factory has a legal right to fire a man with theconsent of the trade union, and tries to get him a jobelsewhere. The same is true of a state farm.

I42 How THE sovIET EcoNoMY woBKs

But a collective farm, even at a general meeting,cannot expel a member except for very serious legalviolations, going beyond merely not working. In someplaces one can live and do little work. You will notfind this on the virgin lands or in the technical cropareas.

There are too many people on the farms. We knowthat, and each year we recruit many farm people forother work.

This point is worthy of special note. A favorite argu-ment of some American experts is that Soviet industrialprogress will have to slow down during the 1960s becauseit will no longer be possible to draw labor from agricultureinto industry. Mr. Mikoyan's statement shows that thistransfer of surplus labor is still going on. Soviet plannersconcentrate on erection of industry in smaller towns, makingthe new jobs more accessible than formerly to the ruralpopulation. Here in the United States, where farm pro-ductivity is at least three times the Soviet level, we arestill drawing surplus farm labor into industry, albeit by thehard way of forced sales, expulsion of tenants and share-croppers, and other forms of failure in the intense compe-tition-to-the-death of capitalist agriculture.

In the Soviet Union, the absence of, direct economic orother pressure to leave agriculture is, on the one hand, asource of great security to the farmers, but on the other,as we have seen, permits the continued existence of slackersln farming communities. Labor is drawn from agriculture,not by pressure, but by the incentive of higher incomes andmore interesting work, by the advanced technical educa-tion of rural youth, suiting them for work as industrial aswell as agrarian specialists.

Considering the great remaining relative over-populationof agriculture in the USSR, it will certainly continue to bea source of non-farm labor throughout the 1960s, and prob.ably for quite a while thereafter.

EFFICIENCY AND INoENTIvES 43

This will be encouraged by improving farm techniques,rvhich Mr. Mikoyan now discussed:

A. In grain farming, we have good. mechanization, com-parable to the United States, but we are weak incattle breeding. The collectivization of animal breedinghas taken place during the last ten years, essentially.Previously, over half of it was private. So productivityhere is far behind America-but even here we will catchup through giving more machinery and organizingproduction better.

The Marxian idea that in agriculture the large unitswill win has been achieved through the elimination ofsmall farms better in America than elsewhere so far.The European revisionists said Marx was wrong inagriculture because small farms persist. America withits example shows the correctness of Marx. Now alsoin Western Europe there is an accelerated process of theruination of small farms and the formation of muchlarger units. It is proved that large agricultural unitsare most profitable. From the point of view of size, wehave the best situation in the world, but we have enor-mous reserves which we do not use yet.

Recently, the size of farms was increased. Now ingrain we are using our reserves well. One combinedoes more work than in America. One tractor does thework on 500 acres per year.* In America a farmer with150 acres still needs one tractor, with 500 he needsone tractor also, but with 600 he needs two tractors.With us, all tractors carry a proper load. In the moun-tainous areas and in central Russia, there are stillsome small enterprises. But in the South and in thevirgin lands and other new areas there are iarge unitswith extremely effective machinery use.

Recently I talked with Matskevich, the Soviet Min-ister of Agriculture. Matskevich told me of one firm

*Mr. Mikoyan gave the flgures in hectares. One hectare eqluals 2lzacres.

44 How rHE sovrnT EcoNoMY woRxs

in the U.S.A. with 1,000 cows serviced by ten people,including the director. These ten feed, give water, andmilk the cows. Here one woman used to take care of tento twelve cows. The firm with this high productivitymarkets a special installation which permits this result.

In the United States it sold only two of these installa-tions . that is all the market there was. We alsobought two, but we need many more. If we had un-Iimited dollars, maybe we would buy 1,000. Then wewould call all farmers "\azy."

