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Annual Bulletin on Soviet Economic Growth

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Annual Bulletin on Soviet Economic Growth


Thli bolktm wai prepared b>

. Office of Soviet Analyils, with ocrotnbution*

from lb*

Annual Bulletin on Sosiet Economic Growth-

This publication Is Ihe latesteries of bulletins on (be petcc of (he Soviet economy publiiixs]uarterly basis4 by the Office of Soviet Analysis- The fourtb^oaner (annual) bulletin presents for the fecord our assessment of (he performance of (he caraany for the entirerap-up of economic developments In thelso done catch yearoint paper by the Central Intelligence Agency and Defense IntcIKsrcnce Agency Tor ihe Joint Eoxscxroc Comraluee cf Congress. Tbe joint ClA-DIA paper analyzes Soviet exonortue performance bul concentrates on broader policy issues, particularly defense spending and iu impact on the economy. See, for example, jointaperhe Sonet Economyorbachev Chajtrtt Course,

This bulletin uses botherived CIA measures and official Soviet statistics lo analyze the performance of the Soviet economy and assess tbe progress cf the leadership's economic plans and policies. Irxlependeotiy derived CIAexample, of the growth of ONP, industrial production, and agriculturalused when we believe lhat tbe cones ponding Soviet indicators distort actual economic performance, generally because their growth reflects inflation or varying decrees of double counting, and when we have stitricJent data to construct alternative measures. When we Lack such data or judge the Soviet indicators to be reliable, official statistics are used and are identified as sucb In the text and acMimpanying ubles and charts.



May (OT

Annual Bulletin on Soviet Economic Growth

Key Judtto preliminary CIAlte Soviet economy grew by

ercent insecond straight year of poorediocre harvest did much to slow the economy's growth, but the increase in industrial output was also lest lhan in the previous year. Indeed, the overall performance of tho economy tail year was no better than tbe lackluster results achieved1 ia the earlythat the current leadership has characterized aseriod of stagnation.-

Most of the programs ihat tbc kadenhip was counting on to boost economic performance last year produced disappointing results:

The industrial rnoderruzation program,major part of Gorbachev's program lo revitalize tbe economy, spattered as commissioning? of new factory capacity and production of modern machinery and equipment fell far ihort of Ihc economy's needs,

The expansion of reform measures, such at enterprise tclf-financing, disrupted tbc economy as problems ia their design and execution largely undermined their effectiveness.

Perhaps most important, lhc regime's effort lo improve consumer welfare and increase popular support for Gorbachev'i programs was largely unsuccessful. Consumers taw little improvement in their living standardsndeed, daily life in many respects became harder food shortages worsened; inflationary pressures intensified, primarilyesultapidly growing budget deficit;ariety ofcheaply pricedfrom retail stores. These problems contributed to aa apparently growing perceptioo in the USSR Ihat under pewiroyka ordinary people arc lhc victims rather than the beneficiaries of change

Id an effort lo turn tbe situation around, lhc Soviet leadership bat revised its economic priorities. lis primary focus9 is on reducingpressures and improving living standards. Neither the modernization program nor economic reform has been abandoned, bul both aretaking back teats lo ihe effort to strengthen popular support for perenroyka in ihe economic sphere. These shifts have been reflected in:

The approval of an economic plan9 thai emphasizes lhc delivery of more and belter consume* goods and services.

A subsequent decision to cut state centralized investmentromise to reduce dcfenic expendituresy aboutercent.

Leadership statements that retail price reform has been put on hold indefinitely

In our view, (bemeasures approved to Tar have Ihe potential lo help reduce the budget deficit, provide more resources for oosuumption, iH restore consumer confidence. Still, lhc eiperience of the past three years suggests thai problems and delays in implementing the revisions in tho economic game plan are almost certain lo occur. Moreover, while delaying price reform should case consumer anxieties, it also will deny producers the incentive they need to improve the qualily of goods and services and increase productivity. On balance, therefore. Soviet economic prospects9 are probably modal at heal. Although slightin living standards are possible, economic growth is likely to rcmair slow, and tbe regime probably will continue lo be frustrated by the economy's slow crogress in improving product quality and increasing efficiency.


