31 Soviet Firms Warned: Make Profit or Close

Enforcing new capitalist-style reforms, the government threatened to close 31 state-run enterprises or turn them over to private managers if they do not make a profit within six months, a Soviet newspaper said today.

The Socialist Industry newspaper said the 31 enterprises face bankruptcy if they fail to show a profit.

The newspaper warned that many more firms are on the verge of going under as the reforms introduced in January by Soviet leader Mikhail S. Gorbachev begin to have a real, if somewhat negative, impact on Soviet business and commerce.

Bankruptcy New

Before the introduction of the strict profit-and-loss system of cost accounting introduced to 60% of the country’s industry nine months ago, bankruptcy was unheard of in the Soviet Union.

Previously the government would automatically subsidize money-losing firms to avoid unemployment and the embarrassment of admitting inefficiency and failure. One government estimate last November said 13% of all state-run firms were operating at a loss, holding collective losses of $60.8 billion.

In an attempt to jar workers and management into greater productivity, Gorbachev has ordered wages tied directly to output, permitted unemployment in a country that for half a century boasted of full employment, and cut back the government “safety net” that kept badly run firms operating.

The reforms are aimed at making Soviet industry more responsive to consumer demand and to wean it from the slavish adherence to strict production quotas devised by the state’s now disgraced central planning authorities.

Surpluses of Goods

The quota system, based on gross output and lacking quality controls, often produced vast surpluses of poor quality, unneeded goods, while real consumer and industrial needs went unmet. Figures were often falsified to ensure that quotas were met.

The newspaper said the firms declared insolvent in recent months ranged from a large timber mill in eastern Siberia that had assets of $5.12 million but debts of $21.1 million to a machine-building plant in European Russia that was $14.4 million in debt.

The giant Kharkov Tractor Engine factory in the Ukraine was also on the list.

Mikhail Zotov, chairman of USSR Industrial Construction Bank, said he was reluctant to use the term bankrupt to describe the fate of the insolvent enterprises, but other Soviet economists and the press are using the term freely.