Subsequently I read in the Soviet press of a claim tohave developed a still more automatic milking barn wherebyone could service several hundred animals. Now Mr"Mikoyan referred to Roswell Garst, large scale Iowa corn-cattle farmer and hybrid seed producer best known forKhrushchev's visit to his farm in 1959:

A. Two of our mechanizers went to Garst. They areManukovsky and Gitalov. They worked there andlearned his method whereby one man handles100 hectares of farmland. Manukovsky and Gitalovhave improved the method and do 150 hectares to aman. They are organizing several thousand brigadesto work on this basis. Garst does this with his sons,but he has not got the order of Hero of American Labor.Manukovsky and Gitalov are very popular.

Our people took movies of the best methods in Amer-ican agriculture, and hundreds and thousands of farmsections are being organized, taking into account Amer-ican experience. We have large possibilities. We knowall that. That is why we are so confident.

At the start of 1961 Matskevich, to whom Mr. Mikoyanhad referred, was replaced as Minister of Agriculture andtransferred to be director of farming in the crucial virginlands area of Kazakhstan.


The American press emphasized only one aspect of this-that Mr. Matskevich was being demoted because of failuresin agriculture in 1960. Undoubtedly this was an element

in the shift. Shortromings, which the government leaders

regarded as avoidable, did persist in 1960, and the Ministerof Agriculture had to share responsibility for them' How-ever, another aspect is that the virgin lands of Kazakhstanare areas of special importance, where, under unfavorableweather conditions, it proved impossible to harvest all thegrain in 1960 and there were signiflcant crop losses.

Mr. Matskevich is being given the iob of ensuring regularlarge crops in this dry-farming area of very low rainfalland a mere 75-day wheat growing season. It is a very res-

ponsible and difficult job, and perhaps more suitable to histalents than the previous work, more remote from thescene of action.

Still more important than the shift in jobs, is the shiftin the functioning of the Ministry of Agriculture. Even afterthe abolition of the industrial ministries, the Ministry ofAgriculture endeavored to keep its fingers on the far-flungctetails of farm production activity' This also was becoming

a drag on progress. Now this will cease. The Ministry ofAgriculture will not be abolished, but will concentrate on

ments, gen-science and

ndations forost rational

methods of production in eacTt zone, and supervising thetraining of farm specialists with higher education'

In short, it will, like the committees that replaced the

former industrial ministries, concentrate on speeding the

application of science and advanced technique to agri-.ultrr", while the administration of production will be

decentralized as in industrY.In another sense, its functions will resemble those of

the Agricultural Research Service of the U'S' Department

of Agriculture, with the probable difference that under

4746 HOW THE SOVIET ECONOMY \ryOBKS

socialist conditions much more resources will be placedat the disposal of the Soviet body.

The Income Gap

The wage structure is the leading element among thematerial incentives which the Soviet people have to producemore and better goods. Theoretically, the wage systemshould embody the teaching of Marx and Engels for thefirst stage of Communist society: From each accordingto his ability, to each according to what he produces. Asubstantial portion of goods is distributed communally, with-out individual charge, and more or less equally. Health andeducation services, below cost housing rentals and vacationfacilities are examples. But most income is distributed in-dividually according to the estimated value of a person slabor contribution. Of course, all sorts of abuses are possiblein the interpretation of this principle.

A favorite criticism of the Soviet Union in this countryis the allegation that a new ruling class of Communistburocrats, officials and regime-supporting intellectuals hasbeen created. This elite, it is claimed, lives off the fat of theIand while the masses subsist in poverty, giving the lie toCommunist claims of having eliminated exploitation.

As usual, these charges were built up on self-criticismwithin the Soviet Union. Again as usual, they are anabsurd caricature of the aetual situation. By and large,earnings differentials seem reasonable. Certainly they areextremely narrow in comparison with those in our owncountry. In a typical Soviet factory where the average wagemight be 1,000 old rubles, the factory director rvould earn3,000 to 3,500 old rubles per month. In a better-than-averagelarge American factory, where the average wage might addup to $5,000 per year, the factory manager would earn$50,000 a year or 10 times as much and the chief executiveof the owning corporation, 9500,000, or 100 times as much.The largest stockholder might receive $5,000,000 per 5rssyin dividends, or 1,000 times as much. He, moreover, neerl

EFFICIENCY .A,ND INCENTIVES

have nothing whatsoever to contribute to production. Hisdicidends result usually from the accident of his birth toa capitalist father.

