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Liberman, E. G. (1971). Economic methods and the effectiveness of production A. Schultz & L. J. Kirsch, Trans. White Plains (N. Y.): International Arts and Sciences Press, inc.  
Last edited by: Dominique Meeùs 2012-02-21 14:39:50 Pop. 0%
      As we know, the economic reform was elaborated in a rather extensive, specific form. First, there was a substantial reduction in the range of obligatory plan indices communicated to enterprises on a centralized basis, a number of indices were replaced, and the new profitability index was introduced.
     Plan targets for the volume of output to be sold are being established for enterprises instead of the gross output index. This substitution is very substantial : it places production under the economic control of purchasers and creates prerequisites for the establishment of organic unity between planning and cost-accounting. The basic product-mix [nomenklatura] is also confirmed from above.
     In addition to other indices, profit and profitability calculated as the ratio of profit to fixed productive capital and to normed working capital have been established as indices for evaluating the effectiveness of the work of enterprises. Thus, yardsticks of effectiveness which, although they have existed in our country for a long time, have not played a large part in planning, to say nothing of the evaluation of the work of enterprises, have been brought into economic circulation.
     In our opinion, the plan should confront production with ultimate goals but should not directly regulate the means of their attainment within the enterprise, which would deprive the enterprise of the necessary maneuverability in finding optimal solutions for the fulfillment of plan targets.
     Although they retain their importance as accounting indices within the branch, such indices as the number of personnel, the average wage, labor productivity, and enterprise cost of production are not included in the number of obligatory indices that are confirmed for each enterprise.
     Even now, certain economists cannot see how such a very important index as labor productivity can be left outside the realm of obligatory centralized planning. But the reform in no way denies the fact that labor productivity is a most important index to the effectiveness of production. The task consists in monitoring the correspondence between the growth of wages (including bonuses from profits) and increases in labor productivity.
      Payments to the budget and allocations from the budget are established as obligatory plan targets. The volume of centralized capital investment is also confirmed, since this is absolutely necessary for securing the required proportions in the development of branches of production in keeping with centralized national economic plans. The basic targets pertaining to the installation of new equipment as well as the indices of material and technical supply are also planned. In discussing the indices of material and technical supply, it must be borne in mind that, in keeping with the decisions of the September (1965) Plenum of the Central Committee and the Twenty-Third Congress of the CPSU, there will be a gradual transition to the planned distribution of equipment, supplies, and semimanufactures through the wholesale trade system.
     Naturally, the restriction of the number of plan indices confirmed by higher-echelon organizations considerably expands the economic autonomy of enterprises. In no small measure, this autonomy is also promoted by the Statute on the Socialist State Production Enterprise, which extends and legislatively confirms many rights to enterprise heads.
     The September (1965) Plenum of the Central Committee of the CPSU outlined such a structure of the incentive system in order to arouse the enterprises’ interest in elaborating and fulfilling higher plan targets and in making fullest use of internal reserves and resources. This goal is realized through the unity of the system of planning and economic incentives for enterprise collectives, which serves to increase the country’s national income. In this instance, the interests of society and of enterprises are combined more harmoniously.
     The development of production is financed by centralized sources as well as by the enterprises’ own resources. It is important to emphasize that provision is made for the broader utilization of the internal resources of enterprises and economic organizations as well as of bank loans, instead of nonreturnable budget financing of capital investment.
     As a rule, the financing of capital investment and the augmentation of working capital at existing enterprises are done through the enterprise’s own financial resources and through Gosbank loans. This essentially alters the attitude of enterprises toward the reconstruction and expansion of production, requires the more thrifty and economically substantiated utilization of new equipment and production areas, and obliges management to give greater attention to increasing the effectiveness of capital investment.
     In order to increase the effectiveness of production, payments for fixed and working productive capital have been introduced. In the future, this type of payment may become an important source of national centralized net income and may, to a certain degree, replace other types of payments, including the turnover tax. This is specifically the method of exerting economic influence on production which basically must counteract the squandering and mismanagement of social productive capital.
     It is also important to note that normative payments for capital are established for a number of years so that a properly functioning enterprise will have a profit for offering incentives as well as for covering planned outlays. The more effective an enterprise’s operation, the more profit it receives and the larger the share of this profit (after fixed payments to the budget, payments for the use of capital, and loan interest payments) is left at the disposal of the enterprise.
     There are also a number of other important innovations that promote the strengthening of cost-accounting and the imparting to it of the nature of a real rather than a formal method of exerting economic influence on production. The role of the economic contract and the material liability of parties for its fulfillment are being strengthened, even to the point of providing for the complete compensation of losses to the injured party by the injuring party.
     Liability is being established both horizontally, i.e., between enterprises, and vertically. We allude here to the establishment of guarantees of material liability not only of enterprises to ministries and agencies but also the liability of these organs if they are responsible for losses incurred by the enterprises. The first step in this direction is the conversion of economic and production associations as well as main administrations of industrial ministries to cost-accounting.
     The strengthening of the cost-accounting of enterprises is also promoted by the better formulated system of using internal working capital. In the event that this capital is in short supply due to unsatisfactory management, the shortage should not be made up by the budget. An enterprise should apply for a bank loan, and the interest on this loan should be higher. The interest payment diminishes that part of the profit which is used to form the enterprise’s economic incentive fund. This means the realization of the urgent demand that sanctions affect the personal incomes of those responsible for the losses and that these losses not be automatically transferred to the government, as frequently was the case in earlier times. This kind of undefined responsibility was specifically one of the chief features in the formal nature of cost-accounting.
     Contractual relations between suppliers and purchasers play a basic part in strengthening cost-accounting and, simultaneously, in improving the planning process. At the same time, direct contractual relations are a way of making product-mix planning more specific. Naturally, direct relations make sense if they are backed up by sufficient legal and economic guarantees.
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