Strategies of Adaptation: A Soviet Enterprise Under Perestroika and Privatization
Abstract
In the classic studies of the Soviet enterprise, the failures of central planning are attributed, not to some traditional or non-economic logic, but to the enterprise's rational pursuit of its own interests. Berliner and Granick have shown that rational strategies lead to irrational outcomes. Thus, enterprises bargain for loose plan targets by hiding resources, by not overfulfilling plans and by exaggerated underfulfillment of difficult targets. Enterprise performance is evaluated according to plan indicators which, if followed, lead to wasteful use of resources and the production of goods no one wants -- heavy machinery, thin glass or large nails. So, they conclude, it is impossible to create an incentive system that stimulates the production of what is needed. The more recent literature on enterprises in the reformed economies of Eastern Europe, particularly the Hungarian economy, argues that the same pathologies persist when physical planning gives way to fiscal planning. Kornai (1980, 1986) argues that soft budget constraints inevitably follow from state ownership of the means of production, and therefore enterprises seek to increase their bargaining power with the state by expanding as rapidly as possible. This results in a distribution of investment resources which is unrelated to enterprise efficiency or profitability. In a more elaborate bargaining model, Bauer (1978) shows how enterprises entice government sponsorship of new investment schemes by underestimating the costs of new projects. Once hooked, the government can be subjected to considerable pressure to continue financing the new project even as costs escalate. The government over extends its resources and is forced to abandon half-finished projects.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jun 01, 1991
- Accession Number
- ADA274498
Entities
People
- Kathryn Hendley
- Michael Burawoy
Organizations
- Duke University