Inside Libermcmism

The new economics of Communism, which accepts the profit motive, is spreading through the Soviet bloc more rapidly than blue jeans and Beatle ballads. Dubbed "Libermanism" in the West, after Russian Economist Evsei Liberman (TIME cover, Feb. 12, 1965), it calls for less bureaucratic planning and controls, more freedom for managers to decide what to make and how to sell it, and profit sharing for workers and management. In Russia, 243 enterprises employing 1,000,000 people have been Libermanized. This week Russia's entire tobacco and tea industries will be converted. By year's end one-third of Soviet industry is scheduled to adopt the system, and by 1968 the Russians plan to have all their important industry working for some form of profit.

The New Measure. How does the system work, and how warmly is it being welcomed? A rare inside view comes from Iosif Ioffe, chief economist of a 1,700-worker knitwear factory near Moscow, who wrote a candid article for the Economist of London. Before Jan. 1, says Ioffe, "every phase of activity of the factory was subject to rigid--the most rigid--control." For instance, "directions were given for every three-month period as to the number of workers to be employed in each category, and the total payroll and average wage for each category." Worst of all, "the superior bodies kept revising the plan indicators all year round, once every two weeks on the average. Since, while changing one indicator, they neglected to revise the others, the resulting confusion can only be imagined."

After Jan. 1, however, "we began to work in a new way. The plan continues to be law for us, but it is quite a different kind of plan. Only a few indices are handed down to us by the superior body.* The main index itself--the volume of products sold--is characteristic. Products sold, not just produced, are the basic measure of a factory's efficiency. The demand for disposal of the goods forces the factory to make them of high quality."

Ioffe says, almost in wonderment, "We now produce only what is in demand. Without asking for anybody's permission (with the exception of that of the buyer!), we discontinue obsolete lines of production and start new ones." He added: "We are no longer hedged in by average wages for certain categories of workers and all the rest of it. We are able to vary the workers in each category so as to meet the needs of production--something we were unable to do before."

Productivity Up. Profits now roll in, and they are "perfectly legitimate under socialism." A large part of the profits--Ioffe does not specify how much--remain "at the full disposal of the factory" instead of being siphoned off for the government budget. These are used for bonuses (amounting to an average two weeks' extra pay a year), workers' housing and vacation homes, and for reinvestment. "Formerly, in solving questions of expansion and modernization, we were dependent on the central budget. At present we are largely independent, since we have our own money to spend on these purposes." Since January, sales at the factory have risen 1.4%, profits 6.9%, wages 8.9%, and productivity 11.1%. Says Ioffe: "We are building a new shop and renewing our equipment. Especially gratifying is the fact that the quality of our products has been high and sales quite satisfactory: we have had no overstocking or reclamations."

For all that, the Soviets are treading more carefully than some other Eastern Europeans, notably the Hungarians and Czechs. Says Ioffe: "We do not allow ourselves to run wild with our plans." Soviet managers apparently still have little freedom to determine prices--Ioffe does not mention this question. Most important, there is not a breath of a suggestion that business will ever be privately owned.

*An organ with a splendidly bureaucratic name: the Moscow Knitted Goods Department of the Light Industry Ministry of the Russian Federation.

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