The top salaries I came across were those of Sovietscientific workers earning 4,000 rubles per month. Academ-icians, I believe, received 5,500 old rubles per month.x Somewriters and performers receive still higher incomes throughroyalties.

High officials get the use of a car and an expense accountwhile travelling. My observation is that this is ratherstrictly controlled. There is no expense account aristocracylike that in the American corporate hierarchy.

Nor are there any regional or group differentials. I sawnowhere poverty like that of urban slum-dwellers, coalminers and others suffering from long-time unemploymentin depressed areas, of Negro people in our own South, or thelndians in the Southwest.

But the inequalities of income in the USSR, as they werea few years back, were a source of internal criticism, anda number of steps were taken to reduce the spread. Minimum$/ages were raised as were old age pensions and farmprices. Authors' royalties and artists fees were cut. Use ofofficial cars was severely curtailed to end their use for per-sonal enjoyment. The process of reducing inequalities is stillunderway. And in my conversations with people in the SovietUnion, I found contradictory views as to its adequacy andspeed, which I tried to resolve through my next question:

Q. Various Soviet people have expressed opinions tome about the gap in living standards between thosein the top income brackets in the USSR and the massesof workers, and on the adequacy of measures takento eliminate extremes at the top and the bottom.Moscow University students with whom I met con-

*Throughout the above discussion wages are quoted in the formerrubles, in circulation ,at the time of the intervierv. At the beginning of1961, the new "heavy" rubles, worth ten tirnes as much, were introduc-ed, so a zero was tal<en off all wage and price scales.

HOW THE SOVIET ECONOMY WOR,KS

sidered this a very serious problem concerning whichthey felt too little was being done too slowly. But mostpeople with whom I discussed it considered that it wasnot a major problem, and that enough was being done.I also saw some manifestations of a caste attitude onthe part of some higher income people, although againnot in general.A. The gap was natural when a peasant country had tocreate qualified technical help and intelligentsia. Onehad to have a big gap to spur all capable men to struggleto rise and learn. It was quite justifled and necessary.

This was not so great as the gap which arose afterWorld War II. During the war and immediate post-waryears enterprises tried to establish very high pay forjobs for which they could not get people. In heavyindustry they raised the pay of directors, qualified work-ers, and engineers very much. At that time people hadration cards for the food supply, so the gap in moneywages didn't make so much difference in eating. Thosewith extra money bought in commercial stores at fourto five times the regular price.

When there was a currency reform in 7947 and therationing system was abolished, the problem reallyarose, even though low wages were raised somewhat.Because now the earlier excessive rise in the wages ofleading personnel was fully reflected in purchasingpower.

In the last few years, with the growth in the numberof qualified workers and intellectuals, the large gap canno longer be justifled economically, and begins to playa negative role. Now for the jobs with little pay it isdifficult to get people. Now in Moscow there is a short-age of 10,000 sales clerks. Young people who finishedsecondary school do not want to take such jobs becausethe pay is too low.

Top salaries have not been cut much because it iseasy to raise, tough to cut. Excesses have been cut, real


excesses, but that affects only 100,000 individuals. Butyou cannot cut the pay of millions.

The main procedure is this: those paid well get noincreases. Those in the middle get slow raises. Thoseon the bottom get big raises. During the Seven-YearPlan, there are two general raises scheduled for thelow-paid. The Russian term for this is "setting thewage scale in order." But this is a meaningless buro-cratic term, it really means raising low-end wages.

The flrst raise is finished already in heavy industry.In transport it will be completed in 1960-61, for lightindustry and employees in service and administrativeareas in 1962. There will be a second round in 1963-6b.

