Gosplan Is Dead. Its Best Ideas Still Work in Large Corporate Groups
What Soviet planning got right, what China changed, and what large corporate groups can learn from both
Can the planning logic of a large country work inside a large industrial corporation?
Ronald Coase described the firm in 1937 as an “island of conscious power” in a market economy. Inside the firm, decisions are coordinated by management rather than by price. Outside its boundary, the market takes over.
The larger the group, the more of those decisions it makes internally: where to allocate capital, where to deploy equipment, how to use scarce capacity, and which projects take priority. A large corporate group ends up solving problems remarkably similar to those of an economy: allocating scarce capital, capacity, people and other interdependent resources.
This is the logic behind a term I use — Gosplan 2.0. Gosplan was the Soviet Union’s central planning agency, and the reference is deliberately provocative. I do not mean a return to the Soviet model. I mean modern, data-driven integrated planning: a single resource balance, scenario planning, and an end-to-end link between demand, production, investment and finance.
And here, the old Gosplan still has something to teach.
What actually works in a corporate group
A big goal instead of a sum of budgets
One kind of plan records the trajectory a company is already on. Another sets a target meant to change that trajectory. The annual budget usually belongs to the first kind: it describes in detail what the company already intends to do — which is why, by March, it often describes a company that no longer exists.
A target-driven plan does the opposite. Strategic priorities are supposed to shift the allocation of capital, capacity and people — not simply appear as one more line in the budget. For a group, that means a handful of corporate bets that genuinely move resources, rather than dozens of subsidiary-level goals, each defending its own plan.
A goal, however, settles nothing on its own. It has to be tested against the economic reality reported by the businesses themselves: the actual returns of a project, real capacity utilisation, cost, demand.
“Strategic” status breaks that channel with remarkable ease. The subsidiary stops reporting the project’s poor economics, because challenging a strategic priority is rarely good for one’s career. The centre stops asking awkward questions because the project is already a strategic priority. This can keep a project alive for years after it no longer passes the standard investment hurdle.
So even a strategic project should face the same economic filter as everything else — and the body that allocates capital must have the authority to stop it.
Resources first, plan second
The Soviet system invested heavily in knowing what productive resources existed, where they were located and what capacity they actually had.
For a corporate group the principle is even simpler: resource balance first, plan second.
How much cash, equipment, production capacity, people, inventory and available machine-hours does the group actually have? How much is already committed? Where are the reserves?
Without those answers, any plan is just arithmetic.
Then comes the harder question: who has an incentive to tell the centre the truth about idle resources? A resource balance is useless if a business unit is better off reporting its resources as busy and understating its reserves.
Linking the chain end to end
Inter-industry balances solved a simple problem: match what some industries need with what others produce, and check that resources cover the whole chain. Wassily Leontief developed the input-output model, echoing the Soviet Union’s early-1920s balance-of-the-economy tables; Gosplan itself went on to rely mainly on the simpler material-balance form.
For a corporate group, the same principle looks like this: raw materials → production → logistics → project → customer.
If one company raises output but the next link in the chain has no capacity to process it, the group may capture no benefit at all — or only after additional investment.
This is where economic value matters. A physical balance shows where a resource is scarce. Economic evaluation shows where that resource creates the most value.
One programme, one decision-making system
Large nuclear and space programmes were built around a single management loop connecting development, production, procurement and funding. Passing instructions along a chain of independent agencies was too slow for tasks of that scale.
In a corporate group the same principle applies to major programmes: a single owner of the outcome, one team, and the authority to decide across functional boundaries.
The modern form is secondary — a programme office, a planning committee, a cross-functional team, an investment committee. What matters is that the body can actually make decisions, rather than simply prepare papers and record decisions.
A central capital allocation mechanism
The Soviet system ran dedicated mechanisms for financing capital investment, separate from day-to-day payments. For a group, a similar principle applies: if capital is limited, large projects should compete for it against each other — regardless of which subsidiary they sit in.
The closest corporate equivalent is the internal capital market. The centre compares projects across companies and directs capital to where expected returns are higher.
The flip side is well documented: when allocation rules are opaque, the internal capital market quickly turns political. Capital flows not to the best project but to the subsidiary with the strongest influence at the centre.