Judgments v

Leadership fctpccuttons8 I



Materials 2


Food Industries

Cuneocy Trade


Standard of living Erodes J

Increases, but CommiHwouifs Ug

Outlays Continue To Rise

New Course

Annual Bulletin on Soilet Economic Growth

Lradenhlp EipKUdM la I

Afterdiiappotnting rearoviei leaden were countingider lalroduction of ptresiroyka last year to spur economic growtb, improve living itandirds. ind dupcl the poptiliilon'i iimgmngi about Gorbachev'! demotic policies. To judge Itota kadenhip speeches, tbc Kremlin believed that somef Um rncdernUaUoo program, further deccainitiation of tccwacak deeuioo mating, more Opponanltlca fee worken to euro larger ineotan. aad tbe expanded dimensions of private entrepreneurial activity would promote mere personal initiative and lead to greater output and cmciency throug bout ibe economy

The economy'l performanceowever, fell well short ot the leadenblp's es^emtlona Not only wit economic growth ao belter thanut the reforms Introduced last year contributedew set ofa higher rale of inflation and shortages in consumer marked By the end of the year, Gorbachev'* rettructnrlng program hadlost momentum, and Ihe leadership altered Its approach to solving tbe country's economic problemi.

Figure 1

USSR: Economic

Atrjrr anal rou ef pM"


ot feed, wed. woic, ind punfcuv* tram aba team


to preliminary CIA estimates, the Soviei economy grew byS percent lasttecond straight year of poorisap-txiiniing harvest did much to tlow the economy's growth, but Industrial growth wat also lea* than in the previous year. Overall, the performance of thewas no belter than the lackluster results achieved in Ibetee figure 1)

theranches of ioduiiry, onlyand nonferrout metals, wood producu, and lightany appreciable improvement.growth in the remaining brancheasubstantial amounts in several key industries (sec table I)

Industrial production increased by about Vn percentoughly the same as the sluggish growih rates registered throughout most of this decide. Of

Scversl factors combined to limit industry'. growth:

Most ministries resisted new reform measures and continued to force firmsroduce according to ministerial dlhal rather than allowing them to find aod exploit opr-Mtunitic* for growth.

Many enterprises increased their profits byor reducing output of goods with low Stale-set prices, thereby creating shortages and supply disruptions that constrained production. Complaints were voicedouncil of Ministers meeting last October, for instance, that standard products such as conveyer belts had became virtually unavailable as enterprises adjusted their output mix in the Interest of greater profitability.

Shortfalls in bringing new capacity oo line also hampered production a- commissioning* increased by lessercentbout one-twelfth of (he planned raie.

Moscow's quality control campaign trasp/lyernka) also continued to impede industrial production, even though, according lo Soviet officials, it failed to generate much improvement In quality during the program's second year. Premier Ryzhkov stated in July, for instance, that "we haveass of seals of quality, bul wc still have non lhc wake of sucb complaints, the future cf the quality controlnclear. The Soviets have scaled back their plans to expand the program thisd debate over gasprieemka is continuing.

Industrialorbachev's plans to modernize the USSR'* industrial plant and improve the quality of oulpul require greater output of advanced metals, chemicals, and construction supplies. Most materials-producing branches performed poorly Usl year,as (bey had7

Serious shortages of plastics and resins, inter mediate chemicals (synthetic ammonia, soda ash, and causticnd pesticides held estimated growth in the chemical industry toercent. Lags Innew capacily on tine and confusion caused by organiiational changes also cooiribuied to the dropoff in performance

Oulpol of cementillion metric tons, helping the conifruelfon materials industry to post anercent gain. Bul production of other importani materials, such as window glass and precast ferroconcrete, which are critical tornoderaiiation plans, declined. Difficullies in adjusting to economic reforms and persistent retooling problems contributed to this sector's svoes.