Certainly, it seems from Mr. Mikoyan's description as ifthe reduction of inequalities is proceeding rather rapidly,especially considering that when the second round of low-end wage raises is completed, they will have been approx-imately doubled. Still, Mr. Mikoyan considered it desirableto deal directly with the complaints of those who think it isnot fast enough:

A. Part of our great strength is not to get into ademogagic situation. We could easily promise very muchand deliver for one year, but then the policy would kickback at us. One must always promise somewhat lessthan one can g:ive. That is one of the main reasonswe have no strikes, no conflicts. People believe thatessentially the government and the Party will be doingthe reasonable thing.

Finally, he turned to the principled question of how farwage equalization should go:

A. I am against eq:ualization. The students probablyhave equalitarian tendencies. The vast majority of thepopulation think there should be wage differentials.

The special feature of our wage scale is that we havea self-corrective in medical services, education, and

ri'l

50 HOW TIIE SOVIET ECONOMY WORKS

other items provided without cost and in equal amountsto all categories of working people. If we add this tothe wage scales of each category, the difference will beless than in money alone. We will continue to extendthe free benefits. We will probably introduce old-agehomes run by the state. Then old people in familiesof low-paid workers will be cared for without being adrain on the family. Health resorts, sanitaria, etc.,narrow the gap.

This is a very complicated question, but we are awareof it, we are studying it, and we believe we are copingwith it. Equalitarianism is not our ideal. Maybe whenwe have complete Communism-for example, if we hadthe productive capacity of America! Take Americanindustry and the Soviet system and combine those two !

Here we have a striking example of the difference inideology between leaders of the two systems. In America,its great wealth appears to the capitalists as a justiflcationfor their fabulous luxury, really at the expense of in-adequate conditions for many. But to a Communist leadersuch wealth appears as providing the objective conditionswherein essential inequalities can be done away with.

IV. AMERICAN - SOVIET RELATIONS

Russian communists have traditionarty admired American

The noted American engineer Hugh Cooper, with a teamof American and Russian engineers, supervised the con_

the famous Dniepr Dam,tric installation in Europe.the early stages of Soviet

modern industrialization were supplied by the GeneralElectric Company.

The Ford Motor Company designed and its engineerssupervised construction of the first soviet automobile fac-tory at Nizhni-Novgorod (now called Gorky). In the heavyindustry centers of Ohio, workers still speak of thoslfactories making machinery and steel to fill soviet ordersduring the terrible early 1980s, when everything else wasshut down.

Many American engineers and specialists of various types,as well as skilled workers, went to work on contract inthe USSR,-and some actually stayed permanenily.

Similarly, Soviet engineers came to work in Americanfactories, and industrial executives came to study Americanmethods of industrial organization and the equipment ofindustry. Mr. Mikoyan himself, as he said in the interview,spent two months here, largely for that purpose.

This relationship was not one of charity, but good business,well paid for and profitable to American companies and

51


modity to the Soviet Union ago'

Ouring the height of the tioned

on either side of this hist erican

cooperation with the soviet union in industrial and com-

mercial matters. But in recent years the theme has reap-

The American ExamPle

ic reference to thepreviously quoted:Soviet sYstem and

combine those two !

American reactionaries respond frigidly to this apprecia-

*see, for example. his article. some Economic Problems in Ind'us-

t ;i.-ilngii'n"i"s-, V"i,1ii Ekonontiki -No'

1' 1960 (English transla-

tii"" n Fr:outemi'of Econotnics, New York, May, 1960)'

AMERTcAN-sovrET RELATToNS 53

tion. On the one hand, they allege that Soviet economicadvances are due mainly to borrowing American know-how;and they comfort themselves with the delusion that oncethe Russians have caught up to us technically, they willhave nobody to imitate and will stop advancing.

On the other hand, they oppose any economic-technicaldealings with the Soviet Union in order to keep our "secrets"from them and to prevent them from catching up with us.

