Excerpt from
(Yale University Press, 1964)
By Abram Bergson







Value Theory        
… the labor theory has been influential …. As a result, economic efficiency has been impaired in diverse ways. By far the most outstanding is that where the choice of technology is in question, … an interest-like criterion once considered as dubious in this light has recently received quasi official sanction. Yet Soviet project appraisal continues to have its limitations, and for these the labor theory probably is partly responsible. Under Soviet conditions, any resultant misuse of capital has been particularly costly because of the relative scarcity of this factor.

Working arrangements for non labor primary factors, other than capital, particularly mineral resources and farm land, have as yet been little explored. But the labor theory should have had an important adverse effect here as well. More generally, at least until recently, the labor theory has been construed not as it might be in the light of contemporary Western analysis but much as it was long ago by Marx. Most importantly, it has been construed without the benefit of the fundamental notion of marginal value Almost inevitably, then, the very concept of an economic optimum that is integral to economic rationality has been understood only imperfectly. One wonders, therefore, whether in conse­quence decision making has not been adversely affected in some measure almost everywhere…

Where there has been a departure from the labor theory, the alternative, at least implicitly, has sometimes been con­temporary Western theory, but not always, for the alterna­tive to the labor theory has often been no theory. And this too must have been a source of waste, for given the aversion to principle, arbitrariness was unavoidable….

Administrative Burden on Superior Agencies.  
…superior agencies at all levels have often found themselves without the information needed for adequate and timely appraisal of alternatives or if such information  is at their  disposal, without the capacity to process and digest it sufficiently for such appraisal. Consequently, decisions again and again have had to be arbitrary  and resources again and again to be misused. This has been so not only when decisions called for positive action, but also when either purposefully or by default there has only been inaction….

 Recall, for example, the difficulty, because of the sheer complexity of the task, in coordinating plan targets to assure that the projected mix of products is desired one; the need of superior agencies to negotiate with inferior ones about targets for activities about which the former can only be partially informed; the inadequate and frequently erroneous data on the basis of which alternative technologies are appraised; and the deficient information on consumers’ demand, although there probably is no impelling concern to allocate resources closely in accord with such demand anyhow…

Price Formation.
… prices must differ markedly from “scarcity values” where as in the U.S.S.R., the tendency is to fix them in accord with average rather than marginal cost and with only limited concern for the current state of demand. Moreover, average cost has been calculated without any allowance for interest on fixed capital or any systematic charge for rents on extractive branches, although very recently the latter lacuna may have been filled after a fashion. And these fixed prices have been changed only infrequently.

I refer primarily to prices of basic industrial goods, but for processed foods and manufactures the only important nov­elty is the turnover tax with its widely varying rates… While such divergencies from scarcity values originate in the labor theory and the inordinate task of superior agencies, these are not the sole causes. Most importantly, while ruble prices have suffered from the labor theory, they have not benefited where the alternative has been no theory….

In sum, the ruble price system fails to perform the function which, the primers teach, a good price system should —to convey reliable information on prevailing scarcities. This must be by no means the least of the causes of eco­nomic waste in the U.S.S.R.

Success Criteria. 
… the chronic difficulties the government has experienced in formulating success criteria have had various causes, but a principal one has been the limitations of ruble prices. Given these, it could not be easy to summarize in any meaningful way the results of managerial activity. … Managerial malpractices in concealing reserves, in violating quality stand­ards, or in departing from the assortment plan … must … have been economically wasteful.

Success criteria have had to be formulated for managerial personnel both in the enterprise and at higher levels, … in engaging in dubious practices enterprise managers have often had the acquiescence if not active support of their superiors, and these too have had their foibles.

Thus the phenomenon, curious in a planned economy, of managerial striving for self-sufficiency. This has been manifest in the enterprise in efforts to acquire excess stocks of scarce materials, it has been manifest in both the enterprise and at higher levels in the endeavor to acquire auxiliary services, to limit specialization and the like.

… the government has also relied on priorities. … these are supposed to guide decision makers generally, and decision makers often observe them. But as an instrument of control priorities are inherently blunt, and even choices made in their light must frequently be dubious. This must be so generally, but the distortion is only magnified where the priorities are implemented through the famous "campaign" form of administration. As the Russians themselves acknowledge, the campaign, whatever its merits, has its limitations as a method of allocating resources…

Collective Farm Agriculture.  
… the sources of inefficiency described are found also in agriculture. The economic ills of this sector… have been to some extent special.. … in collective farm agriculture incentive arrangements have been especially unfavorable. The collective farmer …has been able to gain by using his talents productively, but as a residual claimant his reward has not been very impelling.

… authorities have not hesitated to intervene in the management of the farm, and arbitrary decision making by superior agencies cannot have been any less costly here than elsewhere. The extraordinary reforms in crop schemes, imposed with little regard to local circumstances, are only the most dramatic instances of a pervasive phenomenon. Then, too, overlapping of responsibility has been a source of difficulty …

 I have had little to say about foreign trade, but I should be remiss if I did not refer to the Soviet policy of self-sufficiency. Under this policy, since 1928 Russia's ex­ports have averaged but 1 to 2 per cent of her national in­come…… the policy has been carried notably far, and the losses probably have been preponderant. Autarky, therefore, has been another source of economic inefficiency, and perhaps an important one.

The inefficiency, … has often been greater … because of the intense concern for growth. … But for the inefficiency, growth might have been even more rapid… growth in the U.S.S.R. has had to be purchased in some degree at the expense of efficiency. Consumer preferences 

Planners' Preferences 
Where the working arrangements have been inefficient , the system directors have frequently had reason to value them apart from their material consequences. They have had ideological reasons, political reasons, and presumably personal reasons. … no doubt the working arrangements have often been immediately satisfying to them. … Households must value the working arrangements differently, however, and from their standpoint the inefficiency is the more pronounced. .. the source of inefficiency… the divergence of planners' from household preferences. … obviously household preferences have been supplanted in consequential ways. Most outstanding is that where choices are made between present and future. … household preferences have frequently been overridden also in respect to consumption structure, ... Sometimes the system's directors must not have overridden but merely have been indifferent to household preferences…




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