The decentralization program indicates a fundamental shake-up of the Soviet industrial dictatorship which it had taken Stalin many years to consolidate. Since the policy involves a shift of the controlling power over industrial enterprises all over the country and threatens to jeopardize the jobs of the industrial bureaucrats who have formed one of the most powerful classes in the country, it may give rise to a new political struggle with in the Red Empire. As has been made known the program is designed to eliminate bureaucratic waste and increase industrial productivity in an attempt to catch up with or surpass the western countries in industrial production. The economic decentralization therefore, represents a new campaign in Russia only next in importance to the posthumous liquidation of Stalin initiated last year.
Khrushchev's program is in effect an acknowledgement that the Soviet economy has major defects which call for immediate measures of rectification in order to prevent it from deteriorating. The present economic apparatus of Soviet Russia is a product of the ruthless drive of Joseph Stalin for absolute power during his 30-year rule. The system has been formed under the guiding principle of "unified leadership of political and economic affairs." As Stalin more than once stressed: "It is impossible to separate political and economic policies. To speed up economic build-up at the risk of weakening political control would be a blunder." It is obvious that Stalin regarded the economic apparatus as part of his political weapon to consolidate his totalitarian rule. In staffing the agencies responsible for economic administration, he kept a sharp eye on the political affiliation and personal allegiance of the candidates. Only those who could show passive obedience and subservience to him were chosen to fill high positions in the government.
Fearing that any person or a small group of persons who succeeded in assuming the rein of industrial administration might rise to become his political rival, Stalin thoughtfully divided the authority of industrial management, vesting the power of the administrative work of one industry in one ministry. Prior to Stalin's death, there were altogether twenty ministries responsible for the management of aviation industry production, auto and tractor manufacturing, arms and ammunition production, machinery and scientific apparatus manufacturing, metallurgical industry, petroleum refining, telecommunication equipment and materials production, production of agricultural machines and tools, trucks and motorcar chassis manufacturing, production of building machines and materials, plane constructing, shipbuilding, production of transportation machines, coal mining, chemical industry and production of electric machines and materials, etc. In addition, four other ministries jointly belonging to the Central Government and Soviet republics took charge of the management of the building materials manufacturing, fishery products, food processing and light industries. Under the Ministries of Sanitation, Communications, Agriculture and Food, there were also departments responsible for the management of medical materials manufacturing, cotton textile industry, etc. All the ministries have been in existence up to now.
In compliance with the Communist party line or taking orders directly from Stalin, the ministries formulated plans of production and made decisions on industrial administration. One of their functions was, however, to pass orders from the Kremlin down to their department heads and branch chiefs and to see to it that the orders were properly carried out. Local authorities have no power to make any decisions for themselves on industrial production. One another outstanding feature of the Soviet industrial administration was the large number of supervising and auditing organs under the ministries. Staffed with party cadres and enthusiastic Stalinists they all assumed the responsibility of supervising industrial production. Workers were goaded by them to attain production targets. With such a vertical organization of industrial management, Stalin succeeded in ruling over the workers all over the country.
Besides helping consolidate the Soviet dictatorship, the despotic control over industrial production also had some special economic ends to achieve. From the very beginning, the Stalinist economic system assumed its essential form and character of industrialization with emphasis on heavy industries. All natural resources and manpower of the country were channeled into achieving military preparedness for Communist expansion. The constant characteristic of economic policy was to give top priority to a small number of products closely connected with national defense. The ruthless enforcement of such rigidly defined priorities in the pursuit of military power required unquestioned authority at the top to resolve all conflicts involving these priorities and to suppress popular pressure which might interfere with the dictatorial direction of economic policy. The Stalinist system, with all its wastes and inefficiencies, has scored some successes, but only at heavy costs. The sacrifices involved quite probably would not have been borne by the Soviet people had they had the freedom to voice opposition. When Stalin was living the economic ills resulting from this system were hidden from sight because of his overwhelming political prestige. As soon as the coercive apparatus became ineffective following his death, especially after his degrading, the defects made their appearance gradually.
