Soviet Consumption and Income Policies in Perspective
Meeting in the Kremlin in6 forh Party Congress, the leadership of the Soviet Communist Party could look back with both pride and frustration on the fruits of its policies affecting the welfare of population over the preceding quarter century. Theas one of relative peace and quiet, witnessing none of the upheavals of the precedingearsthe advent of central planning, the collectivization of agriculture, the political purges. World War II with its catastrophic loss of life, property and production in the economy. Even with restored outputhe population had benefitted little fron the advent of socialism. Per capita consumption was not much above the level3nd the goods and services provided were primitive and inferior in mix and quality, evenemi-developed country. The subsequent quarter century has brought great progress, particularly in quantitative terms.he level of living of the Soviet people was more than double that0 and had gained significantly relative to industrialized countries of the West. Qualitative gains were much less spectacular. But rapid quantitative progress has revealed, as well as helped to produce serious consumer-related problems, which seem to defy solutionystem of centrally-planned socialism.
This paper will consider: he records measured by revised indexes of realconsumption of goods and services; thein money incomes from work and in state the problems arising from these consumptionpolicies and the current difficulties in managementconsumer sector of the economy;
systemic dilemma and the policy options facing the political leadership.
I* Consumptionthg Record
The consumption indexes on which the following discussion is based are revisions of indexes given in the JEC volume Soviet Economic Prospects for the Seventies, publishedhe principal changes are: se0 base-year weights instead8substitution of several quantity series for deflated retaileplaceraentsmall, unrepresentative, quantity sample of consumer durablesroader series representing deflated retail sales for consumer durables and miscellaneous household goods. The net affect of these and lesser changes is to reduce the growth of total consumptionercentage points per year; the greatest impact was on consumer durables, where growth was reducedercentage points annually. The consumption indexase-year weighted indexumber of individual
scries for goods and services. The sample underlying the index is approximatelyercent complete- Thus, quantity changes are represented quite completely, and quality change is accounted for to the extent possible with available and reliable data.
A. Overall
During thethe Fifth through the Ninth Five-Year Plansper capita consumption of all goods and services increased about imes, an average annual rateercent. Thtf relevant data are presented in summary form in Table 1. Progress was uninterrupted but quite uneven, with the greatest gains being made durings. relatively low rates of growth during thes, the gains in per capita consumption accelerated in the lates, only to be followed by another slowdown during thes. Poor agricultural performance was the main cause for thein consumption in. The slowdown affected all categories of consumption except household services-In contrast to the pre-war years, consumption of goods and household services rose more rapidly than communal consumption (state-provided education and health? . Despite such rapid progress, per capita consumption in the USSR is still only about one-third of that in the US and well behind that of Western Europe. The disparities are even greater, when
Table 1
USSR: Growth of Per Capita Consumption in the USSR
"
9 70
consumption
goods
and
J
Average Annual Rates of
consumption
Household
goods
and
.
Appendix 1, Table
allowance is made for the inferior quality and limitedof Soviet goods and services.
Evidently, the Soviet leadership iselatively slow growth in per capita consumption over the next few years. The quantitative goals set in the Tenth Five-YearO) imply growth at about the same rate as. In view of the tautness of this plan, poor harvests would jeopardize even this modest improvement in levels of living..
B. Food
Although it is tho slowest-growing category, per capita food consumption has more than doubled in real terms during tho past quarter century. Year-to-year gains have varied widely, depending on tlie size of the harvest. -In addition to quantitative gains, the quality of the diet has improved markedlyirection typical of developingmore meat, milk and vegetables and less bread and potatoes. As shown by the data in Tablehe average person ate over twice as much meat5 as he didhen
consumption of meat was oven below what it wasonsumption
Per capita/of fish and vegetable oil also doubled, while that of eggs, sugar and fruit more than tripled. In contrast, per capita consumption of potatoes was half what it wasnd consumption of grain products has declined by one-sixth.
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Even so, the average Soviet citizen still gets about half his daily calories from bread and potatoes and eats less than half as much meat as do his counterparts in the US and Western Europe. Moreover,onsumption of bread and potatoes still exceeded the "rational consumption norms" established by Soviet statisticians for long-range planning purposes by over one-fifth, and consumption of meat, milk and eggs was below those norms by over one-quarter. =f Only for sugar and vegetable oil wore the norms exceeded.
Influenced, perhaps, by the crop failure inplanners haverowth int the low rates
. onsequence of shortages of feed and. distress slaughtering of animals, per capita consumption of meat output will probably declineerhaps by as much as one-quarter. However, the plan emphasizes continued improvement in the quality of the diet overear periodhole. Barring another series of crop disasters, the Soviet Union should be able to meet or evon exceed the modest planned goals for food consumption, with the exception of meat.
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Table 2
Per Capita Consumption of Major05
Kilograms per0 0 0 5
Meat and meat products,
including fat
and milk products
(units)
and fish products
oil
and legumes
and berries
products
Narodnove khozyaystvo
v5 cocu,
Soft Goods
Per capita consumption of soft goods expanded during the pastears. Gains were nearlygreat durings as during subsequent yoars. shoes, haberdashery, fabrics
ide variety of other soft goods, ranging fron soap to publications. Factory-made clothing has been rapidlyhome-sewn garments, resultinglowing growth in consumption of fabrics and rapid growth in outlays on ready-made garments. The average person now buys three pairs of shoes per year, compared with only one pairnd the USSR has now met the "rational norm" established forof this item. The quality, style, and variety of soft
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I
goods have also improved markedly, even though they still appear shoddy and drab by Western standards. Imports of these goods in recent years have added quality to the wardrobe of consumers affluent enough to pay the high prices fixed for them or having the credentials to purchase them at low prices in special stores not accessible to the general populace.
