Who he is and his times
Evsei Grigoryevich Liberman was born on 2 October 1897 in the shtetl of Slavuta in Volhynia Governorate. In 1920 he graduated from the Faculty of Law of Kyiv University, then moved to Kharkiv, worked at the Institute of Labour, where he headed the accounting laboratory, and obtained a second education in engineering and economics. According to biographical reference works, from 1930 to 1941 he headed the department of the organization of machine-building production, in 1940 he became a Candidate and in 1956 a Doctor of Economic Sciences; from the early 1960s he was a professor at Kharkiv University. The names of the Kharkiv institutes and the exact years differ between reference works.
Liberman's biography is inscribed in the history of the era. According to Wikipedia, which relies on biographical publications, on 17 April 1938 he was arrested on charges of espionage, in April 1939 he was sentenced to 15 years in the camps, and at the end of that same year, 1939, he was released and rehabilitated. According to this information, the pretext was his trips abroad in the mid-1920s and the fact that his wife, Regina Horowitz, was related to the pianist Vladimir Horowitz, who had not returned to the USSR.
The idea that made Liberman famous grew out of factory practice. According to B. Peters, he came to the economics of planning in 1933 after a tour of German factories and worked on introducing punched-card calculating machines at Ukrainian enterprises. The main problem he saw was called “val” (gross output): an enterprise was judged by its gross output in tonnes, units or roubles, and so it paid to produce heavy, expensive and unneeded goods, to beg for more resources and to obtain lower plan targets, rather than to care about quality and demand.
The early 1960s were a time of searching. Khrushchev's reorganization of management into territorial regional economic councils (sovnarkhozy) did not halt the slowdown in growth, and the party leadership began to look for economic rather than only administrative measures. At the same time, mathematical economists and cyberneticians, who proposed solving the same problems with models and computers, were gaining strength. Liberman proposed a third, and the cheapest, path — to change the evaluation criteria and the system of incentives.
Main ideas
The first sketch of the approach appeared as early as 1955 in the article “Economic Accounting and Material Incentives” in the journal Voprosy Ekonomiki, and a detailed justification came in his doctoral dissertation “Ways of Increasing the Profitability of Socialist Enterprises” (1956). Economic accounting, or khozraschyot (self-financing), was the name given in the Soviet economy to an arrangement under which an enterprise covers its costs from its revenues and is responsible for the result; in practice it often remained a formality. Profitability is the ratio of profit to costs or to the value of productive assets.
The article “Plan, Profit, Bonus” appeared in Pravda on 9 September 1962, in issue No. 232. The essence of the proposal, according to the summary by the historian R. G. Kirsanov and the text of the article itself, came down to a few points. The enterprise receives from the centre only a target for the volume and product mix of output and for delivery dates, and calculates everything else — headcount, productivity, cost — itself. The state sets long-term profitability norms for industries, and the enterprise's bonus fund is formed out of profit depending on the profitability achieved. Liberman formulated the principle that what is beneficial to society must also become beneficial to each work collective.
It is important to understand what this proposal was not. Peters stresses that Liberman did not abolish mandatory plan targets and did not demand market prices: prices remained planned, and profit was regarded as a measure of the real efficiency of expenditure at those prices. It was a system of “profit under command”, in which the centre retained planning but changed the information signal — instead of gross output, the enterprise was given an indicator that, as the author hoped, would by itself push it towards lower costs and higher quality.
Liberman anticipated the ideological objection and answered it directly in the article: some economists, he wrote, consider profit a capitalist indicator, but under planned prices it expresses the efficiency of social labour. After the reform began, he continued to defend and refine his ideas, including in the article “Plan, Direct Links and Profitability” in Pravda on 21 November 1965 and in the monograph “Economic Methods of Increasing the Efficiency of Social Production” (1970).
What became of the ideas in practice
Publication in the central party organ meant that the debate had been sanctioned from above. According to Kirsanov, as early as 25–26 September 1962 the proposals were discussed and criticized at a meeting of a scientific council of the Academy of Sciences; the Minister of Finance, A. G. Zverev, considered the existing incentives sufficient, while Academician V. S. Nemchinov supported Liberman. The debate in the press went on for almost three years. According to Peters, the ideas also found favour with Khrushchev, who ordered them to be tested at two garment factories.