Ferrous metals production rose by lessercent, according to our estimate, far short of the rate of increase requiredeet tbe needs ofparticularly (he machine-building sector. Crude steel

ouipul Inched upillionmillion toiu mote lhanled pipe and rolled ueel produc-ttaa aha rcac moderately, despite industrial accidents al the Niihaiy Tagil aadumber of ferrous metals plants, bowcv-ef. drew heavy fire from ministry ofheiaLs for Im In Introducing conlinuout caatiag technology and bask oiygcn furnaces

Orowth of nonferrous miiali production rebounded6 Web. led by gains ta ahumwam and nkkel output. Soviet source* credited increased utiluaitaa of processing capacity and new Western smelting cquip-meai for tbe upturn.

Strong performance in furniture productionliflii improvement in paper output helped tutain anpercent increase in output of Ibc wood producti Industry. Tunbcr felling was plagued by. among other ihjnpv. equipmeni breakdowns. Thawas criticized for shortfalls in tbe nroduetlon of chipboard and cardboard packaging.

According lo our animates, energyincreasedercent last year (tee' Gas output continued to post be/ty gains and moved even with oil as the major sources of prima rv energy output ia the USSR (about 13

Soviet oil produclion averagedSbout lhc same at In tbe prtviout year. Daily output during tbe year, however, felligha tbe second Quarter7a (ha fourth quarter. Wc believe that production In tbe key West Siberian ragaccount! for two-thirds of nationalleveled off whik production from other regionsto fall To prevent further decline* In national product loo. Moscow will need lo boost tbe already

stagierivaf brvettmeat going to tbe oil


TKU HKaiartnMMtin MlprataOMA

In UUt iu. Itur call beau* ft I- -ItwtiHd ta irim ofi roaMM mta iinnoutput

Natural tat output expandedercenl pace loillion cubic meters- Increased production from gatbeldi la northern Went Siberia continues lo account for nearly iB ol the growth in gas output. Maiirtaieiag this robust growtb over lhc neat several years, however, will become moreaad ei pensive, requiring accelerated construction of local distribution pipelines, convutioe of esng equipenenttod wider use of new gaa-fircd equiposeaL

Raw coal production increased only slightly more rapidly thaa7 andillioo metric ions. However, the avaraga energy content of Soviet coal It dediaiag beoana of the targe* shnr* of local ptoduciion coming from low-quality coal basins ia Siberia and wting mining conditions in ibe Ukraine.,

estimateoulpul view Mil year al ibe slowcat paceearlyhe increase wai generated al nudear aad hydro piiau laihct ihaa fossil-fueled psaals as la previous years. Tha erjastrac-lioo of new nuclear and hydro planu ia besot cspcosed. however, by environmentaln responseopular pressure as well a- growinr. official concern over public safely following lhc Chernobyl* disaster,1 ihe SovieU announced lhai construction was suspended or canceled onucfearinvolvingeactors and0 megawatts of falarc capadly.esult, rruiauiatng eleciriai, arc-wth at the naesntaary aastuel rataea-cent will becocne Increasinf ty difficult In tbe years ahead.

Denpiie the rapidly rising cosls of energy production in Ibe USSR and tbe need to boosl energy escorts, ihe Soviet ecocioeny remains addicted to energy. Tbe availability cf vast and heretofore easily exploitable energy resources has firmly embedded tbe impression of cheap, plentiful energy In Ibe minds of Soviet consumers. Waste rents im pervasive, for Instance, in both factories and boose hoMs. We believe energy-assoeiaied problems will ultimatelyajor barrier lo tbe sustained higher rales cf eeeasomic growth thai Gorbachev wants and badly needs (see insetiscussion of Meaonw'a urogram lo deal wilh Its energy problem).

UgJ* ami Fmt4 ImdmsiAa Judging from leadership speecfaea aad media criticism, the performance of the branches cf industry that produce consumer goodsource of serious concern to ibe Sovietlast year. The two consumer-oriented Industrialindustry and foodturned la unlmptra-rlve performancea-

We estimate that overall oatpal ofmstmry prodtftu ftewerceni The leadership sharply criticized officials for high prices, the low quality of goods, and production ahortfalla. In addition. Soviet ofiklali chastised the industry for ignoring on'-"low-priced goods for children and tbe elderly.