This whole position is a net of contradictions and delu-sions. While Americans have excelled in industrial applica-tions of science, they have no monopoly of this. Moreimportant, basic science is not the property of anynation, but is truly international. Indeed, Americans-con-sidering only those who did their main basic scientiflc workin this country as distinct from those who emigrated here atalater stage-have not been especially outstanding in basicscience.

Old Russia, with all its economic backwardness, didquite well in basic science. One need only mention suchworld-known flgures as Lobachevsky, the mathematician;Mendeleyev, the chemist; Lomonosov, the soil scientist;Michurin, the plant breeder; Setchenov and Pavlov, thephysiologists, and Tsiolkovsky, the pioneer theorist ofrocket and space travel.

Much of the work of Russian scientists in tsarist timeswas without practical use, because that social systemfailed to provide a material base for it. But their contributionbecame the foundation for scientific-technical advance inSoviet Russia where material support for this work has beenmore lavish and better organized than in any previoussociety.

Many of the scientists of tsarist times remained towork-and worked more successfully-in Soviet times. TheSoviet sputnik was a direct descendant of Tsiolkovsky. Thelast sixteen years of his life, from 1919 to 1935, were themost fruitful, in terms of published works, practical sup-port and follow-through. His students built further on his

54 How rHE sovIET ECoNoMy woR,KS

work and produced the flrst Soviet rockets in the 1930s, astheir students are designing the remarkable Soviet spaceships of today.

The outstanding bridge engineer, Evgeny Paton, remainedto build bridges in a Russia shattered by years of Civil War.He then organized, with his students, the remarkable PatonWelding Institute in Kiev. This one group of Soviet scientiflc-engineering personnel contributed as much to the advancein industrial methods in that country as dozens of engineersfrom capitalist countries temporarily in the Soviet Unionon contract.

Even during the 1930s, Western engineering and tech-nical aid was secondary to the Soviet Union's own interaalcontribution. Today, of course, this is more so than ever.Already, Soviet technology in a number of areas surpassesanything developed in the United States. As is very wellknown here, they are graduating three times as manyscientiflc-engineering personnel as we are; and these, in thelast analysis, are the most vital guarantors of scientific-technical progress.

The main thing Russians can learn from America now-an approach to certain engineering-technical problems-theycan get regardless of any embargoes. The know-how ofadaptation can be acquired by hard-working and studiousengineers and scientists without outside blueprints. By thesale to them of specific packets of blueprints and know-how,we may provide them with shortcuts. But that is all. Andif we refuse, they can usually buy corresponding packetselsewhere, in other socialist countries or in WesternEuropean countries.

The idea of a Soviet slow-down as they acquire our tech-nology in the remaining areas where they still lack it isreally ludicrous. With more and more o their presentadvande 'breaking totally nev/ ground, and their forcesfor doing that mounting so rapidly, the importance of theAmerican example is bound to diminish in the future.

The reactionary attitude is not only foolish, it is harmful

AMERTcAN-sovrET RELATToNS 55

to the United States. The Soviet Union disagrees with theprevalent social system in the United States and with itsforeign policy. But it did not confuse this with thoseaspects of American life it regarded as progressive andof universal value. It gained from the American exampledespite the hostility of American reactionaries.

But the latter by endeavoring to prevent the all-arounddevelopment of friendly relations and by spreading onlynegative information about the Soviet Union, keep our owncountry from getting any benefits from the examples ofSoviet progress.

It is linally coming to be recognized in some official circlesthat we have much to learn from Soviet accomplishments.This has been most pronounced in education and variousother cultural fields and in sports. In a quiet way, it is alsotrue in important industrial circles. They may en-courage belittling propaganda about Soviet industrial tech-niques. But last summer 150 Americans, the largest non-Soviet delegation, attended the first international conferenceon automation and cybernetics which was held in Moscow.American engineers, representatives of the largest U.S.corporations, were lavish in praise of the high level of Sovietachievements they were permitted to see, and of the scientificpapers that were read.