In 1964 the Moscow garment factory Bolshevichka and the Gorky association Mayak were given the right to work to orders from the retail trade, and their performance began to be judged by sales volume and profit rather than by gross output; in 1965 the experiment was extended to other light-industry enterprises. In October 1964 Khrushchev was removed, but the new leadership — L. I. Brezhnev and the Chairman of the Council of Ministers, A. N. Kosygin — continued preparing the reform. On 12 February 1965 the American magazine Time put Liberman's portrait on its cover with the article “Borrowing from the Capitalists”, and in the West people began to speak of the “Libermanization” of the Soviet economy.
The September 1965 plenum of the CPSU Central Committee approved a course towards improving industrial management and strengthening economic incentives, and the resolution of the CPSU Central Committee and the Council of Ministers of 4 October 1965, No. 729, formalized the new rules of planning. According to Kirsanov, the number of directive indicators for an enterprise was reduced from 30 to 9: volume of output sold, the most important product mix, the wage fund, profit and profitability, payments to the budget, capital investment, introduction of new technology, and material and technical supply. Funds for economic incentives were formed out of profit. At the same time the regional economic councils were abolished and the sectoral ministries restored, so enterprise independence was being expanded while returning to a centralized sectoral hierarchy.
The transfer of enterprises to the new conditions proceeded quickly: according to figures cited in reviews of the reform, by autumn 1967 it covered 5,500 enterprises producing about a third of industrial output, and by April 1969 32,000 enterprises and about 77 % of output. According to the estimate cited by the historian A. V. Shubin, the Eighth Five-Year Plan (1966–1970) delivered higher growth rates than both the preceding and the following ones: 7.4 % against 6.5 % and 6.4 %.
A related story was the Shchekino experiment. From 16 August 1967 the Shchekino Chemical Combine in Tula Oblast received a wage fund fixed for several years ahead and the right to leave the savings from this fund to the work collective. The enterprise could reduce headcount, combine occupations, mechanize work and distribute the savings among the remaining workers. According to the historian J. Nealy, at the first stage 1,039 of roughly 6,800 workers were released, and in October 1969 the CPSU Central Committee approved the experience and recommended it to other industries.
What worked and what did not
The first years of the reform are generally recognized as successful: growth rates rose, enterprises became more attentive to sales and product range, and work collectives acquired funds they could dispose of. The experiments at the garment factories showed that evaluation by sales is better than evaluation by gross output where products are varied and demand matters. The Shchekino method produced a noticeable increase in productivity; information about its scale, however, varies greatly depending on the source.
By the end of the 1960s the limits were already visible. In Kirsanov's assessment, turning profit into the main indicator under planned prices led to inflated expenses and costs: the more expensive the product, the greater the profit at a fixed profitability norm. Shubin notes that incentives weakened when self-financing enterprises stopped receiving advantages in supply, and khozraschyot once again became a formality. In other words, one distorting indicator, gross output, was partly replaced by another, and enterprises learned to fulfil the new norm just as inventively as the old one.
The main contradiction was built into the design itself. Prices were still set by the centre, resources were still allocated through allocation funds, and the ministries, restored simultaneously with the start of the reform, received both the right to evaluate enterprises and an interest in controlling them. Peters writes that from 1965 the Ministry of Finance informally resisted the implementation of the reform, which made it easier to discredit. Profit that cannot be freely spent on resources and that a superior body can redistribute is a weak incentive.
The fate of the Shchekino method is assessed in different ways. Nealy, in a 2025 article, shows that by 1978 elements of the method were applied at thousands of enterprises and became part of nationwide systems of labour organization. The British researcher B. Arnot as early as 1986 described his work on it as a history of failure and examined the collapse of the attempt to generalize the experience. What matters for our subject is that the idea itself — a norm stable for several years and savings that stay with the collective — held up exactly as long as the superior bodies kept their promise not to revise the terms.
The scale of the Shchekino experience looks different in different sources, and this is telling in itself. According to Nealy, the experiment was prepared from April to August 1967 by the State Committee for Labour, the All-Union Central Council of Trade Unions and the Ministry of the Chemical Industry together with the director of the combine, Pyotr Sharov, and a group of industrial sociologists; Sharov himself was awarded the title of Hero of Socialist Labour. By November 1975, according to the same data, the method was used by more than 400 enterprises, which had released over 47,000 workers, and by 1978 some of its elements were used by about 9,600 enterprises and associations in 15 ministries. But the spread of the form did not mean the preservation of the substance: the more widely the method was introduced, the more it depended on how willing each ministry was to leave the savings earned with the enterprises.
