Oh goodness, where can we start,
throughout the 1950s and 60s, Khruschev, in his burst of reforming energy, wanted to make the Soviet economy wealthier than the US one, better at providing consumer goods for all […] a true triumph of socialism. And, for a time, it seemed to be working. […]
How to make it actually work, then?
You can't make it work, but for reasons different to those outlined below.
If we assume that the true triumph of socialism is actually achieving workers control; then, it can't. If we assume that the true triumph of socialism is an interclass bargain with increasing working class standards of living based on latent working class industrial power, then the US and USSR were both triumphant to 1970.
However, Khrushchev wasn't the pure consumer goods line member of the PC CC CPSU that some make him out to be. Mikoyan, for one, would be a better bet. Then again, as proven in 1956, Mikoyan stood on the side of a working class in control of its own destiny. Which rules him out. Because the one fundamental relationship between the Party and the working class was that the working class could not have political or economic power. See Simon Pirani's work on the pre NEP bargaining. Of course, the failure of the Soviet Elite to supply their half of Pirani's social democratic bargain is a massive problem. One which was attempted to be solved by better management practices.
Probably ASB. Communism as it was practiced in the Soviet Union was flawed from the start.
Not quite. The Soviet Union achieved massive amounts of heavy industrial and consumer growth to the 1960s, and then stalled. Why? I'm going to point to management practices in a little bit.
Unfortunately you can't make it work unless you embrace capitalism (or at least management theories from capitalist economies).
Input output theory? Norm planning? These were developed and perfected in the 1930s and 1940s. For their failure see /Worker in a Worker's state/ on the downfall of the norm. In the West, a stronger working class meant that upping the norm was not a sufficient basis for growth. Additionally, the plurality of development strategies within firms meant that methods were found to undercut the benefits gained by workers through Fordist norm bargaining. Additionally, in the post-1970 period, the West found it much much simpler to liquidate the welfare state. Liquidating the welfare state in the East would have meant shutting down factory provision of social services to the employed, which would have meant a much larger version of Hungary 1956 or Czechoslovakia 1968. For an example, look at Poland under austerity measures in the 1970s and 1980s where direct military rule was required.
A planned economy gives no opportunity for incentives which means that excellence is not rewarded. So why would you make a porsche when a lada does the same job?
You're not talking about worker incentives here, which were commonplace in the Soviet Union; you're talking about management incentives. When you're working a line you make a porsche or a lada because you're damn well told to. This is true East and West. As for why Soviet management was unable to jump the qualitative barrier in the 1960s, the most significant element I'd point to is the large military overhead which the Soviet Union chose and had to maintain. (The necessity was largely to do with the power of the Great Patriotic War in the division of military spoils. Khrushchev's suggestion that the armed forces be reconfigured towards strategic defence through a threat of nuclear annihilation was not well received). Without this political-economic overhead, the East could have placed its most technically developed production lines towards producing consumer goods.
the environment they had to work in did not promote competition
You're misidentifying the nature of competition in the West. Within the firm, prior to the 1980s, competition was little known. Both Western and Eastern Fordist firms are internally command economies.
You'd need to turn Russia into OTL China but the problem Russia would have is that the state organisations were idealogically based as compared to PRC where idealogy supported the continuation of the state).
Except in the 1980s the nomenklatura abandoned ideology all together, sold the factories to itself, and dismantled the welfare state now that they no longer relied on worker consent to maintain power. The issue is how the Soviet Union can abandon its own ideology, dismantle its welfare state, and revitalise management control of production on a political economic level while maintaining an outward veneer of "socialism". The other option: Hungary 1956 and Czechoslovakia 1968, of a socialism run by the workers themselves in the workers interests with the Party having to compete for workers support was destroyed by force.
Russia would need to suffer the Maoist repression to allow the state to exploit the workers as PRC does.
China's industrial proletariat in 1980s was minuscule, and China gutted its old factories throughout the 1980s—see the centrality of worker involvement in 1989, China's "1956". China's new factories are built out of a new proletariat without a continuity of struggle with the old proletariat. The Soviet proletariat was far too large for the Soviet Union to gut its factories in the manner that China did. Consider the resistance of the British working class to neoliberalism in the early 1980s. Now imagine the Soviet Union suffering a simultaneous multi sector general strike when the nomenklatura tries to reform heavy industry, energy, transport and production industries simultaneous. There's a reason why the nomenklatura used a capitalist revolution as cover for dismantling 72 years of a welfare state promise.
yours,
Sam R.