ABSTRACT
The Soviet economy's lackluster performance with respect to innovation and its widening technological lag behind the advanced industrial countries has long troubled leaders in the USSR. What is new is that the issue has escalated to the point where it has become, in the eyes of Mikhail Gorbachev, the key criterion for the ultimate success of his reforms. In the West, vigorous and imaginative pursuit of market opportunities largely determines innovation performance. There is nothing in the Soviet reforms to date that places the pursuit of product quality and customer satisfaction high on the list of entrepreneurial priorities. Soviet leaders have long been troubled by the repeated failure of their "tinkering" with the incentive structure to overcome industrial managers' resistance to innovation. Gorbachev's reforms make another attempt to resolve this stubborn problem. The approach is a familiar one—rewarding successful innovation with more generous special bonus supplements to salaries by drawing even larger shares from enterprises' retained profits.
