Gosplan - Method of Material Balances

Method of Material Balances

The introduction of the first five-year plan in 1928 led to a re-examination of the roles of Gosplan and VSNKh, the supreme state organization for management of the economy at this time. This re-examination of roles was required because VSNKh itself also had responsibility for planning through the Industrial Planning Commission (Promplan). Re-examination of roles was also required as the introduction of the first five-year plan meant that Gosplan's role was no longer one of prognosis and drafting of 'control figures' since plans had now become orders to act.

In order to ensure the success of the plan it was necessary to ensure that inputs from one part of the economy matched outputs from another part of the economy. Gosplan achieved this using a methodology called the system of 'material balances'. For a plan period (in detail for one year and in lesser detail for a five-year plan) Gosplan drew up a balance sheet in terms of units of material (i.e. money was not used as part of the accounting process).

The first step in the process was to assess how much steel, cement, wool cloth, etc. would be available for the next year. This calculation was based on the following formula: production minus exports plus imports plus or minus changes in stocks).

The planning system as such was fairly simple. Gosplan calculated the sum of the country's resources and facilities, established priorities for their use, and handed down output targets and supply allocations to the various economic ministries and through them to every branch and enterprise in the entire economy. To be sure, the system had its limitations, including the absence of meaningful price and cost information and the difficulty of extending planning to all the special commodities and enterprises in a modern economy. More serious difficulties stemmed from the attitudes and priorities built into the Stalinist planning system. "From the start," write the Soviet economists Nikolai Shmelev and Vladimir Popov, "the administrative system was distinguished by economic romanticism, profound economic illiteracy, and incredible exaggeration of the real effect that the 'administrative factor' had on economic processes and on the motivations of the public."

— R.V.Daniels

The second step was to identify where there were mismatches between levels of outputs of one material that was used as an input in another part of the economy i.e. where there were differences between supply and demand within the economy. If mismatches between supply and demand were identified then, for the one-year plan, utilization plans for a particular input material could be cut or alternatively effort was made to increase supply. For the five-year plan mismatches between supply and demand could be mitigated by modifying long terms plans to increase productive capacity.

Wages and pensions were leveled upwards, and skilled and manual work began to exceed much mental and professional work in remuneration. The Italian economic historian Rita Di Leo found "a compression of differentials" and a bias for so-called "productive" work (i.e., yielding measurable physical output) over "unproductive" work (services, trade, etc.). "Such a wage policy calls into question the modernization of society, its efficiency, its competitiveness."

— R.V.Daniels

Using this method any changes in the plan to remove mismatches between inputs and outputs would result in hundreds, even thousands, of changes to material balances. This meant that, without the aid of information technology, Gosplan could only deal with the economy in very general terms.

Ideological bias resulted in unrealistic plans that were impossible to execute. Pressure to execute them anyway resulted in widespread falsification of statistics on all levels of reporting. Falsified plan realization feedback further resulted in Gosplan preparing plans even more detached from reality:

The second economy engulfed a significant fraction of the GDP. Not only individuals but state enterprises as well engaged in these practices, often out of necessity, when extra-legal influence or illegal operations appeared to be the only way to fulfill the demands of the plan. Claims of plan fulfillment that were passed up the hierarchy became as impossible to believe as the targets in the next plan.

— R.V.Daniels