What else is worth taking
| Practice | How to apply it in a group | Where it breaks |
|---|---|---|
| Productivity targets | Rolling targets and bonuses for real improvement | Don’t turn a disclosed reserve into the new baseline |
| Best-practice scouting | A practice owner finds the best solutions and scales them across subsidiaries | Good solutions must not stay local |
| Internal competition | Benchmarking subsidiaries and internal teams | Compare under common rules; don’t pit companies against each other over a shared resource |
| A market layer | Leave the variety that centralisation doesn’t improve to the market | Don’t plan what the market coordinates better |
The last row deserves a principle of its own: not everything should be planned. Even the Soviet economy kept a market layer at its edges — producer cooperatives known as artels, whose product range was, by some accounts, wider than Gosplan’s own catalogue. The logic for a group is the same: the centre should plan where scale and coordination pay, and leave variety to the market or to local businesses.
The real strengths of planning are not commands or data volumes, but a big goal, resource linkage, portfolio-level capital allocation, end-to-end chain management, and the scaling of what works.
But all of it works on one condition: information from below must actually change decisions above.
A strong centre is not the one that decides everything. It is the one that changes its decision when a new economic signal arrives from below.
Why planning starts to lie
A command system without economic feedback gradually corrupts two signals: how many resources the system really has, and how much capital it is truly prepared to spend for a result.
The first mechanism was documented by Joseph Berliner in 1957 — the ratchet effect.
It is brutally simple: reveal a reserve, receive a higher plan. A rational manager who has been through that once will be in no hurry to reveal the next reserve — not when disclosure is instantly converted into a higher obligation.
Corporate life knows the pattern well. A unit finds a way to produce ten per cent more. If those ten per cent automatically become next year’s baseline for budgets and KPIs, the next reserve will not be disclosed so readily.
The second mechanism was described by János Kornai — the soft budget constraint.
If a manager knows the centre will add money at the critical moment, the link between spending and results weakens. A project overruns its budget, receives additional funding and carries on. The more reliable the expected rescue, the less it costs to be wrong.
Kornai wrote about socialist economies, but the mechanism needs no socialism to appear inside a large corporation: a subsidiary confident that the group will ultimately stand behind it loses some of its own capital discipline.
In corporate groups these mechanisms take a distinctive form.
The Soviet factory hid its reserves. A subsidiary doesn’t hide them — it just won’t hand them over.
Consider a shared equipment fleet. A subsidiary has five machines standing idle. The centre asks it to transfer two to a neighbouring company. The director refuses.
That is not necessarily dishonesty, and not necessarily greed. The director has rational reasons: upcoming projects of his own, contractual obligations, the risk of getting the machines back damaged, no guarantee they will return in three months when he needs them.
Above all, there are his incentives. If the director answers for his subsidiary’s results, idle equipment is his reserve. Handing it to the group means giving up his own safety margin and taking on a risk his KPIs may not recognise at all.
The problem is not culture. The problem is the rules of the game.
That is why an instruction to “share resources” works only briefly. What works is rules that change the economics of the decision: a tariff for using the shared resource, a clear order of priority, accountability for idle time, rules for returning the asset, and compensation for its owner.
Then idle equipment stops being the director’s personal insurance and becomes a group resource, deployed where it creates the most value.
Here is the boundary between central planning and workable group management: the centre may allocate resources, but only if the rules make it profitable for subsidiaries to reveal what those resources really cost and what else they could do.
China: Gosplan plus the market
China did not abandon planning. It changed planning’s function.
Modern five-year plans combine binding targets with indicative ones. The state keeps the ability to set strategic priorities, but where the market works, the plan does not try to replace it. The plan sets direction; prices, competition and firms’ own decisions provide the feedback.
That is the crucial departure from the Soviet model. In China, plan and market do not compete for the right to coordinate the whole economy. Each works where it is stronger.
High-speed rail is the emblematic case. Its advantage was built on more than scale: standardised structures, serial production, a localised supply chain and repeatable design decisions cut construction costs. The World Bank estimated China’s per-kilometre high-speed rail construction cost at roughly two-thirds of comparable systems elsewhere.
For a corporate group, the railway itself is not the point. The principle is: scale starts to pay when the same resource, standard or technology can be used across a portfolio of projects at once.
But scale only works with a sufficiently long decision horizon.
Russian economist Alexander Auzan argues that trust affects the time horizon of economic decision-making: when people are not confident that rules and relationships will hold tomorrow, optimising today’s result becomes the rational choice.
For a group, the stakes are concrete: a subsidiary will not willingly release a resource into a shared pool unless it trusts it will get that resource back when needed. It will keep its own buffer even when that is inefficient for the group as a whole.
Trust, then, is not a soft topic about corporate culture. It is part of the economic infrastructure of planning. A long horizon is what allows subsidiaries to share resources, invest in common standards and act in the group’s interest rather than optimise for the next budget cycle.