One of the big advantages of the socialist system in itscompetition with capitalism is its willingness to learn fromthe progressive achievements of man under capitalism, andto gain from businessJike relations with capitalists.

American capitalists, especially, have a history of refusingto learn or gain from dealings with socialist countries,because of their political prejudice.

East-West Trade

The United States economy is harmed, particularly, bythe negative attitude of those controlling foreign trade pol-icy. East-West trade is mounting at a spectacular rate. Anumber of capitalist countries have added measurably to

56 How rHE sovrET ECoNoMy woRrs

their temporary economic stability and growth by partici-pating in this trade boom. Before World War II the UnitedStates was a leader in trade with the USSR, .when thattrade was still small. Now, when it is big, American busi-ness as a whole is excluded from it by virtue of the influenceon government of a small number of powerful reactionaries.

In no field does Mr. Mikoyan have more special authoritythan that of foreign trade. I looked forward to his opinionson Soviet-American trade with special interest. Here is howI put the question to him:

Q. One or two years ago a Soviet leader said that ifthe capitalists wished, they could keep their factoriesrunning continually for a long time on orders from thesocialist countries. Do you still regard this as a validappraisal concerning American industrialists tradingwith the Soviet Union ? Please state fully your opinionon this question, taking into account the possibilitythat the more favorable trend in international relationswhich prevailed in 1959 may be resumed.A. Not at once or fully. It is easy to break trad_e rela-tions, but it takes a long time to develop them. Ameri-can restrictions do not hamper us essentially, but theydo help other capitalist countries. One can cite figures ofSoviet trade with England, France and Japan, showinga rise in the last five years or so.

This point was brought home to me sharply ten dayslater when I visited the First of May oil equipment plantin Ploesti, Rumania. This huge, ultra-modern, wholly diver-sified industrial combine is probably the most advanced ofits type in Europe, outside the Soviet Union. And in itsshops I saw row after row of foreign-made machine tools,including newly-installed programmed automatic units fromEngland, machines from West Germany, Switzerland andother capitalist countries.

But at the moment I was most impressed by Mikoyan'srather pessimistic view of the shorLterm future of U.S.-

AMERICAN-sovrET RELATToNS 57

Soviet trade, which contrasted with what I had been ac-customed to read in previous years' interviews of SovietIeaders with Americans. This prompted me to interrupt withthe following question:

Q. In my past writings on East-West trade, publishedin the United States, I have been most optimisticregarding prospects for trade. I want your opinion as towhether I am in danger of going overboard on thesubject.

The answer is especially interesting because of its con-centration on the views of Clarence Dillon, then Under-secretary of State, and now Secretary of the Treasury.Mikol'311 s114 t

A. The biggest enemies of East-West trade are Rocke-feller and Dillon. I have met Dillon, but he does not seehow illogical his position is. Dillon says Russia exportsonly raw materials, so what kind of developed countryis it ? As if a developed country cannot apply machineryto extraction.

What Mr. Mikoyan meant was that an advanced coun-try could very well produce raw materials for export,using highly efficient methods of production. Indeed, theUnited States does that very thing. Mikoyan did not botherto make the general point to me that the Soviet Union, infact, exports plenty of finished goods as well as raw mater-ials. Presumably, he assumed I was aware of it. Sovietstatistics show 63.2% of its exports in 1959 in the categoryof finished goods.* However, he referred to Soviet exportsof manufactures in his next comment, about the abortedarrangement for the sale of Soviet automobiles in theUnited States:

A. And at the same time that Dillon made this point,the Department of Commerce and the State Department

*This is a broder category than the group of "finishcd m,anufac-tures" in American foreign trade statistics, so they cannot ,be com-pared directly.

IIOW THE SOVIET ECONOMY WOBKS

reacted bitterly to the deal for the import of 10,000Moskvich cars, and succeeded. in torpedoing the deal.This was done despite that fact that the 10,000 carswere to sell at the same price as the German cars,* andwould have been a drop in the bucket of the Americancar market.