The goals established for the textile and clothing industries in the Tenth Five-Year Planlanned growth in per capita consumption of soft goods at the relatively low rate achieved. The plan emphasizesoncerted effort is to bc made to upgrade the level of quality, style, and fashion in clothing and shoes. Durables and Misce11aneons Goods
onsumer durable goods industry was almost non-cxistant in the USSR, and sales of durables andcommon household iters represented onlyercent of total retail sales of non-food goods. uarter century later the USSR had developed sizeable capacities to produce ordinary durables such as sewing machines, washing machines, refrigerators, furniture, radios and TV's, and had establishedoderate-sized passenger car industry. Sales of such durablesS comprised about one-fifth of total sales of non-food goods. Overall, consumption of durables and
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miscellaneous goodsfold, an average annual growth4 percent. Although most Soviet consumer durables are of poor quality and obsolete design by modern standards, ordinary durables, nonetheless, areeature of most Soviet households. Indeed, some families now own two or more of some durables.2/ Automobilestriking exception, since onlyfamilies owned onehe consequence of the long delayed decision to produce cars for sale to the population in large quantities. rovides data showing the change in household stocks of major consumer durables over the past 15
9
years; data0 are not available, but stocks must have been insignificant.
By far the largest gains in consumption of durables took place durings, when" explosive growth occurred in production of washing machines, refrigerators, vacuum cleaners, and television sets from very low levels. growth in sales of such conventional durables slowed greatly, but0 the number of automobiles sold at retail rose; their sales probablyillion rubles The Tenth Five-Year Plan provides for output of major consumer durables (other than cars) and miscellaneous household goods to increase at about the same rate as was achieved.
Judging froa this evidence and the levelling off in the production of automobiles, it appears that per capitaof consumer durables will expand somewhat less rapidlyhan. At the same time, the plan calls for continued upgrading of the quality and servicing for durables, shifts in mix toward more modern designself-defrosting refrigerators) and introduction of new products, such as air conditioners and video tape recorders.
Table 3
Household Shocks of Consumer05
(Unitsamilies)
Watches and57
Radios and
Television
Bicycles, motor bikes and
Motorcycles and
Vacuum
Sewing
Washing
Source: c slsk, u. sifrakh vb godu.
D. Housing and Personj! Services
Per capita consumption of services tripled during
nd in contrast to all other major categories grew
more rapidly in3s than ins.
This group consists of housing, utilities, personaland communication, repair and personal care,ariety of recreational and cultural services paid for by the population. Personal transport and communication services grew roost rapidly over tho period, expanding over five-fold. In contrast, the total housing stock rose by onlyercent, reflecting an increase in per capita living space in urban areasquare meters0quare meters5 and somewhat larger gains in rural areas. The majority of urban families now have their ownreat gain over earlier years, when most urban families shared kitchen and bath facilities with several neighbors. All housing now has electricity, and f gas is growing rapidly. Despite these visible gains, Soviet housing remains crowded, drab, and monotonous and represents an area of great consumer frustration and relative neglect.!/ Among the remaining services, repair and personal care services increased scarcely at aller capita basis until, when the governmentajor program to expand state-run service facilities of all kinds. Nonetheless, expenditures on such state servicesereubles per capita By all accounts, their poor quality continues to remain the basislourishing private sector.
According to the Directives for the Tenth Five-Yearontinued rapid rate of expansion of the entire
services sector is planned, although evidently at much lower rates than in the preceding decades. If urban housing goals are metsomething never accomplished in the pastper capita living space will still not have reached the minimum norm for health and decency established by the low-down in the growth of state-provided, repair and personal care service facilities also is in prospect, although their quality is supposed to improve. E. Communal Services
Government lrf outlays on education and health services more than tripled over the past quarter-century,rowth in real per capita expendituresercent annually. Such expenditures now account forercent of gross nationalarge shareountry at the Soviet level of development. Tlie two sectors have expanded at similar rates, and both have experienced reduced growth ratesesult consistent with slowing population growth. In education, this substantial effort has resulted in an increase in the median number of years of schooling of persons agedears and olderears0 to anearshe goalniversal, ten-year (high school) education is close to being realized. The large-scalo investment in higher education is evidenced by the fact thatut of
ersons working5 had completed college,
and anad some college or secondary specialized
education;he corresponding figures were
In health- the Soviet effort is reflected inin general and infant mortality rates to levels that compare favorably with those of Western industrialized countries. According to Soviet statistics, the number of doctors0 population rose606nd the number of hospital beds0 population
rose fromuring the same period.U By all accounts,
and
the quality of health care varies greatly among regions^ is far better in cities than in rural areas and for elite groups -than for the general population. Although the quality of both personnel and facilities may be poor by Western standards, the USSR has developed a'generally adequate public health system available to everyone without direct charge. The costs of such an extensive system have been kept low mainly by fixing low wages for health service personnel.
The Directives for the Tenth Five-Year Plan outline the planned achievements in education and health. Educational advance apparently is planned to proceed about at rates of the recent past, with much emphasis to be placed on vocational training and upgrading of skills. In health, the quality of service is to be improved, and the number of
hospital beds is to increase by aboutercent, compared with aboutercent. II. Personal Incomes
Along with rapid growth in quantities of goods and services consumed, the past quarter century has brought remarkable changes in the growth and structure of personal incomes. First of all, money incomes have increased steadily and rapidly. ndresent the available data on disposable money incomes. In considering these data, it should be noted that they understate total current money incomes by several percent annually,because' of the absence of data on such incomes as prisoners' wages, various kinds of money payments not included in the regular wage fund, receipts from sale of property and from private non-agricultural activities, and others. Per capita reported money incomes quadrupled, rising somewhat more rapidly than per capita retail trade and household services7ncomes grew more rapidly durings5 percent annually) than during2 percentutback in growthercent annually was registered.
To the extent that one can judge from the incomplete data, both for incomes and for outlays, shown in Tabic A, the Soviets have had an uneven record oi performance in their efforts to
Tabic 4
Growth of Money Incomes and Outlays per Capita,
5
Disposable Money Incomes a/ (in rubles) (in rubles)
Money Outlays on Goods and Services and Savings c/ (in rubles)
annual rates of growth
from Appendix B,.
retail trade (less estimated salesand outlays on household services includedindex for services described in Appendix A. It isSoviet sources claim, that price changes for services The population's outlays on education andnot included, because they cannot be estimatedtime. They arc small, in any case. Only expendituresmarkets are included.
sales to the population plus the increment indeposits in savings banks as reported inhandbooks.
natch the growth of money incomes with equivalent growth in the supply of goods and services. The most successful periods seen to. The records greatly affected by eventshen an unusually large increase in retail trade occurred, probably because people feared that the currency devaluation announced1 would be confiscatory. Evidently, there was dis-hoarding of cash in that year. For the, reported money incomes and purchases of goods and services grew at about the same rate. Rising incomes, along with failure to match their, growth with desired goods and services and severely limited access to consumer credit, has resulted in growth of per capita deposits in savings banks3 rubles0ubles Additional savings have taken the form of purchases of private and cooperative housing and purchases of state bonds, but those are small compared with savings deposits, at leasthen compulsory purchase of state bonds was discontinued.