Tbe food-procrsilKf iodosiry registered less growth than. Officials aad consumers complained that many varieties cf food disappeared from produc-tlon and that in some cases Ibe quality of processed

Sltoriages cf aof products were reported in many areas of ihe country.)

harp cutback ia dau mHahoi by Moscow oa lhc raanafaetarc cf iadarirtal prodaking it more difficult io assess the performance of the machine building branch cf industry. The limited statistics that were published last year as wel as leadership atalements Indicate, however, that these industries did not produce either the quantity or the qualily of equipment needed for the rtjime'i modem-rzation program.

We esiimale that, despite tbe heavybe machine- buildiaindusiries over lhc past few years, productionS increased by onlyleas thanercent annual increase called for Inlan. Oulpul of cowumer durables Increased byerocnt;durables production grewercent. Tbe regime'i disulcasare ewer this sectors perfor-sr-aace was apparent from ibe harsh criuciim directed at the machine builders throughout the year. Prime Minister Ryihkov complained openly, for instance, that ihe machine (oo) industry made too manyoperated machine tools and tooolled ones.

Theot, however, bacsjag away from Iu rac-Jerniratloa effort. Rather, several sicca were taken during tbe year to refine and revise the program:

Last July Moscow announced thai oaly thosedesigns that supportesignated priority directions of technological development would be centrally fended.

la Ilecranber the Peeitburo realhrtned maculae building's prioriiy role In providing tbebasis for eooaonuV: rnrvWsirai'oa aad gave tbe Machine Bail-ting Bureau, lbs smaaii/iet, and tbe State PUnrtieg Ccmciittee sis months too Improve tbe perforsnaaee of ibis sector.


The Long-Termrogram

Moscow'i tfforii io deal wiih new challtngrt in energy policy art rtflecied ia ihr long-Term Energy Program. publishedhich defined Ihe USSR'* energy goal* to theo atpeci af ike energy lector wot neglected In this policy slale-mem. which appearedompromitr among tht variousof conservation. Inlerfuelon. and energy-producing Industries

The program'* goal* for oil produclion were stated in vague phrases ruck asiaMe. high level of oil output" and "an increase in liquid /ml -tho; ensured continued priority for resource allocation bul are difficult lo translate Into output largeti. Natural gas was touted as the growih fuel until the, when output was scheduled to plateau at an unspecified maximum. Nuclear energy, coal, and hydroeduced role) were slated to meet all growih in energy demand beginning In ihe. Conservation targets, although significant, teemed lo imply that moil savings would come In tktather tkan grow throughout ike period Fuelwas loari in the transitions from oil to gas and later from gas lo eoo-

USSR: Goab for Energy Supply.0

(til aflSgq butth/tnj eJcqtMoat)

lan abo cmphaslres 'he importance of continuing the mockrtuaalicet program, ll calU for stepping op 'be rate ai which ouietired and for Ihe Ministry of Instrument Making.Equipment, and Control Systems to increase iuloequippiiof the RADercent. The overall production of the crural components of faclotyeouipment, and instruments incorporatingto increase byercent, and almost every product newly enured (moill contain microprocessors


Soviei farm production dropped for the secondyear8 as record highs in the production of meal. milk, and eggs were more than offset by the smallest potato cropercent drop in

illion tons7illion teas iaalmost no growth inand frail production (sec tableAllhough inventories of hogs held steady, callle, sheep, and goat herds continued lo drop and are now down3 levels According to some Soviet researchers, herd leveb may be so low as lo jeooardire Moscow's ambitious longer lerm plans for meat production. The consumer benefited from lb* inventory redaction Last year, per capita meat availability increased by moreercent Still, nurseling and disirlbution problems resulted in widespread shortages The Soviet press reported, for instance, lhatercent of major cilies surveyed sufferedIn supplies of beef.

IflfllM ion,

part of ihe effort to improve lit* lot of ibe coojuroer, the kadenhip hai been fecatalng mora attentiou on the asnoindualrtal aector. Indeed, Oorba-cbov hai put Ihe "food problem" at the bead of hb lit! of key domestic issues. He hai exprciied particular concern that huge amounts ofbooto JO percent of total production reportedly continue to spoil or be waited because of Inefficiencies in storing and bringing commodities lo market. To rectify Ihis situation, he hns kbb*ed hard for encoding the individual aod family leasing arrangements aow In

newspaper Gudok. ihe shortage* resulted fromdeity* that occurred in unloading freight nt industrial ind ajiiiEultuml facilitieswell at from cooslriinls in (be opctnilag capacily of tbe railroads. For years Soviet niaaaen hare been niggardly to allocating capital sweh aa ne* rolling nock ind automated equipment lo the rail system. Moreorer. when capital hai been allocated to the rail lyitem by Soviet planners, accord,ng to preaa reports. Induitry often bai failed to meet contract deliveries of. foe example, new locomotive* aad freight car*.