The highly centralized industrial management has brought great wastage of both manpower and natural resources. All industrial ministries and their subordinate agencies are overstaffed. It is estimated that over 190,000 men and women are now hired at the various levels of industrial management as watchdogs supervising industrial production in addition to the thousands who do the administrative work and planning. These industrial bureaucrats now constitute a powerful class in the Soviet Union. They are well paid and allowed to enjoy certain privileges.
Not only the bureaucrats themselves do no producing, but also the mismanagement resulting from their incapability tends to reduce the productive efficiency of the workers. Being ruthlessly goaded by the bureaucratic supervisors, workers refused to take the initiative in boosting production. What they care is only to attain the production targets set for them. They are indifferent to all wastes and inefficiencies. Under such circumstances, high cost of production and poor quality of products are the inevitable results of Soviet production.
Though Soviet Russia is hailed by the Communists as the "paradise of laborers", its workers have a much lower pay than those of the Western countries. A worker of the manufacturing industry in the United States now earns, on the average, $80.13 per week. The per-week pay of a coal miner is now $94.83. A petroleum refining worker earns $90.23 per week and one who works in the building industry gets $90.47 per week. Workers in the Soviet Union earn less than one half that much. The inadequate pay for workers is chiefly responsible for the inefficiency of industrial production in Russia.
Under Stalin's absolute rule, Soviet technicians were sealed off from the outside world and deprived of chances to absorb new technological ideas and experiences. Stalin was consecrated as not only a political leader but also a genius of the arts and sciences. The Soviet people were frequently told that Russia invented everything. Now the technical backwardness resulting from the isolation has become the most notorious weakness of the Soviet industrial structure.
The misuse of natural resources constitutes even greater wastes in Soviet industrial production. As all production plans are formulated by the bureaucrats in Moscow, local needs are easily neglected. While the largest part of raw materials and capital investment are used for the development of heavy industry, the production of consumer goods and agriculture is bound to suffer. The imbalanced development of the Soviet economy has given rise to popular dissatisfaction and discontent among the Soviet people tending to touch off from time to time political crisis in the Red Empire.
In addition to its insensitiveness to local needs, the system often involves duplication of efforts, because each of the centralized economic ministries works as an autonomous unit. Thus one ministry recently built an iron casting plant in the Leningrad district with a 5,000-ton capacity when another ministry has already erected a casting plant that produces a surplus of 8,000 tons each month.
The evil consequences of the centralized industrial management are many: Despite the Soviet claim that industrial and agricultural productions have been increasing at a greater rate in Russia than in the Western European countries recently, its outputs of major products were lagging far behind both in totals and on a per capita basis. Statistics show that the Soviet Union produced only about 48,000,000 metric tons of steel last year while the United States put out over 100,000,000 metric tons and the Western European countries as a whole produced about 77,000,000 metric tons. Electricity production in Russia last year totaled 200,000,000,000 KWH compared with 700,000,000,000 KWH produced by the United States. Russia's production of coal last year was less than two thirds of that of the United States while she has a greater population and the cold weather in Russia calls for more fuel for the people to keep their houses warm. Yet the stresses and strains created by over-expansion forced the Soviet leaders to reduce the tempo of industrial growth planned for this year.
Shortage of raw materials in Soviet Russia is the most pressing problem to be solved. The lopsided emphasis on the fanatical drive for increased production of arms and ammunition, has resulted in a deterioration of agricultural production. This trend of imbalance has become more conspicuous since the end of World War II. In 1948, for instance, capital goods accounted for 60% of the total production of Soviet Russia. Last year, the percentage was 71% for capital goods and 29% for consumer goods and industrial raw materials. The disparity would be made still more striking if the rapid rate of economic expansion is taken into consideration. Taking 1948 as 100, the general index of Soviet production reached 300 last year. The fast increasing needs on the one hand, and relatively short supply on the other, made the shortage of raw materials all the more acute.