Debate and criticism
From the very beginning, orthodox criticism came down to the claim that profit is a capitalist category and that orienting towards it undermines the planned principle. In addition, critics rightly pointed out that profit makes sense as a signal only if prices reflect the real scarcity of resources. Peters notes that Liberman's opponents insisted that a profit reform would require a price reform, and that this would expose the hidden subsidies through which the state redistributed resources between industries.
Advocates of mathematical methods and cybernetics criticized the reform from the other side. V. M. Glushkov in his memoirs called Liberman and his like-minded colleagues opponents of the OGAS (National Automated System for Computation and Information Processing) project, and Peters recounts their dispute as a choice between an expensive network of computing centres and a reform that would cost no more than the paper for a resolution. The reformers, in turn, feared that the network would entrench centralized planning; each side saw the other as a threat to its own model.
Historians name different reasons for the rollback of the reform, and they tend to complement each other. Kirsanov lists the events in Czechoslovakia in 1968, after which economic decentralization became politically suspect, the resistance of the ministries, the leadership's fears about political consequences, shortages of goods and the growth of the shadow economy. Reviews of the reform also mention the growth of oil revenues in the 1970s, which made it possible to postpone difficult decisions. Officially no one ever cancelled the reform: its terms were gradually eroded by new resolutions, and the 1979 resolution No. 695 became yet another attempt to improve the economic mechanism without radical change.
It also remains disputed whether the reform could have succeeded at all within the given framework. Some authors regard it as a missed chance thwarted by politics, others as an inherently half-hearted attempt to combine the incompatible: enterprise independence with planned prices, directive supply and sectoral ministries. Liberman himself, judging by his texts, regarded profit not as a replacement for the plan but as its instrument, and this position is vulnerable from both sides of the debate.
In the West the debate was received more sharply than it deserved. Time magazine's cover story in February 1965 was titled “Borrowing from the Capitalists”, and the word “Libermanism” came to denote a supposed turn of the USSR towards the market. Peters shows that this was an exaggeration: Liberman retained mandatory plan targets and planned prices and proposed not a market but a different information signal within the command system. The gap between Western expectations and the real content of the reform is worth remembering today as well: the label “Libermanism” makes it easy to attribute to the reform a market character it did not have, and then to explain its failure by things it never proposed.
Legacy today
Liberman died on 11 November 1981 in Kharkiv. His name remained linked to the reform that in the USSR was called the Kosygin reform and in the West the Liberman reform, although he himself held no government posts and was rather the author of the idea and its public advocate. The title of Kirsanov's 2023 article — “The Kosygin–Liberman Reform: How to Combine Plan, Profit and Bonus” — conveys well the question that historians of economics still discuss.
For the history of planning, Liberman's experience matters because he was the first in the Soviet press to raise the question of indicators openly. Any system that evaluates an executor by a number generates behaviour that optimizes that number rather than the goal. Replacing gross output with profit under administrative prices showed that swapping one synthetic indicator for another does not solve the problem but merely moves the point of distortion.
The second lesson concerns the promises of the centre. Both the 1965 reform and the Shchekino experiment worked as long as the enterprise believed that what it had earned would not be taken away and that norms would not be revised retroactively. When this confidence disappeared, incentives stopped working, however sensibly they had been designed. Long-term stability of the rules turned out to be no less important than their content.
The third lesson is about the limits of reform within an unchanged system of power. Liberman proposed changing enterprises' incentives without changing who sets prices, allocates resources and evaluates results. The ministries, which simultaneously commanded enterprises and judged their success, had no interest in their independence. This bundle — the planner, the executor and the verifier in a single agency — is what made the reform vulnerable.
What open planning takes
- A small number of directive indicators and long-term norms set in advance for several years. In our model this is the execution circuit: contracting with vector KPIs written into the contract, and the rule that terms are not changed retroactively.
- Savings stay with whoever achieved them. The Shchekino combine's wage fund, fixed for several years, is a direct prototype of our revision rule; we enshrine it legally in the “contract or quota” artefact rather than in an agency's promise.
- Payment for a result that has been sold and accepted by the consumer, not for gross output. In our model the same role is played by the rule “payment only after a measurement report”, and the measurement is not carried out by the executor.
- Testing new rules at pilot enterprises before mass rollout, as at Bolshevichka and Mayak. In our model a pilot is mandatory, and its result, including a negative one, is published.
What we do not repeat
- We do not replace one synthetic indicator with another. Profit under administrative prices produced inflated costs just as gross output produced heavy and unneeded goods; following Goodhart's law, we use several indicators, deferred payment and human audit.