Hart Carreaey Trad.

Thenimated hard currency trade balanceurn for tha worse8trong showing Ihe previous year. Preliminary data indicate the trade surplus fell by more lhan S3 billion as upon growth could nol keep pace with the growth of imports (seend 6)

The dollar value of hard currency exports increased byerceni because of some growth iu arms lales to the LDOoost ia salesariety of oooencrgy commodities, such as wood and paper products, metals, and cbemrcab. At the same time, theof imports increased by aa estimatedoor grain harveat; which fueled aburst in grain purchases on foreignajor reason for the rise Inhe larger quantity of grain imports coupled wilh rising world prices added more lhan S3 billion to Moscow's import bill. Machinery and equipmeni purchases alsoUn year, and more consumer goods were bought, although not enough to be noticeable on store shelves

Moscow apparently baa decided loore active player in the International trading community and ia world financial nnarkets.late dinner Ian year. Gorbachev declared thai Ibe Soviet Union bas "firmly decided to catenae Its position in ibe interna-tional division of labor and take lac path of active econceaic interaction with th* outsideuring tbe year, the Kremlin continued lo emphesire joint venturesay of getting accent to more Western leehncaogy tod improving (he marketabiHty of its manufactured goods In the Writ (seenthe Soviet press hitpercent hike

Recent Trend, In Steiti Jalru Ventures

According lo Soviet reporting, at af iloint vttaurtt hod been regislered -ith foreignfirms;f these tnolvr Western porticipation The number tllsnhed lo waffr Ike end of tht first trmartrr tf ihis rear. {Onlyaint ventures had been registered by tlie cttd, Finland. Weil Germany. Iialy. ike United States. Austria, and Great Britain were the leading Joint-venlure partners la lerms af Iht number ofactually signed.

Despite tht Imprtiilvt growih tn Ihe number of dealt concluded, the Kremlin Is far from satisfied with the progress of Its joint-venture program, according to Sennet press reporting. Host af tht deals are small: total capilal Investment In Joint ventures amounted to only about SIJ billion at the end* rtthforeigu firms rymtndtttng SMI million id ihat total.service and consumer-rrlattd projects eeatirtue to dominate the list of cornpirted comrocti rather than deals that will enable Moscow to acquiretechnologies The Soviets have, however, eoen-plettd several small dtali to assemble personaland develop icftwaie. and tome ventures In the machine tool area art also under way. The transfer of humantechnical skills, expertise, and know-how af Western labor andalso been far less than the Sovltt leadership

Western businessmen art still reluctant to make substantial equity eommllmemi to Joint ventures wish the Soviets because af umcrrtatu mums, limited management control, high taxation rates, andmaterial supplies Recent new foinl-ventureaddress same af these concerns, but Moscow has failed to offer solutions to thr problem af prxfitmain barrltr to foreign In-veytve-mem


ussr:o tW Weol


La import* of consumer icodihe import* appear io be Urgely nonfood itemsm era countries and may be paid for Urgely by rcdiictiom in ruber rmportx rather (bano-rated borrow ins

StilL. ibe leadcnhip appears, for ibe most part, to be looking oaly selectively(beelp under* rite twrttiroyka Mack of Ibe import growth last year wu accounted for by larger grain purchases and Middle Eaatcra ail ibai was reopened lo both hard and soft eurrtwey trading partners Tbemoreover, remain* sensitive to the implication of beccrning financiallyamber of oflScials have warned cf the need to avoid dependence on Western financial marketsime when there isuestion aboul Moscow's ability to pay for goods as well as to effectively absorb and diffuse Imported lechuology. -