China also shows the model’s other face. Wherever economic feedback weakens, familiar problems return: local-government debt, dependence on refinancing, overcapacity. A market does not guarantee good decisions if participants do not bear the consequences of their mistakes.
A corporate group has it easier. An owner can set financing rules, internal tariffs, priorities and the terms of support for subsidiaries in advance. But ownership by itself settles nothing. If everyone knows the centre will bail out a troubled subsidiary anyway, the internal market stops being a market and the budget constraint stays soft.
Which is why adding a market to the plan is not enough.
The plan sets direction. The market provides feedback. The rules make that feedback credible.
How to build a planning system in a corporate group
Put these lessons together and you get neither a copy of Gosplan nor an attempt to turn the group into a marketplace. A working system uses both mechanisms: the centre links interdependent resources, while economic feedback tests the decisions.
Not everything should be coordinated the same way.
| What is coordinated | How | Main risk |
|---|---|---|
| Strategic bets and capital | Portfolio management and an investment committee | Pet projects and political capital allocation |
| Scarce resources | Internal tariffs and access rules | Gaming the tariff, local optimisation |
| Demand, production and finance | A single scenario plan and a monthly cycle | The plan becomes a ritual |
| Standards and architecture | Common rules | The centre starts running operations |
This is where the unified resource balance comes in. It is not another management construct sitting next to integrated business planning — it is one of IBP’s core functions. In a good cycle, demand, production capability, materials, capacity, cash and investment converge in one scenario and one decision cycle.
Six concrete elements make it real.
1. A single investment mandate. A body that can actually reallocate capital between subsidiaries, not merely endorse their requests.
2. A single resource catalogue. The group has a clear view of where its cash, equipment, capacity, people and other scarce resources are — with a named owner and a regular update cycle.
3. Internal tariffs. A shared resource has a transparent cost — including urgency, idle time and damage — consistent with the group’s transfer-pricing rules.
4. A single planning cycle. Demand, operations, finance and investment converge in one monthly IBP cycle that produces decisions, not just updated reports.
5. Reserve verification. Someone independent of the resource owner checks the claim that “everything is in use”.
6. Support rules for subsidiaries. Subsidiaries know in advance when the centre will fund a problem — and when it will stop.
And here is the uncomfortable conclusion for digital transformation. Digitisation alone does not solve this. You can build a single data platform and integrate ERP, analytics and production systems — but if a business unit profits from reporting its resources as busy, it will do so in the new system too.
Data quality is not only an architecture question. It is an incentives question.
Reward the release of genuine reserves and put a cost on fictitious utilisation, and data quality will improve along with the economics of the process.
In that sense, a modern Gosplan 2.0 is not a big information system. It is a system in which data, decisions and incentives operate in one loop.
Three questions instead of conclusions
Is there one body in your group that can genuinely reallocate capital between subsidiaries?
Do you know the real cost of your scarce internal resources — equipment, capacity, people, cash?
Do your subsidiary CEOs believe the resource-allocation rules will work the same way today and a year from now?
If even one answer is uncomfortable, the problem is unlikely to sit in your plan-versus-actual reports or in the next planning system. It runs deeper: in how resources, risks and accountability are distributed inside the group.
Strong planning does not start with commands or models. It starts with feedback that genuinely changes decisions. Gosplan knew how to link resources. The market knows how to test decisions through prices and results. A modern corporate group can use both mechanisms — without inheriting either system’s weaknesses.
This continues my series on integrated business planning. Next: how a construction group’s unified resource balance works, and why planning for construction had to be built around a portfolio of projects.
A separate article will take up Alexander Auzan’s idea of the decision horizon: why trust changes the horizon of management decisions — and with it operational efficiency, investment and the willingness to share resources.
Sources
Ronald Coase. The Nature of the Firm, 1937 · doi.org
János Kornai. The Soft Budget Constraint, 1986 · doi.org
Joseph S. Berliner. Factory and Manager in the USSR, 1957. Harvard University Press
Jeremy Stein. Internal Capital Markets and the Competition for Corporate Resources, 1997 · doi.org
World Bank. China High-Speed Rail: A Look at Construction Costs · worldbank.org
IMF, World Bank, OECD, EBRD. A Study of the Soviet Economy, 1991 · elibrary.imf.org
IMF. People’s Republic of China, Article IV Consultation, 2024 · elibrary.imf.org
Alexander Auzan. Cultural Codes of the Economy. AST, 2022
Galushka, Niyazmetov, Okulov. Crystal of Growth — an interpretive source used as a catalogue of management mechanisms · crystalbook.ru