The scarcity of raw materials is also being aggravated by the deteriorating economic situation in the Soviet satellites. In the postwar years, Soviet Russia adopted a policy of exploitation towards its satellite countries in Eastern Europe. It was estimated that it had extracted from them $50,000,000,000 in money and goods since the war. Among other things, the Eastern European countries had served as an important source of industrial raw materials for the Soviet Union. Being basically agricultural countries except Czechoslovakia, which had been highly industrialized before World War II, they are also rich in certain mineral resources. Poland, for instance, is famous for its coal. Hungary has large quantities of bauxite for export. East Germany has been a chief supplier of lignite. Russia's excessive exploitation has made those countries economically exhausted. Smarting under the cruelty of the Kremlin policy, the poverty-stricken peoples in the satellites have more than once shown their restiveness. The anti-Communist uprisings in Poland and Hungary last fall were the latest indication of their dissatisfaction. As a soothing dose to calm down the sentiments of the enraged people, the Soviet Union now has to open its purse. It is estimated that at least $2,500,000,000 is being paid over out of Russia's own treasury to the satellites in money and goods each year, including large quantities of raw materials supplied out of Russia's meager stock in order to keep the machines in the factories of the satellites going.
A still more serious problem with which the Soviet Union is now faced is labor shortage. An official report submitted to the Communist Party Congress last year showed that during World War II, Russia lost 30,000,000 to 40,000,000 men on the battlefield and as a result of the low wartime birthrate. It is estimated that the annual college and high school enrollment in the coming few years, of whom a great majority were born during the war, would be 2,000,000 persons less than the pre-war average. The latest population statistics also show that the wartime drop in birthrate will continue to reduce the rank of new labor over the next few years. The concessions made by the Soviet collective leadership since Stalin's death in respect of shorten hours and greater freedom to change employment tend to add to the acuteness of labor shortage as enterprises bid against one another for workers.
Labor shortage is also a result of inefficiency in production. Technical backwardness and equipment obsolescence contribute most to the difficulty. Whereas some 6,500,000 farmers in the United States produced over 130,000,000 metric tons of grain last year, it took more than 46,000,000 persons in Soviet rural areas to put out some 125,000,000 metric tons. For many years the process of farm mechanization followed political rather than economically sound principles. To control productive means wan one of the most important ways by which the Kremlin tightened its control over the people. Large tractors and combines were concentrated in the Machine Tractor Stations, the use of which was placed under close supervision of the industrial bureaucrats, and essential auxiliary machines and tools remained quite primitive, resulting in conspicuous waste of labor. In addition, collective farms were handicapped in their efforts to reduce labor cost by the lack of incentive on the part of the rural workers.
Until very recently, Soviet economists and industrial administrators denied that obsolescence of capital equipment existed in the Soviet Union and claimed that such a phenomenon could only occur in capitalist countries and was a form of waste peculiar to capitalism. Now it is acknowledged that the use of obsolete machinery may be unprofitable even in socialist economy. That the wastage of labor was not felt before was only because there was an abundant supply of labor.
Despite the weaknesses and defects in the economic structure, the Soviet leadership are trying to do more things than the resources of the country permit. Russia is now engaged in a major production race with the West, particularly the United States, in an attempt to catch up with, or surpass as soon as possible, the free world in industrial output. In particular, it is seeking to maintain parity with or achieve superiority over the United States in the production and development of such extremely expensive weapons as atomic and hydrogen bombs, long-range jet bombers and intercontinental ballistic missiles. Last year, Soviet production reached a record high in both industry and agriculture. But because of the booming production, Soviet resources have been made less adequate than ever before. The production race with the West, besides requiring very large-scale investment in factories, mines, power plants, etc., calls for much more raw materials and greater labor force.
Internally, the Soviet leaders are now under great pressure from their people to raise the standard of living. This requires a rapid increase in consumer goods, housing facilities, better quality of clothing materials, etc., a fact which has resulted in a conspicuous inflationary trend of the Soviet economy. The recent repudiation of state bonds and the dramatic drop in the value of the ruble from the exchange rate of four to ten rubles to one United States dollar on the international monetary market are striking symptoms.
