From the Mid-1960s to 1985
In the second half of the 1960s, the development of mathematical economics resulted in the system of optimal functioning of the economy (SOFE) concept created by the scholars of the TsEMI, headed by N.P.
Fedorenko. The SOFE concept views the economy as a hierarchical system with an inherent objective function. Planning was seen as the problem of optimization of the objective function, under the constraints of scarce resources. Given the complexity of the economy, total centralized planning was deemed to be impossible. The regulation of local economic entities was to be based on prices, calculated as ODVs. From this general approach, several major proposals for the reform of the planning system were derived. Planning was to be an iterative process, integrating plans with different horizons. An all-union system of collecting, processing and transmitting of information was needed to provide the technical basis for planning. At the top level, decisions were to be made in aggregate terms; at the lower levels, there would be disaggregation for all scarce resources, ODVs (or shadow prices) would be calculated and economic accountability would be widely used.Some of these ideas were implemented during the economic reform of 1965. This reform, however, was not comprehensive in character, nor was it accompanied by any political reform. Implementation proceeded very slowly. There was a gradual return to centralization.
During the 1970s the performance of the Soviet economy deteriorated, as a diminution in the rates of growth of basic economic indicators made clear. The authorities attempted to solve the problem by reinforcing the centralization of the economy and by modest changes in the system of management. Proposals for improvement of the economic mechanism, made by mathematical economists, became less and less radical.
Theoretical discussion was accompanied by some integration of mathematical methods into planning practice but on a piece-meal basis only and at a snail’s pace. Even simple optimization problems were very rarely solved in the planning process. As problems in the real economy increased, theories of optimal functioning of the economy were increasingly looked upon as being unrealistic. The impact of mathematical methods on planning remained marginal and this, in turn, exposed mathematical economics to criticism. It became increasingly evident that any successful application of mathematical methods in planning and of scientific methods of management in general were incompatible with the command economy.