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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%
      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.
      The system of economic incentives makes provision for the formation of a special source of incentive payments above and beyond centrally established wage rates. The profit created at an enterprise is this source. It has been recognized that the amount of deductions paid from profits into the incentive fund depends on the fulfillment of the plan for increased sales or profits and on the profitability level contemplated in the annual plan (provided that the prescribed mix of key products stipulated in the plan is observed). In those instances when an increase in sales volume is not advisable, the size of the material incentive fund is determined as a function of increased profit.
     Three economic incentive funds are formed on this basis : the production development fund, the material incentive fund, and the fund for sociocultural measures and housing construction.
     The production development fund serves as a supplement to centralized sources of capital investment. It is formed through deductions from profits as well as through the use of a certain amount of the amortization deductions earmarked for the total renovation of fixed capital.
     The material incentive fund is created solely from profit. The size of the deductions from profits paid into the material incentive fund is determined according to norms depending on the increase in the sales volume (or the amount of profit) and the profitability level stipulated in the annual plan. Norms are established as percentages of the wage fund: for every percentage point of increase in sales volume in comparable prices (or amount of profit) stipulated in the plan for a given year as compared with the previous year ; for each percentage point of profitability stipulated in the annual plan.
     Norms are envisaged as stable for a number of years and are differentiated by branch (and, where necessary, by groups of enterprises within a branch). Limits on deductions paid into the material incentive fund are not established.
     Payments of an established amount are made to the material incentive fund when the enterprise fulfills the profit and sales plan for the product-mix stipulated in the plan. When an enterprise overfulfills the profit and sales plan, additional payments are made to the material incentive fund. When an enterprise fails to fulfill the profit and sales plan for the established product-mix, payments are made to the material incentive fund at a lower rate. The product-mix is assigned to enterprises by higher-echelon organs in the process of confirming the indices of the yearly plan, and, if it is not fulfilled, payments to the material incentive fund are reduced. Other restrictions on deductions to the material incentive fund are not established.
     The formation of the incentive fund is connected with the quality of planning at the enterprise. In order to eliminate, or at least diminish, the striving to conceal reserves in the elaboration of plans at enterprises so as to make these plans easier to fulfill, resources are paid in full into the incentive fund only if the production growth plan is fulfilled. But in the event the plan is overfulfilled, the rates are reduced by approximately 30 % for that part of the increase in output which represents overfulfillment. The idea is to make the deliberate lowering of plans disadvantageous, since the enterprise will thereby lose one-third of the incentive it would otherwise receive for the increase in sales which is overfulfillment.
     On the other hand, the plan should not be unduly high. Therefore, if the plan is not fulfilled, the incentive payment is also reduced by the same amount compared with the established normative rates. The procedure for reducing rates of payment for the overfulfilled and unfulfilled part of the plan concerns not only the increase in sales (or profits) but also incentives for the profitability level, and such incentive is established without discounts for the level of profitability actually attained on the basis of normative rates solely within the framework of the plan.
     The same methods have also been adopted for the formation of the third incentive fund, which is earmarked for sociocultural measures and housing construction.
     Of basic importance is the fact that enterprises are not regulated by strictly centralized instructions in the matter of distributing the incentive fund among production participants. Enterprises may elaborate one or another provision on the procedure for awarding incentives on the basis of standard recommended methods in accordance with the specifics of their production. The only point that has been established is that bonuses to workers under presently existing statutes will be awarded from the wage funds in the future as well. But in addition to this, workers may also be paid bonuses from the material incentive fund formed from profit. Furthermore, these bonuses may be paid under special provisions, for example, for improving the quality of production, for economizing on materials, for mastering new products or processes, as well as on a one-time basis for individual attainments on the job.
     The awarding of bonuses to managerial, engineering, and technical personnel and employees is also regulated by special provisions. In addition, certain sums in the incentive fund are reserved for one-time assistance. An important feature is that part of the material incentive fund is earmarked for rewards to personnel based on their performance for the year, depending on their length of service at a given enterprise.
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