From 1928 to 1991 the entire course of the economy was guided by a series of Five-Year Plans. Within about 50 years, the nation evolved from a mainly agrarian society and became one of the world's three top manufacturers of a large number of capital goods, heavy industrial products and weaponry. However, the USSR lagged far behind in the output of light industrial production and consumer durables, mostly because of inability of Gosplan to predict the demand for such products. Since the dissolution of the Soviet Union in 1991, all 15 former Soviet republics have dismantled their Soviet-style economies (see Transition from economic planning in the former Soviet Union).
Planning
Based on a system of state ownership, the Soviet economy was managed through Gosplan (the State Planning Commission), Gosbank (the State Bank) and the Gossnab (State Commission for Materials and Equipment Supply). Beginning in 1928, the economy was directed by a series of five-year plans, with a brief attempt at seven-year planning. For every enterprise, planning ministries (also known as the "fund holders" or fondoderzhateli) defined the mix of economic inputs (e.g., labor and raw materials), a schedule for completion, all wholesale prices and almost all retail prices.
Industry was long concentrated after 1928 on the production of capital goods through metallurgy, machine manufacture, and chemical industry. In Soviet terminology, the capital goods were known as group A goods, or means of production. This emphasis was based on the perceived necessity for a very fast industrialization and modernization of the Soviet Union. After the death of Stalin in 1953, consumer goods (group B goods) received more emphasis. For further details see consumer goods in the Soviet Union.
Most information in the Soviet economy flowed from the top down. There were several mechanisms in place for producers and consumers to provide input and information that would help in the drafting of economic plans (as detailed below), but the political climate was such that few people ever provided negative input or criticism of the plan. Thus, Soviet planners had very little reliable feedback which they could use to determine the success of their plans. This meant that economic planning was often done based on faulty or outdated information, particularly in sectors with large numbers of consumers.
As a result of the above, some goods tended to be underproduced, leading to shortages (defitsit, дефицит), while other goods were overproduced and accumulated in storage. Low-level managers often did not report such problems to their superiors, relying instead on each other for support. Some factories developed a system of barter and either exchanged or shared raw materials and parts without the knowledge of the authorities and outside the parameters of the economic plan.
Heavy industry was always the focus of the Soviet economy, even in its later years. The fact that it received special attention from the planners, combined with the fact that industrial production was relatively easy to plan even without minute feedback, led to significant growth in that sector. The Soviet Union became one of the leading industrial nations of the world. Industrial production was disproportionately high in the Soviet Union compared to Western economies. However, the production of consumer goods was disproportionately low. Economic planners made little effort to determine the wishes of household consumers, resulting in severe shortages of many consumer goods. Whenever these consumer goods would become available on the market, consumers routinely had to stand in long lines (queues) to buy them. A black market developed for goods that were particularly sought after but constantly underproduced (such as cigarettes).
Drafting the five-year plans
Under Stalin's tutelage, a complex system of planning arrangements had developed since the introduction of the first five-year plan in 1928. Until the late-1980s and early-1990s, when economic reforms backed by Soviet leader Mikhail Gorbachev introduced significant changes in the traditional system (see Perestroika), the allocation of resources was directed by a planning apparatus rather than through the interplay of market forces.
Time frame
From the Stalin era through the late 1980s, the five-year plan integrated short-range planning into a longer time frame. It delineated the chief thrust of the country's economic development and specified the way the economy could meet the desired goals of the Communist Party. Although the five-year plan was enacted into law, it contained a series of guidelines rather than a set of direct orders.
Periods covered by the five-year plans coincided with those covered by the gatherings of the CPSU Party Congress. At each CPSU Congress, the party leadership presented the targets for the next five-year plan. Thus, each plan had the approval of the most authoritative body of the country's leading political institution.
Guidelines for the plan
The Central Committee of the CPSU and, more specifically, its Politburo, set basic guidelines for planning. The Politburo determined the general direction of the economy via control figures (preliminary plan targets), major investment projects (capacity creation), and general economic policies. These guidelines were submitted as a report of the Central Committee to the Congress of the CPSU to be approved there.
After the approval at the congress, the list of priorities for the five-year plan was processed by the Council of Ministers, which constituted the government of the USSR. The Council of Ministers was composed of industrial ministers, chairmen of various state committees, and chairmen of agencies with ministerial status. This committee stood at the apex of the vast economic administration, including the state planning apparatus, the industrial ministries, the trusts (the intermediate level between the ministries and the enterprises), and finally, the state enterprises. The Council of Ministers elaborated on Politburo plan targets and sent them to Gosplan, which gathered data on plan fulfillment.
Gosplan
Combining the broad goals laid out by the Council of Ministers with data supplied by lower administrative levels regarding the current state of the economy, Gosplan worked out, through trial and error, a set of preliminary plan targets. Among more than twenty state committees, Gosplan headed the government's planning apparatus and was by far the most important agency in the economic administration. The task of planners was to balance resources and requirements to ensure that the necessary inputs were provided for the planned output. The planning apparatus alone was a vast organizational arrangement consisting of councils, commissions, governmental officials, specialists, etc. charged with executing and monitoring economic policy.
The state planning agency was subdivided into its own industrial departments, such as coal, iron, and machine building. It also had summary departments such as finance, dealing with issues that crossed functional boundaries. With the exception of a brief experiment with regional planning during the Khrushchev era in the 1950s, Soviet planning was done on a sectoral basis rather than on a regional basis. The departments of the state planning agency aided the agency's development of a full set of plan targets along with input requirements, a process involving bargaining between the ministries and their superiors.
Planning ministries
Economic ministries performed key roles in the Soviet organizational structure. When the planning goals had been established by Gosplan, economic ministries drafted plans within their jurisdictions and disseminated planning data to the subordinate enterprises.
The planning data were sent downward through the planning hierarchy for progressively more detailed elaboration. The ministry received its control targets, which were then disaggregated by branches within the ministry, then by lower units, eventually until each enterprise received its own control figures (production targets).
Enterprises
Enterprises were called upon to develop in the final period of state planning in the late-1980s and early-1990s (even though such participation was mostly limited to a rubber-stamping of prepared statements during huge pre-staged meetings).
The enterprises' draft plans were then sent back up through the planning ministries for review. This process entailed intensive bargaining, with all parties seeking the target levels and input figures that best suited their interests.
Redrafting the plan
After this bargaining process, Gosplan received the revised estimates and re-aggregated them as it saw fit. Then, the redrafted plan was sent to the Council of Ministers and the Party's Politburo and Central Committee Secretariat for approval. The Council of Ministers submitted the Plan to the Supreme Soviet and the Central Committee submitted the plan to the Party Congress, both for rubber stamp approval. By this time, the process had been completed and the plan became law.
Approval of the plan
The review, revision, and approval of the five-year plan were followed by another downward flow of information, this time with the amended and final plans containing the specific targets for each sector of the economy. Implementation began at this point, and was largely the responsibility of enterprise managers.
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