Law on State Enterprise (1987)

Law on State Enterprise (1987)
Short title	Law on State Enterprise
Legislature	Supreme Soviet of the Soviet Union
Long title	Law of the Union of Soviet Socialist Republics on the State Enterprise (Association)
Enacted by	Supreme Soviet of the Soviet Union
Date enacted	30 June 1987
Date commenced	1 January 1988
Status	Repealed

Law on State Enterprise (1987). Enacted on 30 June 1987 by the Supreme Soviet of the Soviet Union, this legislation was a cornerstone of Mikhail Gorbachev's perestroika economic restructuring program. It aimed to decentralize economic control by granting greater autonomy to individual Soviet enterprises, moving away from the rigid, centralized planning of the Gosplan system. The law officially came into force on 1 January 1988, marking a significant shift in the management of the Soviet economy.

Background and legislative context

The law emerged during a period of severe economic stagnation in the Soviet Union, known as the Era of Stagnation, which highlighted the inefficiencies of the command economy. Under the leadership of Mikhail Gorbachev, the Communist Party of the Soviet Union initiated perestroika to revitalize the system. Preceded by the Law on Individual Labor Activity (1986) and the creation of joint ventures in the Soviet Union, this legislation was part of a broader reform package that included the Law on Cooperatives (1988). Its development was influenced by earlier, limited experiments like the Kosygin reform and was intended to fundamentally alter the relationship between the state and industrial production units.

Main provisions and principles

The law introduced the principle of khozraschyot (cost accounting), mandating that enterprises must be self-financing and cover expenses through their own revenues. It granted directors increased authority over operational decisions, including aspects of production planning, supply contracts, and the use of profits. Enterprises gained the right to establish direct links with suppliers and customers, bypassing some Gosplan directives, and could retain a greater share of profits for investment, bonuses, and social development funds. A key democratic element was the election of enterprise managers by worker collectives, though this was often supervised by local Communist Party of the Soviet Union committees.

Impact on economic management

The legislation significantly altered the dynamics of the Soviet economic planning apparatus, reducing the direct role of Gosplan and Gossnab in micro-managing production. By promoting self-financing, it intended to make enterprises more responsive to market signals and consumer demand. However, in practice, many price controls remained under the State Committee for Prices, distorting incentives. The shift contributed to the phenomenon of the soft budget constraint, as unprofitable enterprises often continued to receive state support, and also inadvertently fueled goods shortages as producers chased higher profits.

Relationship with other reforms

The Law on State Enterprise was intrinsically linked to other pillars of Gorbachev's reforms. It was designed to work in tandem with the policy of uskoreniye (acceleration) to boost technological progress. It also preceded and created a framework for the more radical Law on Cooperatives (1988), which legalized private cooperative businesses. Furthermore, the enterprise autonomy it espoused was conceptually aligned with the political openness of glasnost, which encouraged managerial accountability. The law's failure to achieve its goals helped pave the way for more drastic proposals, such as the 500 Days Program advocated by Stanislav Shatalin and Grigory Yavlinsky.

Implementation and challenges

Implementation began officially in 1988 but faced immediate and systemic obstacles. Many enterprise directors, accustomed to fulfilling Gosplan quotas, were reluctant or unprepared for their new responsibilities. The existing material balance system and persistent shortages crippled attempts to establish independent supply chains. The partial nature of reforms created a contradictory environment where enterprises were neither fully planned nor truly market-oriented, leading to widespread economic disruption. This period saw the rise of nomenklatura privatization, where managers leveraged their control to appropriate state assets.

Amendments and subsequent legislation

The inherent contradictions and poor outcomes of the law led to successive amendments and new legislative efforts. Following the dissolution of the USSR in 1991, the law was effectively superseded by the mass privatization laws of the Russian Federation, notably the State Program of Privatization under Anatoly Chubais. Key concepts of enterprise autonomy were carried forward, but within the entirely new legal framework of a market economy, as established by the Constitution of Russia (1993) and the Civil Code of the Russian Federation.

Category:1987 in Soviet law Category:Economic history of the Soviet Union Category:Perestroika