The 1965 Soviet economic reform, widely referred to simply as the Kosygin reform or Liberman reform, was a reform of economic management and planning, carried out between 1965 and 1971. It was characterized by the introduction of capitalist

Capitalism

Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...

 methods of management, increased economic independence of enterprises, associations and organizations, and the extensive use of methods of material incentives. It was intiated by the Premier of the Soviet Union

Premier of the Soviet Union

The office of Premier of the Soviet Union was synonymous with head of government of the Union of Soviet Socialist Republics . Twelve individuals have been premier...

, Alexei Kosygin.

The reform was initiated due to the increasing complexity of economic relations, which reduced the effectivity of economic planning, and the desire to make fuller use of economic growth

Economic growth

In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...

. It was recognized that the existing system of planning did not motivate enterprises to reach high targets or to introduce organizational or technical innovations..

The basic ideas of reform were first published in a paper by professor Evsei Liberman

Evsei Liberman

Evsei Liberman was a Soviet economist who lived in Kharkiv .He was a teacher at the Kharkiv Institute of Peoples Econome, the Kharkiv Institute of Engineering and Economy and the University of Kharkiv....

 of the Kharkiv National University of Economics

Kharkiv National University of Economics

Kharkiv National University of Economics is the largest economic higher educational institution of the Eastern Ukraine. It's a state-owned higher school of the IV-level accreditation and belongs to the Ministry of Education and Science of Ukraine....

. This paper marked the beginning of an extensive economical discussion in the Soviet press, and drew extensive criticism. Several economic experiments were initiated to test Liberman's proposals.

The reform was implemented by the Central Committee of the Communist Party of the Soviet Union

Central Committee of the Communist Party of the Soviet Union

The Central Committee of the Communist Party of the Soviet Union , abbreviated in Russian as ЦК, "Tse-ka", earlier was also called as the Central Committee of the All-Union Communist Party ...

 and the Council of Ministers. It consisted of five "groups of activities":

1. The enterprises became main economic units.
2. The number of policy targets was reduced from 30 to 9. The rest remained indicators: total output at current wholesale prices, the most important products in physical units, the total payroll, total profits and profitability, expressed as the ratio of profit to fixed assets and working capital normalized; payments to the budget and appropriations from the budget; total capital investment targets for the introduction of new technology, the volume of supply of raw materials and equipment.
3. Economic independence of enterprises. Enterprises were required to determine the detailed range and variety of products, using their own funds to invest in production, establish long-term contractual arrangements with suppliers and customers and to determine the number of personnel.
4. Key importance was attached to the integral indicators of economic efficiency of production — profits and profitability. There was the opportunity to create a number of funds based on the expense of profits — funds for the development of production, material incentives, housing, etc. The enterprise was allowed to use the funds at its discretion.
5. Pricing: Wholesale sales prices now had to be profitable.

In agriculture, the prices paid for goods rose by 1.5-2 times.

Average annual growth, %

years	gross social product	national income
1961—1965	6,5	6,5
1966—1970	7,4	7,7
1971—1975	6,4	5,7
1975—1979	4,4	4,4

Economic performance over the previous year (1960 = 100)

year	gross output	number of employed persons	fixed productive assets
1965	148	123	186
1970	163	115	152
1975	137	108	151
1979	116	107	134