1965 Soviet economic reform

The 1965 Soviet economic reform, widely referred to simply as the Kosygin reform or Liberman reform, was a reform of economic management and planning, carried out between 1965 and 1971. It was characterized by the introduction of capitalist methods of management, increased economic independence of enterprises, associations and organizations, and the extensive use of methods of material incentives. It was intiated by the Premier of the Soviet Union, Alexei Kosygin.

The reform was initiated due to the increasing complexity of economic relations, which reduced the effectivity of economic planning, and the desire to make fuller use of economic growth. It was recognized that the existing system of planning did not motivate enterprises to reach high targets or to introduce organizational or technical innovations.^[1]

The basic ideas of reform were first published in a paper by professor Evsei Liberman of the Kharkiv National University of Economics. This paper marked the beginning of an extensive economical discussion in the Soviet press, and drew extensive criticism. Several economic experiments^[2] were initiated to test Liberman's proposals.

The reform was implemented by the Central Committee of the Communist Party of the Soviet Union and the Council of Ministers. It consisted of five "groups of activities":

1. The enterprises became main economic units.
2. The number of policy targets was reduced from 30 to 9. The rest remained indicators: total output at current wholesale prices, the most important products in physical units, the total payroll, total profits and profitability, expressed as the ratio of profit to fixed assets and working capital normalized; payments to the budget and appropriations from the budget; total capital investment targets for the introduction of new technology, the volume of supply of raw materials and equipment.
3. Economic independence of enterprises. Enterprises were required to determine the detailed range and variety of products, using their own funds to invest in production, establish long-term contractual arrangements with suppliers and customers and to determine the number of personnel.
4. Key importance was attached to the integral indicators of economic efficiency of production — profits and profitability. There was the opportunity to create a number of funds based on the expense of profits — funds for the development of production, material incentives, housing, etc. The enterprise was allowed to use the funds at its discretion.
5. Pricing: Wholesale sales prices now had to be profitable.

In agriculture, the prices paid for goods rose by 1.5-2 times.

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