When we ask Dillon why he does.not buy raw mater_ials from us, he s1s1ys1s-,,w.e can get them fromfriendly countries." W'ell, if you do not buy, you cannotsell.

Finally, banks could advance credits to aid Americanexporters. But, in the eyes of Dillon, that would be acredit to Communism. At the same time, opponents say,hypocritically, that they are in favor of trade with theUSSR, but the USSR wants to trade on its own terms.That is not so. We trade with England, Italy, etc., onthe same trade terms as are general among capitalistcountries.

They have created a set of hypocritical argumentswrapped up in a vicious circle.

Previously, I had the impression that trading oppor-tunities remained open for all in the socialist markets, Now,for the first time, Mikoyan suggested that relations werebecoming so systematized with rival capitalist trading part-ners that the United States had to change its policies fairlysoon or risk being left out in the cold:

A. The longer U.S.-Soviet trade will be postponed, theIess will be the possibilities, because the USSR isdeveloping trade with West Germany, .Iapan, England,etc. The real business people of those countries maybe quite satisfled with American trade policies.

However, Mikoyan ended his discussion on a hopeful note:

A. But I am not a pessimist. One cannot be guided for

*In 1959 West Germany sold 223,858 cars and trucks in the U.S.market.

AMERICAN-SoVIET RELATIoNS 59

a long time in politics by stupidity. This stupidity isdetermined by class blindness, but even for that one

can develop spectacles.

It will be interesting to observe whether the KennedyAdministration automatically continues the Rockefeller-Dillon no-trade policy. Initially, the new regime took ac-tions to tighten trade barriers. It turned down a largerproportion of license requests than its precdecessor. It can-celled a major machine tool contract for which the Eisen-hower administration had granted a license, and the manu-facturer had already delivered blueprints to the USSR andhad completed production on the order. However, with thecross-currents affecting policy today, this kind of foolish-ness could change rapidly and radically.

To the former considerations, one must add another.President Kennedy has most vigorously and repeatedlyasserted his intention to defend the value of the dollar, andstressed the role of raising exports to improve the balance ofpayments. Realistically, the only large trading area in whichthe United States has prospects for a major and lastingrise in exports is the socialist group of countries.

The American Economy

Soviet leaders, as those in capitalist countries, are wellaware of the significance of American economic fluctuationsfor the course of world affairs. As I talked with Mr. Miko-yan in the Kremlin, the U.S. economy was starting on thatslide which subsequently extended into the fourth post-warrecession. He asked me a pertinent question about it:

Mikoyan: Recently the rate of steel output in the UnitedStates fell to 48% of capacity. That is a crisis level, butother indicators do not reflect crisis conditions. It is adifficult situation to appraise. How do you interpret it?Perlo: I have been away from home for three monthsand have seen no U.S. economic statistics, so I do not

60 IIow THE sovIET ECoNoMY woR,KS

know the answer. I can give you only a very roughopinion, or hunch.

I would not be surprised if the 4g% applied to theu,eek including the 4th of July holiday, and if steel pro_riuction has not been somewhat higher before and afterthat weeli. In general, there is a great overcapacity insteel, with capacity of perhaps 14b million Americanshort tons, and a peak market of not more than g0%of that. The steel strike last year caused violent fluctua-tions in output-flrst 100% of capacity while preparingfor the strike, then falling behind in output whilethe strike lasted, and then 100%again for some monthsafter the strike. The result was, that within a fewmonths, not only were inventories restored to normalbut they reached excessive levels. A sharp correctionwas taking place. In September or October, when thenew models of autos will be made, and the summer lullwill be over, the steel rate will probably climb back to70-80% of capacity.

This estimate proved wrong. The steel rate climbed verylittle, and never even reached,60/o of capacity during thlsecond half of 1960. Apparently Mr. Mikoyan,s economisthad already suggested to him a major reason for this, judg_ing from his next question:

Mikoyan: Perhaps the displacement of steel by substi_tutes has had a major effect ?

Perlo: I doubt whether that was the decisive factor insuch a short-run period.

