During the last decades of the deteriorating socialist economy, a few important
changes had been introduced in the country, which later negatively affected the transition
process. Faced with inefficiencies of the command economy, the Soviet government
attempted to introduce some flexibility in relations between the enterprise and the state in
the 1970s and bestow limited decision making powers to managers of the state
enterprises, a power that they had not had before (Nove 1992). The so-called “enterprise
reform” - a gradual transfer of authority to managers of state enterprises - was intended
as a measure to cope with ineffectiveness of the plan mechanisms, but it didn’t result in
greater efficiency; instead it resulted in diminishing the power of the state over the
economy during the last decade of the Soviet Union. What was initially envisioned as
introducing flexibility into the plan system, led to some unexpected and negative
macroeconomic consequences. This enterprise reform was “intended to change the
mechanisms of the centrally planned economy, and through this change the environment
of the enterprise and the decision making behavior of managers” (Walder 1994). As some
analysts argue, it led to “a change in labor relations toward an unorganized pattern of
conflict and bargaining over matters of pay. The shift away from political rewards toward
new forms of incentive pay leads logically toward more open contention over issues of
pay, work rules, and working conditions” (Walder 1994). The managers of state
enterprises, who had received limited power from the state over decisions about wages
for their workers, in a situation of “soft budget constraint,” when the wage bills for their