Allocs Hod Policy

The competition for national output la the USSR has mteosified in rectal years as ihe growth of Ibe economy baa slowed. Nonetheless, tbe allocation of Soviet GNP atnoag end uses changed tittle last year. The shares of consumption and investment in overall GNP were roughly the tame as Ihe previous year, the share devoted to16also roughly the same i

The Standard of Urbtg Eiade*

From hi* firs* dancaScc, Gorbachev haspublicly tbe importance cf improving living standards, lie recognizedore energetic and committed Ubor force was accessary to get themoving again and that tangible rewards would have to be provided to change worker altitudes. Hb original game plan strategy forire-Year Plan, however, was to appeal to Ihe consumer io tighter hb beltew more years until (he modranJxation and reform programs yielded some returns. Wbi> ibe regime stuck to thb policy through meat of Its first two yean of the owe-year plan, leadership speeches7 indicated that tbe Kremlin had come to realize that Soviet workers wanted more goods and services up front To build

support for hb program, tbe icgime promised lo improve the qualily1

Consumers,saw Utile iaaarcvemeal ia their living cend]fieri last year. According to ClA data, per capita conaamptioo grew by only aboutsecllhough that rate of increase I* somewhat better than in prtrviouat was due In large part lo (be regime's decision lo back off from the aatlalcobol campaign. There would bave been no growth If (legal) alcohol ooaumplion had declined1ad inhe rite of increase also reflected Urge percentage gaiaa in tbe pren-uioa ofthese cameery low base. The grow lb of durables fell off markedly and oulpul of soft goods was stagnant. At the same time, dltcquiltb-riura la the consumer teeter increased sharply;pressures grew, food shortages intensified,ariety of soft good* particularlyrlcedfrom retail stores.

For Ih* Soviet populace, which has come to believe il is entitled to low-pricedhe problemear was at least at distressing as the

Figure 1

USSR: GrowthAwange Mo.rfl.lj Ws Vtrai Growih in Real

mm' m

'Worken and tmptoy* kAv*ngapO*Wi tale.

ofl contributed to(rowing perception that under pereitroyka ordinary people are beooftaag tbe victims ra User .tan ibe beneficiaries of

gtou^in Sovsef society, for I

year. Those oo Used salarios, i

cperieoced real decline* i* their uKorne .hue wort,

era in rnany ir^ustrk. benefited from Urge increase* In their rnoney wage, aad raobably kept upwrib infUtion. The lower income segments of society have been bard hit by Inflation. According lo ibeIW. somemillioo people-about IS percent

er capita monthly tbe poworty hoc la the Soviet

Union, i

The raw at Ibe rate of inflation la the USSR can be traced raHrsutruy lo the coxrgenec ofbudget deficit resultingUeUitale. for food subsidies, InvesUrumt, defense, and the support cf unprofitable enterprises and from nosr stt-aatior. In the growth of gemx-mcn.ethat the deflcli8 rose toW of Soviet GNP (mo figureeanover, as part ef tbe wage reform packageore freedom so deieraakweea lowed enterprise* to rafae wage,f aodactmty increases, creating increased demand for imor .rods that -erehort supply (see

figure JJ.

Although consv mptiou leveb continue IO creep up--ard. duly lifeome respects, become ere* harder in ike USSR ander Gorbachev than ft wus under hb predecessors. The antialcofaol campaign, foe instance, has deprived many crtaee. of Ike most common meau of escape from ihe harsh realities of Soviet life, and Ihe reform program it undermining (hose aspects of socialism the populace valuedjob seouriiy and lowprices for bask necessities. The long-suffering Soviet dtixcu appears to have finally had enough: the populate dearly became more dissslisbod last year with the sluggish pace of im-provemeai in living rtaadsrds (see iasctl The most striking caaanpk of popular disss Usf set came Last Septemberbachev's much cvblKited (rip to Krasnoyarsk, where he was besieged by complaint* from local residents over poor housing, food, andoviet pollngrad residents In December of Usl year found that only* perceni of tbe people surveyed felt lhat peresiroyka had brought economicpercent felt it had brought negative economic change