The rise, in money incomes has been spread quite unevenly among major groups of the population. Non-agricultural workersrowth in average annual money earningsercent annually. Average wages increased nearly twice as fast durings during. In the latter period the growth in earnings reflectedag* creep resulting fron rising productivity and level of skill and education of the labor force. Also, in this period the
work-week was reduced byajor wage reformout in the industrial sector, and the minimum wagesubstantially. Ins, the minimumubles per month toublestoubles per month. The wage reform alongin wage levels was extended to the
long-neglected service sectors. During the latter half of the decade, average wages were raised significantlyesult of increased bonuses paid from profit-based incentive funds established by the general economic reform launched by Kosygin in The acceleration ir. the growth of money earnings, along with an even greater increase in the level of savings deposits, ledolicy of severely restricting theof incentive funds. Another round of wage reforms was launched and reportedly completed in tho so-called "productive" sectors; it involved an increase in the minimum wage toubles per month, establishment of new wage scales and tightening of work norms,and increases in regional and other such pay differentials. Substantial wage increases were also made for major groups of workers in education and health.
Throughout the entire period, money wages ofworkers increased over twice as fast as wages of non-agricultural workers. In part, this spectacular growth
reflects the monetization of the collective farm sector.nly aboutercent of total wages paid tofarmers by the farms was paid in cash; the rest was paid in kind. early all wages were paidesult of this change, the large rise in agricultural procurement prices,eliberate policy of gradually raising collective farm wage rates to the level of state farms, money wages of collective farmers increased at an average annual rate6 percent. At the same time, wages in state agriculture were raised more9 percent annually) than wages of all other state1 percent annually). The growth of average money wages for both groups combined was more rapid durings than durings,ronounced slowdown occurring. The data for the several groups of workers in the labor force are shown in Table 5.
The increase in total agricultural incomes, however, was much less rapid than indicated by changes in wages alone. Agricultural familiesubstantial share of their total real incomes from consumption-in-kind and from sale of products from their own private fanning activity (privatehese sourcesuch larger share of the total incomes of collective farmers than of state farm workers. When netincomes from sale of farm products are added to farm
Table 5
Average Annual Money Wages of Agricultural and Non-Agriculturalin rubles)
a/
b/
c/
d/
Annual Rates
Growth
wciqe bill TorI'mO-tho"for state agriculture. Employment and averagereported in the annual statistical handbooks.
annual wages of workers in state andagriculture weighted by their respective employment.
wages arc reported in the annualand5 insifrakh 5 godu,.
wages are calculated" by dividing totalto collective farm members given in Appendix2 by average annual employment estimated byand Stepen Rapawy, "Labor Constraints inn Joint Economic Committee, Sovietfor the Seventies,.
wages and the farm labor force adjusted to include employment in private agricultural activities, the growth of average money incomess reducedercent annually, over twice as fast as average money incomes of non-farm workers. With respect to consumption-in-kind, the evidence points unraistakeablyteady decline in its share in total farm household incomes. One Soviet source reports that in-kind incomes (including in-kind payments from collective farms) comprisedercent of the total personal consumption fund2 percent0 and about/ From this information, coupled with available data on farm and non-farm money incomes, it can be estimated that average farm incomes wereercent of nOn-farm incomes ercent0 andercent These are surely maximum ratios, since they attribute all consumption-xn-kind and money earnings frccn the sale of farm products to farm households, whereas urban households obtain small incomes from these sources also. Another calculation based mainly on family budget data in Soviet statistical handbooks produced an estimate that average annual farm incomes4 percent of non-farm incomes0 andercentil/ Whatever the "true" figures may be, the term "revolution" is certainly appropriate to describe the large rise in farm incomes over the pastears, both absolutely and relative to non-farm incones.WW/
According to the Directives for the Tenth Five-Year Plan, the growth of money incomes is to continue, but at slower rates than during the Ninth Five-Year Plan. Wages of the state labor force (agricultural and non-agricultural) are scheduled toercent, and wages of collective farmers are to riseercent. Thus, the trend toward narrowing of income differentials between farm and non-farm workers will continue. The minimum wage ofubles per month, along with related changes in wage and salary rates, is to be completed in fhe service sectors,ew round of increases in the minimum wage is to be started.
Another major development affecting the level of personal
incomes is the rapid rise in transfer payments, which increased
imes during the pastears. These payments consist
mainly of state pensions, various kinds of welfare benefits
and stipends for students. ension and welfare
payments amountedereubles per capita;5 they
amountedubles. Their growth has been far more rapid
than the growth in wages, reflecting not only gradual aging of
the population and increasing wages (to which pensions are
and
ut also large increases in minimum pensions^of other welfare programs. In theajor reform raised pensions and disability benefits, liberalized eligibility requirements, and set minimum pensionsubles per month. Duringormal system of
pensions for collective farmers was established, patterned
after the system for state employees and partially financed
by the state budget. , pensions and benefits
for various categories of workers were further increased,
. eligibility rules for collective farmer pensions were
liberalized, andystem of family allowances for
low income families was introduced. tipends for
students were increased byercent. The Tenth Five-Year
Plan provides for further improvement in pension and welfare
programs, including increases in minimum pensions, for both
state workers and collective farmers. Apparently, no major
program changes are planned, however, since the funds to be
Allocated to such programs and to education and health are rise
scheduled to^much lessercent) thanercent).
Op to now, the discussion has concerned money incomes alone. Consideration of real incomesrice index that measures changes in the cost of living with reasonable accuracy. The index used in previous JEC studies to express per capita disposable money income in real termsombination of the official Soviet index of state retail prices and an index of prices on collective farm markets derived from official data. These indexes have been severely faulted by both Soviet and Western economists, because they do not really measure changes in prices of goods actually The official retail price index, by virture of the method of construction, is an index of prices on state price lists, rather than an index of prices actually paid- The index is widely believed to understate real price changes, especially in recent years. Lack of data precludes independent constructionubstitute price index from sample price and quantity data.