- We do not let a single body both command the executor and evaluate it. The ministries restored in 1965 did both, which directly contradicts our rule of separating goal-setting, execution and verification.
- We do not roll back a reform silently. The terms of the 1965 reform were eroded without public acknowledgement; in our model a change of methodology is recorded as a new version with a date and grounds, with the old rules preserved for contracts already concluded.
Links between ideas
Whom the author argued with, whose ideas they developed, whom they answered and whose fate they shared. All links are on the shared graph. Graph of ideas
- Viktor Glushkov
Debate and criticism →
From 1964 Liberman opposed OGAS: incentive reform was cheaper, and the network would entrench centralised planning.
- János Kornai
Debate and criticism ←
In Kornai’s view the 1965 reform repeated the Hungarian path: profit became an indicator, while subordination to ministries and loss coverage remained.
- Ludwig von Mises
Debate and criticism ←
From Mises’s standpoint, profit under centrally set resource prices remains an accounting convention.
- Vasily Nemchinov
Develops ideas →
Nemchinov backed Liberman in 1962 and carried the debate further with his programme of a self-financing planning system.
- Viktor Novozhilov
Develops ideas ←
According to Okrepilov, Novozhilov’s ideas on combining plan and self-financing formed part of the basis of the 1965 reform.
- Oskar Lange
Parallel path ←
Lange’s Economic Council in Poland and the Soviet 1965 reform both sought enterprise autonomy and were rolled back by the apparatus.
- Vitaly Naishul
Debate and criticism ←
Naishul classes the 1965 reform among the “economic methods” that freed enterprises from the consumer without providing new coordination.
Timeline
- 1897
Born on 2 October in Slavuta, Volhynia Governorate
- 1938
Arrested; in 1939 sentenced and released and rehabilitated in the same year
- 1955
Article “Economic Accounting and Material Incentives” in the journal Voprosy Ekonomiki
- 1956
Doctoral dissertation “Ways of Increasing the Profitability of Socialist Enterprises”
- 1962
On 9 September Pravda publishes the article “Plan, Profit, Bonus”; a nationwide debate begins
- 1964
Experiment at the garment enterprises Bolshevichka and Mayak: working to retail orders, evaluation by sales and profit
- 1965
September plenum of the CPSU Central Committee and resolution No. 729 of 4 October: the start of the economic reform
- 1967
On 16 August the Shchekino experiment begins
- 1969
By April 32,000 enterprises have been transferred to the new conditions; in October the CPSU Central Committee approves the Shchekino experience
- 1981
Died on 11 November in Kharkiv
Key works
- 1955Economic Accounting and Material Incentives (Khozyaystvenny raschyot i material'noe pooshchrenie), Voprosy Ekonomiki
- 1956Ways of Increasing the Profitability of Socialist Enterprises (Puti povysheniya rentabel'nosti sotsialisticheskikh predpriyatiy) (doctoral dissertation)
- 1962Plan, Profit, Bonus (Plan, pribyl', premiya), Pravda, 9 September, No. 232
- 1965Plan, Direct Links and Profitability (Plan, pryamye svyazi i rentabel'nost'), Pravda, 21 November
- 1970Economic Methods of Increasing the Efficiency of Social Production (Ekonomicheskie metody povysheniya effektivnosti obshchestvennogo proizvodstva)
Sources
- Е. Г. Либерман. План, прибыль, премия. Совершенствовать хозяйственное руководство и планирование. 1962
- Р. Г. Кирсанов (Институт российской истории РАН). Реформа Косыгина — Либермана: как совместить план, прибыль и премию. 2023
- А. В. Шубин. Экономическая реформа 1965 г.. б. г.
- Электронная еврейская энциклопедия. Либерман Евсей. б. г.
- Википедия. Либерман, Евсей Григорьевич. 2026
- Википедия. Экономическая реформа 1965 года в СССР. 2026
- Time. Russia: Borrowing from the Capitalists. 1965
- Benjamin Peters. How Not to Network a Nation: The Uneasy History of the Soviet Internet. 2016
- James A. Nealy. The Shchekino Method: Flexible Production with Socialist Characteristics. 2025
- Bob Arnot. Soviet labour productivity and the failure of the Shchekino experiment. 1986
- В. М. Глушков (публикация Б. Н. Малиновского). Что скажет история? Отрывок из воспоминаний. 1995
Prepared from open sources. Dates, titles and quotations were checked against the source list at the bottom of the page; where sources disagree, the text says so.