The Soriet LTth five-Year Plan Uid oat aa ambitions capital modernization program, calling for (be rapid renewal of capital stock in tbe economyombination of high rate* of investment and increased rate* of ralirement for both pUnt and equipment. According to officUl. the growth of capital investment1 was in line with the higher rales of growih planned for tbe curreni tre-yenr planssiag period:

rarfor the Coufmer

The Otfiee of Soviet Analysisrw effort fast year to track changes In and prrcrptlons of ihe auoht, of lift tit the Soviet Unto* The resulu of the Study of conditions8 are thaws, In figurehe figure Include! selected Indicators of change Inprimarily on the basts of the practical or symbolic Importattce of the specific goods, services, or problems being measured lo the

MhfgMMI perceive their tiring standards to be Improving, declining, or remaining the same The Indicators af change In consumer welfare Include both officially published Soviet statistics and synthetic measures constructed by CIA on the basts ofSoviet data.

j3 *

According to these Indicators of consumerwas Utile Improvement overall during ihemany areas, la fact, conditions aetertoratedperceived by Soviet eitiient as havingIndeed, ihe Sovietaof III relative standard of livingfreedom under glasnost lobecome more critical af the regime overprocess lhat occurred In consumer





(he same lime, however, there was alrnost rem growih in commioskjtiings of new capacityod oaly it percent cf the stale's priority projects scheduled for oxnmrss Wrung were actually com pier edurs SI j

die various reasons for Moscow's

inabilliy to bring snore new capacity on stream. One was industry's continued pctKhant, under the existing incentive system, to start new pmiects rather (bsn bring ongoing one* lo coinpkiioo. The government's decision to step up investment in bousing and other consumer-oriented projects nlso drew construction crew* away from cabling cons>Juc*ioa sites to new ones Thb accoapied in part tor the caccasivdy Long time required to complete construction projects.nitaaora. projects were delayed because aeeded


USSH: Seteeted Indicators of Caaarannrr Wetter*


mi IM



tadnun. except itrUOoo. an xninmul Is pw capita

Dm pcr&rpona of duaw



wen dm delivered oa ii me. Sbortfalb oe-enrred lui year, for example, bt tbc proouctioo of heavy electfteal machines, turbine Beoeratora, cheml-

ffioalt of tbe USSRi cxwtputer lodustry also were taken to task last year in Ixveirlya for fulllllini only aboutercent of the* for eooiprtori and to oexcent cf the need fo

: arrrved en acoedule, it often was not Installedccording lu Soviet data, Ibe amount of unlnitaUcd equipment locrcated mark-edlyercent. Tbe atook of each rruvebiaory no- aasewata toflnon rwbtev eouaJ lo aboutercent of the nlua cf productive capacity

Figure 5

USSR: Growth la


Of NO Capital Arnrtl

brouifat on line annually In industry ine pail two yean. In addition, confuuoo aeocrnpanyiag the roor-ganixatloo of the construction industry and lhc shift cforganialioo* lo tdf-tinaariag abo degradedtrforusanoe,

Late laal year Gorbachev laid ihe groundwork for future miliury cuts.eeernber ipeoch lo the Uniiedbe Ocneral Secretary promised that major ueilaieral cuu In military manpower and ec,supmont would be carried out during IW0 He rinded oo (ho fiedge earlyear by specifying that Ihe defease bodgot and the prcdssctioo of weapon, and miliury equipmeni would beercent5 percent, rerpectively. Soviet tpofceamen have depicted these aatwuncements as partronder effort to increase Ihe defcaaeupport to the civilian economy bythem to produce both more consumer roods and mere maelilonry for cirUian indnsjriea ,

The original Soviet ecoroenk plan9 Indicated that Ihe regime wu contemplating tittle change fat ita strategy for the economy. The only major exception was In the area of consumer welfare, where the plan departed from theh Frre-Year Plea goal* ia setarger aaoss-ibe-board Increases la prcdue-tioaroduction of com tuner goods, forwas slated io rise this yeareroral ratherercent, the target in the five-year plan. The plan9 abo assigned top priorityspandiag and improving food supplies in the USSR and calleduch higher growth in consumer services. While il clearly elevated the priority of ccrisumer welfare, however, tbe original plan laid oui Usl fall did not provide sufficient resources to back up tho production of goods and services- Instead, the leadership was relyinge gain In I

Oudars CiitbiaiTa Un*

We estimate lhatpeadiag, mcaaured la

consunt 1H2 rubles, grew byerceni lastline with growth talc* of the past few years. Procurement of weapon system*ajorto the growth ff defense spending. Eapenditurcs on ship procurement rose sharply, canned primarily because of an Increase ha spending oa both strategic and general terpen* abenarines- Procarrsoeal ofralogic SAM* also displayed strong growth.