To provide an alternative to the official index and to give some idea of what actual price changes might have been, anndex was calculated? it is the price index that is implicitomparison of indexes of goods sold in the retail trade network in constant and in current prices. More specifically,
an index of consumption of purchased goods in constant prices was derived front the index of consumption of goods shown in Appendix A,y deductingin kind in constant prices from the index for food and then combining the resulting index for food with the indexes of soft goods and durables. The index in current prices is derived from total retail and collective farm market sales regularly reported in Soviet statistical handbooks- The implicit price index resulting from comparison of these two indexes is shown for benchmark years in Table 6- ore complete explana-tion of the methodology is given in Appendix B. The -two indexes behave rather differently; whereas the official index is nearly flathe Alternative" index rises steadily butlow average annual rateercent.
The "alternative" price index has shortcomings in that: (lj its coverage^ although very close, is not identical with the coverage of officially reportedsales; t is derivedample index, even though coverage is nearly complete; t includes several component indexes which are themselves based on retail sales deflated by the official price indexes. Nonetheless, the "alternative" index is believed toore accurate measure of real price changes of goods
actually purchased than is the official index. If
the increase in prices.
movement accords with the mass of anecdotal evidence that points ownward bias in the official retail price index. Neither index, of course, takes account of the price increases that result from such phenomena as disappearance from the market of low-priced typesiven product and their replacement with higher-priced goodsommensurate increase in -quality.
Table 6
Growth of Real Per Capita Disposable Income Using Al-
ternative Consumer Price
Real Per Capita
Per CapitaMono'
(B)
A
(A)
li
-Disposable Money Official "Alternative*' Income (rubles)
Income (rubles)
5
6
8
2
30
Annual Rates of Growth
As shown in Tableeal per capita disposable
money incomes growit more slowly, when the
"alternative" consumer price index is usedeflator
than they do when the official retail price index is
used. During the entirehe former
essold growth, compared with more
old growth shown by the latter index. The
former increases more slowly than the latter in all
periods, with the differences being greater in more
recentyears. The index of real per capita incomes
using the "alternative" deflator is also more' consistent
with the independently-constructed index of real per
capita household consumption shown in Table 1. Tho
former still increases more rapidly for various reasons,
the principal ones being the rapid monetization of the
agricultural sector that occurred during the first two
-decades, and the rapid growth of per capita savings
deposits. The consumption index, of course, takes
account of the fact tha t consumption-in-kind, while
izeable share of peasant incomes, increased
scarcely at all by quantitative measures.
III. Some Consequences of Soviet Consumption and Income Policies
Since the, Soviet policies in the area
of consumption and personal incomes have reflected a
large-scale effort to redress in part the gross imbalance
in the economy, which was Stalin's legacy. At the same time, the leadership strove to do soare minimum of change in Stalinist arrangements for production and distribution of goods and services. Rapid growth in quantities of basic goods and services, along with essentially unchanged institutional arrangements over the past quarter century hasumber of serious problems in the management of the consumer sector. The problems may bo grouped in two categories: hose
relating to provision of the mix and quality of goods
xt
and services that people want, when and where they are wanted, those relating to tho presencearge overhang of liquid assets in the hands of the population. The two groups of problems are related, as are the constraints on their solution imposed by current dogma and institutions.
A. Problems of Quality and Mix
By tho needs of tho population for basic goods had essentially been mot. People had enough to eat, and the quality of the diet had steadily improved; they also had minimum stocks of clothing and shoesew common durables. With basic physical needsand with rising incomes, the general seller's market long characteristic of the Soviet consumer sector came to an abrupt end. People began to buy selectively; they
rejected goods of obsolete design and shoddy quality. The problem of unsaleable goods appeared first in the area of soft goods. For example, between the end0 and the endetail inventories of cloth expressed in days of turnover rose; the corresponding figuresor clothing and underwear, andor The build-up in stocks did not occur for durables, except in the notable case of sowing machines, for which stocks rose fromaysays. By dint of price cuts, exports, and reallocation of stocks, the Soviets managed to reduce these inventories substantially.he problem has again become evident, now affecting selectively both soft goods and durables; Thus,0tocks of knitwear rosen days of turnover; wool cloth from, leather and synthetic shoes from; metal dishware; electrical appliances Judging from complaints voiced in the press, the problem of above-norm inventory accumulations continues to persist. The current situation, unlike that in the, does not involve an overall buildup of inventories relative to sales, butelective build-up in stocks of particular goods.
In recent years, the Soviets have attempted to cope with inventory pileups of slow-moving goods by conducting nationwide sales at greatly reduced prices and covering the resulting losses for retail stores with budget subsidies. There is much lament in the press over the high cost of theso sales and their only partial success. According pecial survey, slow-moving and unpopular goods whose prices had to be cut byercent or more in order to soil amountedillion rubles as of Marchillion rubles as of Aprilr aboutercent of total retail stocks of non-food rices were cut on unfashionable and shopworn goods byercent; even with such steep price cuts, ashare was not sold. , the budgetillion rubles to compensate retail stores for losses on such sales,nd5illion rubles" were allocated for this
At the root of this persistent problem is the chronic inability of enterprises producing consumer goods to turn out products with the quality, design, and mix that consumers wish to purchase. Over the past decade, the Soviet press hasountain of evidence of the poor quality of consumer goods. The followingample of recent evidence: ver one-fifth of
the cotton fabrics, knitwear, and leather footwear and over one-quarter of synthetic fabrics inspected by trade inspectorates was rejected orn the first halfhe percentage of light industry products rejected by trade inspectors was essentially unchanged from previousercent of all refrigerators inspected by national inspection agenciesere defective, and in the first quarter5 the share washe State Trade Inspectorate scrappedercent of the washing machines,ercent4 andercent in the first quarter unpopular models of vacuum cleaners are "inundating" the stores (in the fallork clothes frequentlyorcont after the first washing;holesale trade organizationsf all clothing and knitwearercent of all shoes; ustomers and stores rejectedefrigerators,ercent of total output. Some of this evidence relates not only to physical quality per se, but also to obsolote design and fashion. Soviet industry adapts with great delay and difficulty to changes in technology and in consumer taste. for example, two-thirds of the washing machines were of the obsolete hand-wringer
Most refrigerators are still small-size, and5 less thanercent of the TV sets produced were color sets. Pants suits and platform shoes came to the USSR several years after they were common elsewhere.