(On returning home, stimulated by Mr. Mikoyan,s raisingthis question, I studied it qualitatively and statistically.I found clearcut evidence that in the past four years sub-stitutes and uses of steel in more econornical forms had cutsomething like 15 million tons from the annual market, amajor factor indeed.)

Continuing the conversation, I made some commentson the American economic situation:

AMERICAN-SOVIET RELATIONS 61

Perlo: When I studied the U.S. economic situation earlyin 1960, I concluded that a crisis was unlikely this year.Strong points-the new compact autos, the Europeanboom creating a fresh export market for U.S. goods

and the readiness of the administration to give theeconomy an election-year shot in the arm, seemed tobalance the weak points-the tapering or levelling offof the capital investment boom and the declining trendin housing. It seemed as if the crisis would not come

before 1961, when most American economists expectedtrouble.

I do not know of anything calling for amendment ofthat assessment. But one basis was the easing tendencyin international relations. Since I studied the situation,international affairs have taken a sharp turn for theworse. That may have had an effect on the Americaneconomic outlook.

Mr. Mikoyan indicated that he doubted whether thepolitical turn had had any economic effect. Whether or notit played any part, the economic situation did turn down-ward sooner than most economists, including myself, ex-pected. Shortly before my interview, a delegation of Amer-ican economists under the auspices of the Committee forEconornic Development and the State Department hadinterviewed him. They had spent a month traveling inten-sively in the Soviet Union, viewing factories and farms, and

asking the most intimate questions about the Soviet econ-

omy. Mr. Mikoyan thought he would ask them a question

or two about the United States, as he did me, with the

following result:

Nlikoyan: I asked the question about the 48% steel

rate of the delegation of economists from the Com-

mittee for Economic Development, and they refused togive any opinion on the ground that it was an internalaff.afu of the United States !

62 How THE sovIET ECoNoMY woBKS

Apparently, among: economists as well as politicians,prejudice gives rise to incredible foolishness and. rudenessas well as major errors in policy.

The Soviet example

This group of economists, in the published account oftheir trip to the USSR, did not indicate that they thinkAmerica has anything to learn in its economic or socialpractices from that country. But perhaps other Americaneconomists will view the matter otherwise.

Those seeking ways to cope with the more frequentrecessions, stagnation tendencies, and rising unemploymenttrend might give serious thought to the possibility of findinga non-military, non-inflationary stimulus through developingmaximum economic relations with the socialist world. Ifthey take Mr. Mikoyan's comments seriously, they mightwell see the need to move quickly in this fleld, before toomany doors are closed.

American economists, and above all American labor anclits organizations, seeking ways to solve the pressing socialproblems of workers in a country of militarized, monopolizedbig business, might well seriously study the social- politicalaccomplishments of the Soviet Union. In the area of wel-fare legislation the USSR is far ahead of us.

In the general political position and role of labor, itis an entire social system ahead of us. The difference is thatbetween a social system run by labor and one run by capital-ists, between industry publicly owned by the entire people,and industry privately owned by a few wealthy families.Finally, there is the difference between an economy steadilyand rapidly growing through the planned balanced gro\lrthof production, consumption and all other economic factors,and one lurching under the blind laws of the market, snarledin the net of contradictions between modern, integratedtechniques of production and archaic private control overand appropriation of the proceeds of that production.

As I was leaving Mr. Mikoyan's office, and we shook hands,

AMERICAN-SOVIET RELATIONS 63

I said to him: "You did good work for peace on your visitto the United States," referring to his trip the previous year.

I am convinced from the man's entire personality, as fromthe policies he recommends, that this is the main object he

pursues in relation to the United States. If this booklet willhelp in some small measure in further promoting the cause

of peace between our two countries, Mr. Mikoyan's timewill have been well spent at the interview.

If.eluted Deonotnie Writingsirr Paperhctelc

l,conq;r rics ol' Peace arrd \\, a r

War Econorrrr. and Crisis

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