the incentive system still rewards competent but con- 

 servative management and offers little for innovation. 



On the other hand, penalties for non-innovative be- 

 havior are also much greater in the US than in the So- 

 viet Union. Part of the reason lies in the basic dis- 

 similarities between a competitive market economy and 

 a centrally planned economy. In the US, competitive 

 market pressure is a principal driving force behind 

 innovation. If a firm does not respond to the threat 

 posed by the introduction of new technology by com- 

 petitors, it may not only lose its share of the mar- 

 ket but indeed be eliminated altogether. In the US 

 technological change is a major cause of dissolution 

 or bankruptcy of firms. As we have noted, a firm's 

 performance is ultimately judged on the basis of not 

 only its own innovative behavior but that of its com- 

 petitors as well. The need to keep up with, if not 

 ahead of, innovating competitors literally forces 

 American business to innovate. 



The Soviet system, however, lacks strong sanctions 

 for failure to innovate. The kinds of built-in com- 

 petitive pressures that exist in the American market 

 economy are not present. There is competition, it is 

 true, but socialist competition is a carefully con- 

 trolled exercise in which everyone competes according 

 to plan. There are only winners — and no losers, since 

 losers really lose nothing. Today sanctions imposed 

 when plans are not fulfilled are rarely more severe 

 than modest monetary penalties. The plan for new tech- 

 nology continues to be the one plan in the USSR that 

 is consistently underfulf illed. The economic viabil- 

 ity of the non- innovating enterprise is not automati- 

 cally threatened by the decision not to innovate. So- 

 viet enterprises do not go bankrupt or out of busi- 

 ness. Inefficient plants are not placed in a severe- 

 ly disadvantageous position in relation to innovating 

 establishments. On the contrary, the opposite holds. 

 Just as there is a ceiling on the available rewards 

 for successful innovation, there is also a floor to 

 cushion the risks of failure. The organizational 

 structure protects producers against losses from both 



326 