Another problem related to product mix concerns imbalances in the availability of complementary goods. Rocent examples cited in the press include: lethora of cameras and acute shortages of film; tape-recorders but no tape; lenses but no eyeglass frames; flashlights, transistor radios, electric shavers but no batteries. The chronic shortage of spare parts for almost everything is legendary"Motorists literally.have to search for years to find batteries, switches and similar parts for cars".hortage of rubber washers in Moscow'results in waste of millions of gallons of water every year.ableware rarely is available in sets, and for example, the plans of one ministry (the Ministry of Defense) provided for manufacture2 millionsteel spoons andillion knives andn acute shortage of some random household items, such as meat grinders or bread boxes, frequentlyue and cry in the press, which ultimately results in large surpluses. Shortagesroduct in particular geographic areas and surplusses in another are common, even though supply and demand may be balanced overall.
Press reporting on these indicators of pervasive malaise in consumer goods markets in5 does not differ essentially from what itears earlier. Tho reasons for the chronic problems are the same. First, there is tho "second class" status and secondary priority of the industrial sectors making consumer goods and of the distribution and service network catering to consumers. This situation prevails, notwithstanding Party Secretary Brezhnev's excoriation of those who treat consumer goodssecond-class" The true status of the sector is reflected in practice in the relatively inferior quality of materials and manpower allocated to the sector and the relatively low wages and generally inferior social status of trado and service jobs.
Second, incentives throughout tho supplier-producer-transport-distribution chain are geared mainly toplans for output or other activity measured in rubles or physical units or both. The change in labels introduced by recent economic reforms (from gross value of output to sales) and the addition of success indicators, such as profits and labor productivity, have not altered the fact that in actual practice the real priority attaches to fulfilling plans for output, with emphasis on physical measures. Moreover, when value indicators (cost, output, profits) are indeed used to measure and reward performance, they continue to be based on arbitrary prices set by
administrative bodies in ever greater detail- onsequence, some goods are "profitable" to produce and othersegardless of demandpoons, but not knives and forks; sofas and armchairs, but not kitchen chairs)- Some products are "profitable" for retail stores to selllcoholic beverages) and others bring losses because of low trade markups ish, vegetables, canned fruit, eggs, jam, laundry soap and Continuous tinkering with prices and success indicatorsas left the basic problems largely untouched. Although one or another abbcrratii may have been removed, others have.been, created.
Third, although management of food processing and soft goods production is concentrated in the Ministries of Food and Light Industries, production of durables andhousehold items is scattered among dozens of ministries. This sector has simply been allowed to grow like Topsy, much of it as side-line operations in enterprises in heavy industry.0 ministries and organizations were in charge of the production of such goods, whose share in output of heavy industry rose fromercent04 percent This period alsoigh-priority campaign to enlist all heavy industry plants in producing consumer goods of one kind or another, particularly those of the "odds
and ends" The result of this haphazard, campaign-style approach to development of production capacity for household goods has been faulty planning and forecasting of demand, poor quality and mix ofpoor relative" attitude toward such output, failure to develop repair and service facilities parallel with output of major durables,ow level of orinistries producedodels of washing machines inlants, onlyf which wore
Fourth, connections among the several links in the chain from materials supplier to producer to distributor to seller of consumer goods are administrative or bureaucratic rather than economic in nature. The USSR has notethod for ensuring that each link in tho chain is rewarded or punished economically, depending on whe retail customers buy or do notiven product. hemical plant making dyes, for example, cares only to fulfill its own plan as measured by the relevant rubles or tons; it is not affected economically by the fact that the printed cloth in which its dyes are used fades, or the colors run after the first washingsocow housewife. For the most part, the worst that will happen is for the plant to be roundly scolded in Pravda. Connections in the producer-consumer chain are administrative
at each stage because of the absence of alternative suppliers, producers, distributors, and even products. Although ultimately some feedback may occur, the mechanism is slow and cumbersomo. The system of economic contracts, "directines, and penalties for contracthas proved ineffective, and the multiple tinkcrings with these arrnagemonts over the past decade have improved matters only marginally.
D. Honey Incomes, Goods Availability, and Accumulation of Liquid Assets
Much attention and argument among Western analysts has centered on the question of tho interpretation of those facts: er capita savings deposits have been rising over the past two decades at an average rate of aboutercent annually, more than twice as fast as both per capita disposable money incomes and per capita outlays on goods and services; er capita savings deposits hadubles, over two-fifths as large as per capita disposable income; total savings deposits amounted toillion rublesqual toercent of total retail trade turnover in that year and amounting toonths' earnings for the average state wage and salary worker. These and similar data and calculations have been used, in particular, to suggest the presenceizable and perhaps growing amount of repressed inflation in the USSR.
In othor words, tho rapid buildup in liquid asset holdings in the form of savings deposits is taken to mean that people aro being "forced" to save, because the government has failed to provide the goods and services that people wish to purchase at their income level.
Those facts and interpretations of them involve several issues. First of all, the true rise in consumer prices cannot be measured. While there are published data on price changes in official markets (State retail trade network and coj lective farmhese data have long been suspect. As indicated in II above, the implicit price index calculated by juxtaposing independent measures of real consumption and Soviet retail sales in enrrent prices shows an average annual price increaseercent over the pastears. The official Soviet indexes show almost no increase. Comparison of the two indexes suggestslow rate of price increases in official markets has been hiddenaulty price index.
