The purpose of this report is to present to the reader a broad conceptualization of the planning hierarchy model as it existed in the Soviet-type Command System. First, I will present the fundamental planning hierarchy as described by Richard Carson. Next, I will demonstrate the fundamentals of the soviet-type planning process. This will eventually lead to a discussion of the problems related to moral incentives that firm managers seem to suffer from in this type of economic planning system. Finally, the report will conclude with a few personal evaluations as drawn from the Richard Carson "Command Hierarchy" material.
There is an infinite number of ways that a command planning system can be structured. Still, a general model can be shown to prevail amongst all types of command economies. Every planning hierarchy will be structured with an Economic Planning Council (EPC) at the top, the enterprises at the bottom and a varying amount of intermediate ministries or administrations in between the two (Carson, 235). Each planning economy will structure the specifics of the organization in a manner that best fits its wishes. Even so, I will present some descriptive detail as to how the general planning model will be based.
The EPC is at the top of the planning hierarchy. Very often, this EPC is composed or at least functions under the direct authority of the Communist party. Therefore, it is here in the EPC where the economic targets are outlined for the general economy. Yet, for these targets to be determined, the EPC must rely on a statistical administration to present to it the correct economic figures. One must note that this does not mean that the statistical administration has more authority than the EPC because it has the ability to influence the numbers. In fact, as presented by Carson in the general Soviet-type planning hierarchy, the statistical association may be at most on equal footing with the EPC; but its power may vary considerably (Carson, 233). In the case of the former Soviet Union, the 'central statistical administration' was under the strong guidance of the Council of Ministers (EPC) of the USSR (Carson 236).
Another division of the hierarchy which Carson does not place in a specific degree of importance, in his general hierarchical planning model, is the Central banking and financial system. According to Carson, this department can either be structured as an independent branch to the planning hierarchy, or as a subcomponent of the planning hierarchy, as in the case of the former Soviet Union's central Bank, Gosbank (Carson, 233-234).
The next structure below the EPC and the two varying branches (Statistical Administration and Central Bank), consists of the various ministries. These are the intermediate planning authorities. Even further below them, could be another division of these ministries as in the case of the Soviet "Chief Administrations" (Zimbalist & Sherman, pg. 209). The point is that each planning hierarchy (each communist party in each country) determines the structure of the intermediate authorities. However, all will resemble closely to the Soviet-type planning type, according to Carson.
Finally, below all the administrative planning structure lie all the individual enterprises. These units usually have very little influence on the targets set by the EPC and ministries for them. Yet, Carson brings up an interesting point in stating that a wise EPC will allow enterprises to voice their opinions up the hierarchy in hopes of influencing planned policies to their favor (Carson, 235). Still, it is highly unlikely that in the mess of all that hierarchical centralization that the planning administration could have been influenced by proposed changes in targets for just one enterprise.
Having described the structure of the planning hierarchy in Soviet-type systems, it seems appropriate to move to a general discussion on planning procedure in Command type economies. The EPC determines the broad targets and policies of the planned economy. It then distributes those plans to the intermediate planning authorities who fill in the specifics of those target plans (Carson, 245). Depending on how the intermediate structure is set up, can make a difference. For example, if power is given to the ministries, (assuming that they are the intermediate planners), they could then bargain for changes in targets if the specifics can not be made compatible in the economy to the original targets of the EPC. Usually, the influence that they posses is quite minimal because the ministries are just implementers of the higher orders' wishes.
Carson suggests that one think of short 1 year term plans in order to formulate an idea of how the planning functions. During a given year, target plans are sent down the planning hierarchy for the following term. Then, throughout the year, counter-proposals are sent back up the hierarchy suggesting changes. For example, the enterprises ask for certain targets more beneficial to themselves. Also, the intermediate planners will often ask for long range targets to be changed so that specifics of the plan be better coordinated. Yet, as one can imagine, it is quite unlikely that the EPC will change its targets that much because of its dominant position in the hierarchical order.
Another constraint to target changes is that it takes a lot of time for information to travel through this planning hierarchy. As Carson suggests, this vertical order presents a nightmare of potential information that could travel through it. That may be why managers of firms were usually coerced with material rewards in order to just follow the targets presented by the EPC, regardless of what inefficiencies the plans presented to the managers and their enterprises. As a result, industry A would meet industry B's requirements as set by the planners and so on through the chain.
This leads to the problem of moral incentives which Richard Carson spends a few pages explaining. Basically, the argument stems around the fact that a material reward system causes an inefficiency because it persuades managers not to weigh the efficient running of the enterprise with as much importance. If the managers just fulfilled the planners' targets, then they would be rewarded. If they instead questioned policies, there would be no rewards. One can very easily imagine the inefficient problems that would arise under this system; thus appears the problem of moral incentives (Carson, 272). Often, even intermediate planners could be coerced into following the EPC's targets through various threatening policies. In other words, ministers could also be threatened for not following direct EPC targets. Thus if inefficiencies did exist in the plans, which the EPC was not aware of, they would simply continue to grow in this materially rewarded system.
Also, dissatisfaction would continue to grow because of this overcentralization problem. One can thus determine that the way in which the Soviet-type planned economy functioned was key in bringing about the demise in the command system, like in the former Czechoslovakia.