Facing such difficulties, the Soviet leaders have been busy working out ways and means to salvage their economy. The search for efficiency, on which the economists and administrators in western countries always focus their attention, has now become the major task of Soviet planners. Maximum efficiency and minimum cost are the new ideas of Soviet thinking, not the old notion of achieving specific production targets regardless of the cost. The plan of decentralizing industrial management is said to have been designed with this purpose in mind.
By delegating the power of economic administration and planning from the Central Government to local authorities, the Soviet government expected that the reconstruction projects would be made more realistic and adaptable to local environment for the best possible use of natural resources. The removal of thousands of industrial bureaucrats, besides reducing expenditures so as to lower the cost of production, would have a psycho logical effect on the workers. It is a measure which shows a certain degree of magnanimity of the management and constitutes a concession to the labor class.
While industrial decentralization gives no assurance of improvement to the Soviet economic situation, the measure will certainly have a profound effect on Soviet politics. In initiating the policy, Khrushchev is trying to do exactly what Lenin did during the early 1930's and using the methods Stalin employed in the power struggle with other Soviet leaders after Lenin's death. In the face of widespread strikes and peasant revolts in protest against Bolshevik tyranny, Lenin sounded a retreat in 1921 "to satisfy the demands of the peasants." They were allowed to bring their produce to market; grain seizure by the Red regime was stopped; and private production and trade were permitted. Thus the New Economic Policy of Lenin headed off a dangerous uprising of the Russian people during the early period of the Communist rule.
Stalin defeated Trotsky and ended the post-Lenin collective leadership by winning over the "moderates" such as premier Rykov and trade union head Tomsky and allowing workers and peasants to put their products on NEP market in exchange for consumer goods they needed. He accused Trotsky of radicalism, especially of "mad schemes" of farm collectivization and forced industrialization. In the face of such enticing gestures many people jumped to the wrong conclusion that Stalin opposed the policy of terror and that his rule would mean a real and permanent liberalization.
Khrushchev's industrial decentralization is apparently another device to attract the support of the people and consolidate his position in the industrial field. Being a son of a farmer family and holding sway over the whole Communist Party, Khrushchev is popular enough in the rural community and other fields. Industry is the only area of the Soviet organization in which his position is the weakest. The revamping of industrial management now offers him a golden opportunity to place some of his men in the key positions of the industrial structure and thus make himself politically unshakable in the Soviet Empire. The policy, if it scores a success, would help fast to convert the present collective leadership into a dictatorship with Khrushchev.
Khrushchev has admitted that the decentralization policy has military and strategic advantages in case of war. The lesson learned during World War II when industries all over Russia were paralyzed as soon as Moscow, the central nerve of industrial production, was put under the threat of German occupation must have prompted the decision. With the rapid economic and military growth of the Western European countries on the one hand, and political unrest in the Soviet satellites symbolized by the Polish and Hungarian uprisings last year on the other, Russia's defense on the western front is becoming vulnerable. It is distinctly wise on the part of the Soviet leadership to shift its war potential to the Far East. There is a vast tract of land along the Sino-Russian border where the rich resources in the Amur bastion and Red China can be made use of for further development of industrial production. It is known that uranium and some 50 other radioactive minerals have been discovered in the area and that the uranium and other fissionable metals in Red China are always ready for Russia's use for the production of atomic weapons. Also of importance is that THE abundant manpower on the Chinese mainland can be utilized to make up the labor shortage of Russia.
Recently, the Soviet Union promulgated a series of regulations to encourage farmers to move from the western part of Russia to the Far Eastern area and 800,000 to 1,000,000 demobilized soldiers are being sent thereto. There is strong evidence that the Soviet Union is transferring its economic center under the camouflage of industrial decentralization. While it is still too early to calculate the economic value of the policy, its political and strategic implications are obvious.