Second, by all accounts extensive "unofficial" or "parallel" markets coexist with official markets. There is no way to measure either the size of these markets or price changes in them. In fact, systematic analysis of these markets and integration with analysis of official markets has yet to be done. Much anecdotal
evidence, including statements by recentthat both the level of prices and the rateof prices in unofficial markets have beenthan in official markets. Thenot only absorb spillover purchasingofficial markets, but also generate incomes;incomes nor expenditures can be measured,only say that the phenomena may or may notinflation on the macro level. However, certainly reflects the failure ofto satisfy consumer wants in numerousfor foods and
Third, there is the question of whether the state has been able to achieve reasonable balance between aggregate money incomes and aggregate money expenditures, allowinglanned growth of savings at "normal" rates that one would expect to accompany both gradually rising per capita incomes, monetization of the economy, and development of modern savings institutions. The data shown in Tablehough admittedly far from definitive, suggest that fairly good balance has indeed been achieved on the whole, better in some periods than in others. The pattern seems to be one of ebb and flow; excess growth of incomes in one period relative to growth in goods tends to be met with corrective actions, either to increase the supplies in official markets and/or
to slow down the growth of incomes.
Fourth, questions arise about how to interpret the notable buildup of savings deposits. Why do people save in the Soviet Union? Is the savings ratehigh compared with other countries? Do the accumulationsising marginal propensity to save,re peopleising share of rising incomes? avings deposits have been almost the only significant outlet for savings in the USSR; state loans and private housing are negligible by Savings deposits yield current incomeercent and hence are to be preferred to hoards, unless the populace fears confiscation. Most important of all, probably, is the fact that for all practical purposes, consumer credit is not available for most
goods, especially those of good quality and in high
when credit is available, demand.equired down payments arc high, roughly
ercent. Would-be purchasers of most big-ticket items, such as furniture, appliances, and cars, must pay cash. Credit sales amounted to onlyercent of all retail sales of non-food goods Purchasers of cooperative housing must make down paymentsf the costubles). Since the, at least, saving to buy appliances andhas been stimulated by steady growth in construction
of new apartments, by rapid expansion in quantities of home appliances available, by the show shift in their mix toward models of more modern design, and by perennial government publicity promising more and better appliances in the future. Finally, savings behavior in theurely was affected by thedecisions to greatlyroduction of passenger cars and toarger share of annual output for sale to the population. 0he number of cars sold to the poeple rosehiguli costsubles5 and roust be paid for in cash. ubstantial amount of liquid assets surely is highly desirable to hold "just inn view of the chronic uncertainties as to just when some desired article may appear in the stores or when one's positionaiting list may reach the top.
Although comparisons are tricky, because there arc no data on currency holdings in the USSR, the savings rate does not appear to be abnormally high in the USSR. Average and marginal propensities to save have been calculated for the, using the data on per capita disposable money incomes given in Appendix B, Table 1. Deposits in savings accounts are taken to represent total saving, and tlie "alternative" price index is used to express both incomes and savings in
real terms. For the periodhole the marginal
propensity to save is shown to
The average propensity rises slowlyercent
5ercent There is no statistically
significant tendency for the marginal propensities to
rise during the period.
If, as suggested by these calculations and those of other investigators, saving by Soviet households out of current income is not high by comparison with other countries, what may account for the evident concern of Soviet planners oVer the persistent rapid buildup of total deposits, someercent of which are demand Soviet economists seem to be uneasy over the growing amount of what they call "postponedrobably, they believe that planning is made more difficult because of uncertainty about how much themay save voluntarily and what the people may choose to do with the large absolute sums available foruse. After all,illion rubles is larger than total retail sales of non-food goods4 andotentially destabilizing element. Total deposits5 exceeded the Ninth Five-Year Plan target by someillion rubles. Some of the savings might fuel the so-called "secondr unofficial markets not subject to planners' control. Also, the Soviet government may feel uneasy about the growing
accumulations of private wealth and by the fact that possession of sizable cash assets makes the average worker more independent of state control. And, too, the Soviets may view the accumulation of large amounts of savings simultaneously with sizable accumulations of inventories of unsaleable goods as indicating pervasive planning failures. Finally, they may fear that work incentives will be adversely affected by the pent-up demand, if desired goods are not forthcoming with reasonable speed. ord, they may believe that the people's savings ate indeed "forced" savings, at least in part.
XV. Policy Options
Over She past quarter century, the Soviet economic system and the policies of its leadership have produced an impressive rate of growth in total national product and in per capita consumption. The success in raising levels of living quantitatively, however, has been accompanied by snail's pace progress in improving the population's lotualitative sence. In fact, the policy of giving people more of almost everything has itself contributed to the urgency of faster qualitative gains. As it enters the third quarter century, the Soviet economy faces the strong likelihood of much slower economic growth in the futurelowing of growth in consumption, as well. Continued slowdown in the latter
is implicit already in the goals established in the Tenth Five-Year Plan, which also reasserts thepriorities of significantly more rapid growth of producer goods than of consumer goods.
Given these prospects for quantitative gains and the current set of problems in managing the consumer sector discussed above, what situations may confront the Soviet leadership and what seems to be its policy options, their costs, and probable benefits? The Soviet people over the years have come to expoct visible, albeit modest, progress in meeting their wants. Such has been their experience since World War II, even though grandiose plans may have been met only in part, and scheduled welfare measures may have been' delayed. As long as the economy canittle more food, clothing, durables, and services each year, consumer expectations likely will be met insofar as quantitative gains are concerned. The Soviot people also are accustomed to difficulties in acquiring goods and services, chronic deficiencies of quality and mix, sporadic shortages and queues. Along with this, they probablyittle progress in improvinq the quality and mix of products. Prospects are for mora of the same. Despite the label of the "plan of efficiency ond quality" attached to the Tenth Five-Year Plan, no big gains in
these areas seem likely. Repeatedth administrative arrangements in the past aimed at removing these blights from the consumer scene hasfew positive results. As of this writing, the outlook is for more "improvements'* in planning andarrangements along past lines, as well as for continued frustration at the persistence of the problems they were designed to solve. Thus, evidence of pervasive dis-equilibriaost of individual markets is likely toamiliar part of the Soviet scene, alonglourishing'"second economy" to provide some corrections.
Should the leadership opt toubstantial increase in consumptionajor improvement in its qualitative aspects, it would find itself faced with cSiiemmas and conflicts of priorities and shackled by ideology. The fundamental conflict is betweenandpeedup in the rate of construction of housing, and infra-structure to service the automobiles provided, an more retail trade and service facilities wouldoon to consumers, but the substantialneeded to overcome past neglect in these areas would divert labor and investment resources from growth-oriented ends. Industrial facilities for producing consumer goods are relatively technologically backward, and much capacity represents merely side-line production.