Leadership thinking has-fan. The planner* have now put more mantic behind the program lo rabe firing standards. Aa noted above, defense cuts have been promised, and the regime haa Pledged to shift resources such a* personnel and manufacturing capacity from defense to civilianAl the same time, snoreeing shifted to such cransmrner-rclated area* dlight industry, and boosing.

In addition, Ihcrgently trying to get the eoooomy under tighter control la aa effortice financial or**cr, for instance, Oetbachev hai assigned ton priority lo redodng ibe budget deficit The cull in detente spending should, if implemented at piotnited. help reduce Ihe sue of tbe deficit, aod tbe Sovieu are also making absolutetale ccRtrallied capital investment. Moscow announced la March that Mate Investment apendituret rWnond from ihe national budget would be cutillion rubkahese cuts arc lo come Largely from halting regional deveiopenenl programs and land rcrtametkei peojecu.0 on, roceoovnr. state expeaditurex tor ia-vettmenl are to bo further reduced by givingmore responsibility to finance mveatment through rtMtr own funds and interest-boa nog bank loans.!

The regime has abo modified iu incomes pohcy. Increases la wages aro being monitored more strictly io ensure Ihat (hey do not exceed gains in worker productivity, although this policy has made Utile difference so far. According lo ihc Stale Committee for Statistics, wages In tbe first three months8 coniinued to escalate markedly.

Thus, many of tho taigeta set oui In the9 Plan (tee tablere taking second place Io tbc effortiolve aocb proc-ems as (be budget deficit, wage aod price inflation, and coninmer goods shortages. For all practicalhe plan was out of dale9 had barely begun. Indeed. Gorbachev continues io cbange and shift program* oo Ihe go at he nruggies wilh an economyloundering badly.

tbe regime baa bad rocond tboughu about reform poOdes that might require taremee* oa the part of the consumer (teclatus report oo reformaring the past year even the most ardent reformers bare qacatioocd theof reforming retail prices at originally tcbeduled, and Gorbachev announced early this year that ihr* reform would bo postponed. The Kremlin fears that without continued artificial ceilings oo retailbc accelerating inflation of last war could surge beyond consumer tolerance


Soviet plans for tbe economy this year arc focused primarily on getting pereslroyka back oo track by reesublishing donseatk hnancttJ order aad improving living sUndardi. Ia our view, ihese priorities make good sense. As Gorbachev evidently realizes, he muti pal bit financial boas* at order aad regain ibe topper! of consumers ifo proceed with the Other part* of



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economic agenda Moreover, tbc cuts ia Invest-ment aadimrnemeaicd asshould help ease tbc bod get deficit sod provide re-touroes for increasing production of eoosuiner goods. The lowering of investment Urgets should ibo allow the Soviets to ucWe the problem of unfiabbedenabling them to bring additionalo line and thus increase output.

Nonet beiors. the Soviet craynoaaic game plan farIn particular, translat-

ing cutbacks in Inveairneni and defense Into Increases la consumption willlBVcult task. AJthough the industrial materials and labor freed up by the cuts should be readily transferable to alternative uses and defense plants should be able to quickly Increase their output of rocb items as refrigerators and televisions from tattling produciion linos, providing additional plant and equipment for tbe productioo of consumer

goods will requite mote time. Moreover, whileprice reform may reduce consumers' anxieties, it will also deny producers the incentive they need to imnrove product quality and increase productivity.

On balance, therefore, Soviet economic preupects9 are probably rnodest at best- Although somein tbc budget deficit and smallIn living standards un possible this year, economicikely to remain slow and theikely to achieve do morefieht advance on the quality or efficiency frontt.

Original document.

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