Large gains, both quantitative andhad by building specialized plants, especiallydurables and the numerous items of ordinaryuse- rogram, however, would claimresourcos; imports of specialized modern plantsWest would take resources of hard currencycould be used to purchase modern plantssteel, for example. As anconsumer goodsimported on
a larger scale and sold to consumers with the stiffnow in effect. Whileove
would increase consumer satisfaction and absorb some of tho rubles that otherwise might go into savings deposits, the requisite hard currency would have to be taken from competing uses. Except for the last, policies involving major reallocation of resources to consumption would not have quick payoffs, and any attempt tothem quickly might create serious disruptions in the short-run, thus exacerbating the conflict between growth and consumption.
Another source of conflict is inherent in the necessity to maintain work incentives, if economic progress is to continue. Along with steady increases in real consumption, the population has come toteady, even if slow, rise in money incomes. In fact, despite much emphasis on "moral incentives" and socialist
competition durinq the Ninth Five-Year Plan, the
government is basically relying on material incentives to elicit work effort. Thus, money inccr.es are scheduled to grow, albeit slowly,, more or less in line wit planned growth in goods and services. If past behavior prevails, the worrisome accumulation of liquid assets in the hands of the population will also continue. These accumulations have the potential for serious disruptive affects, should some crisis of confidence occur. The government's options for dealing with this are not very good. One easy method already being used to capture some of these rubles is to encourage the purchase of insurance. , net insurance premiums tripled and in5 amountedillion rubles. Taxes could bo raised and bondmade compulsory, but the government as of now has committed itself to reducing taxes and redeeming past bond issues. hange in this policy would carry great risks of alienating the populace, to the detriment of work incentives and perhaps also to social and political stability. For similar reasons, confiscation of savings accounts directly orurrency revaluation would notikely remedy.
An option that would both absorb large amounts of liquid asset holdings and increase quantitatively measured output would be to permit more private activity of various kinds. By easing restrictions on investment in cooperative
-4b-
and private housing, the government could induceto take over more of the cost ofand to pay the full maintenance cost asboth parties would bc made economicallythereby. Similarly, easing restrictions onin providing services of all kindssimilar ends, and would also help toor black markets into legal ones. Restraintsactivities in agriculture could be eased,that has invariably yielded quick responsegains in the past. But official ideologyencouraging private activities. is viewed as the wave of the Socialistprivate housing is viewedelic of theactivities areanachronism
entrally planned economy where the means of production are supposed to be state property.
Another measure that would benefit both consumers and the State would be to raise retail prices for selected goods and services, so as to clear individual markets and eliminate subsidies. With present prices, for example, there is excess demand for many foods and for housing, along with largo State subsidies to maintain these prices. There, again, however, oft-repeated dogma stands in the way of raising prices. Low rents and stable retail prices are touted as among tho virtues entrally
planned socialist economy. Indeed, the Soviet people have come to expect low and unchanging pricesariety of basic goods and services. Aside from lideology, the leadership must take this expectation into account. Khrushchev's sudden hike in the prices of milk and meat2 resulted in civil unrest*
Painful though the choices may be in respect to policies designed to raise output of consumer goods and to better manage money incomes, they are probably much less so than those that attend any serious effort to
provide major qualitative improvements in the consumer
*
sector* Poor quality, mix and design of consumer goods, random shortages and surplusses of individual goods, queues, black and other colored marketsall have -characterized the consumer sector from the outset of central planning. They are rooted in the nature of the system itself and in the set of priorities persistently maintained. Even if the secondary priority status of the consumer sector were changed, however, these kinds of qualitative malaise would remain. Repeated attempts over the past decade at piecemeal reform in the economy's working arrangementsprices, norms, managerial incentives, rules governing financial and contractual matters, allocation of supplies and equipmenthave not altered their essential nature in any respect, nor has more extensive use of computers and mathematical models.
. To remove the chronic malfunctions in thesector, changes would need to be made that would alter the very system itself. Since tho problems in the consumer sector are largely micro-problems, not macrohift to the use of market arrangements in at least major parts of the economy shouldolution in the long-run. weeping change would surely create major disruptions in the short-run, however, and would entail enormous political risks. The Party's control over policy and resources would be greatly weakened by the introduction of "market socialism'^ as would its grip on the lives of the population. resistence to any major reforms, especially ones entailing transfer of major functions, sucn as price-fixing and allocation of supplies, to markets would be ferocious. Serious and perhaps destabilizing conflicts within the Party leadership surely would result. Attempts to solve consumer and efficiency problems merelyhake-up in the administrative apparatus, rather than by introducting markets, would likely do much more harm than good, ad did Khrushchev's innovations in.
Each of the policy options discussed above is riddled with potential conflict within the political leadership, whether Brezhnev and company or their successors None of the choices promises large gains in per capita consumption without an accompanying cost in investment
and qrowth. An economic rcforn that ultimately might alleviate the qualitative problems could not bcwithout short-run costs and long-run problems of its own. Given these considerations, it Is not surprising that Soviet leaders up to now have come down on the side of prudence. Treadingamiliar path may have its costs in continued frustration of the population's desires, butourse carries minimal risk of social and political upheaval. No one can say what future leaders may opt to do. One can be fairly sure, however, that they will face tho same difficult choices as does the present leadership. Meanwhile, painful decision can be postponed by aeffort to obtain the largest possible infusion of technological aid and consumer goods from the West on the best terms possible.
Source References
norms cited in this paper are given
in Philip Keitzman, "Soviet Long-term Consumption Planning: Distribution According to Rationaloviet Studies, Vol. XXVI, No..
Sovetskaya torgovlya. No.
P. A. Lokshin, Soros, proizvodstvo, torgovlya,
By the endccording to the Ninth Five-Year Plan, approximately three-quarters of all urban families were supposed to live in separate apartments, compared withercent 'Voprosy ekonomiki, No.vidently, this goal was not met. That housingajor sore point for consumers is indicatedecent survey showing9 percent of those questioned wore'dissatisfied vith their housing conditions. Ekonomichcskiye nauki. No. p.
Ann S. Goodman and Murray Feshbach, Estimates and Projections of Educational Attainment in the USSR, US Bureau of the Census, International Population Reportso.'
Narodnoye khozyaystvogodu,
Narodnoye khozyaystvo,.5 godu,.
8. Abraham S. Becker. Soviet Batipnal B.
Central Intelligence Agency, USSR; Gross,. P. A. Lokshin, op.clt-, p- ,.
10. Ibid.
Mte^ "Consumer Goods Availability and
Repressed Inflation in tfce Sovietn NATO, Directorate of Economic Affairs, Economic Aspects of Life in the USSR,.
ecent study of farm incomes; sec Karl-Eugcn Wadekin, "Income Distribution in Sovietoviet Studies. Vol. XXVII, Ko.
a careful analysis of farmer incomes in thesee: David W. Bronson andevolution in Soviet Farm Household incomesJames R. Millar (ed.J, The Soviet Rural Community.of Illinois.
a critique of official Soviet price indexes see"Soviet Pricenohn P. Hardt. ovietuke University.
For an cmigree's discussion of the many ways in which hidden price increases have occurred in the USSR see: A. I. Katscncllcnboigen, "Disguised Inflation in tho Sovietn NATO, Economic Directorate, Econonjc Aspects of Life in the USSR, Brussels,.
Narodnoye khozyaystvo0 qoda, pp..
Narodnoye khozyaystvo4 qoda,.
Voprosy ekonomiki, No.
Finansy SSSR, No.
Finansy SSSR, No.
A**
Sovetskaya torgovlya. Hay
Voprosy okonomiki. No. 2, p.
Finansy SSSR,No.
Koramcrchcskiy vesttnik,
Ibid,
Ibid.
Pravda,
Pianovoye khozyaystvo. No. 7,
Pravda,
P. A. Lokshin,.
Voprosy ekonomiki, No.
Sovetskaya rossiya,
Voprosy ekonomiki. No.
Pravda,
P. A. Lokshin, op.cit., p. .
Voprosy ekonomiki. No..
escription of the nature of this campaign and its accomplishments, along with the confusion and waste that it created see: Gertrude E. Schroeder, "Consumer Problems androblems of Communism,Consumer Goods Availability and Repressed Inflation in the
See also Voprosy ekonomiki, No,p.
P. A. Lokshin,.
See, for example: Dimitri K. Simes, "The Soviet.Parallel Market" in NATO, Economic Directorate, Economic Aspects of Life in the USSR,nd A. I. Katsenellenboigen, "Disguised Inflation in the Sovietn.
Willard s. Smith, "Housing in the Soviet UnionBig Plans, Littlen Joint Economic Committee, Soviet Economic Prospects for the Seventies,
p. .
similar result was obtained by another investigator,on real per capita incomesublishedJEC volumes and savings data defined to accountpurchases and net borrowing as well as savingsJoyce Pickersgill, "Soviet HouseholdEcononucs and Statistics, Vol. LVIII, No. 2, May.
Yv. M. Belugin, Ekonomika sberogatel'nogo dela,
There is much evidence on this point. Forecent opinion survey of light industry managers ofand department stores showed that considerably fewer than half of them thought that the change from value of output to salesuccess indicator had produced positive, results in terms of quality improvement and satisfying consumer demand. Department store managers were much more negative than enterprise managers. rganizatsiya promyshlen nogo proizvodstva. No.p..
he- price markup on various items of cloth, clothing, knitwear and shoes ranged fromand. The markup on furniture4 and for consumer durables and related items it. These ratios were calculated from data on imports of these items in retail prices cited in P. A. Lokshin,; and in foreign trade prices in yneshnaya torgovlya
3 qodu, p. nd Vneshnaya
odu. p.
sy
APPENDIX A
Estimate of an Index of Consumption for the USSR
The following tables present the index of consumption in the USSR in its revised and updated form. The revised index differs somewhat from that published in JEC, Soviet Economic Prospects for the Seventies,ff, because:
the base weights and prices have been shifted8
several new line items have been added; and,
3) tho techniques used to estimate several line items have been changed or refined.
resents the indexes of total consumption and per
capita consumption, by major category. resents the
component indexes in detail. utlines the basic type
of data used to derive each line item series and gives the
weights used to aggregate them. The estimates5 are
preliminary and may change substantially as new statistical
material appears. The following paragraphseneral
description of the indexes and the underlying data, along with
a detailed explanation of the
* Detailed source notes are available from the authors on request. ull methodological description and documentation of tho index is to be presentedorthcoming CIA publication.
55
Limitations of the Consumption Index
Construction of an index of consumption mustthe limits of Soviet data. The index thereforeviewed asmeasure of changes in consumption
between two consecutive years. Nevertheless, it is believed toeasonably accurate indicator of Soviet real personal consumption over time. The basic data are fairly reliable, double counting has been reducedinimum, and both the sample and the weights are adequate. At the same time, some of the improvement in quality of goods and services that has occurred over time can be incorporated satisfactorily.
Basic Data
Slightly over half the line items presented in the index (see Appendix Table 3) are based directly on official Soviet production series expressed in physical units or valuebout one-fourth (the services sector) is based on estimated expenditures, anotherercent is based on retail sales and the remaining few line items are based on Soviet reports of quantities consumed. To eliminate double counting oft different stages of production, the portion undergoing
* Production series arc adjusted for foreign trade and inventory changes insofar as possible.
56
further processing has been netted out of the quantityfor human consumption. Series based on the value of production or retail sales in constant prices are official Soviet series, which are used in the index because no alternative data are Considerable reservation attaches to the reliability of
Soviet pricing practices and priceinally, the Central Statistical Administration states that food consumption inis calculated from an overall production-consumption balance and does not rely solely on either budget survey or production data.**
* See, for example, Rush V. Greenslade, "IndustrialStatistics in the USSR" in Vladimir G. Treml and John P. Hardtoviet Economic Statistics,uke University; and Morris Bornstein, Soviet Pricen.
** Vestnik statistiki. No.. At the same time, the article points out, calculation for some productsthe more pure ones such as sugar and potatoesis more accurate than for those products with numerous subproducts such as meat. Balances worked out, by us, for three of tho four food series in the index that are based on per capita consumption data indicate that the quantities are at least reasonable and consistent with production and utilization data. The fourth series, flour and groats (grain and grain products ins not. We believe it is understated, primarily because the budget survey is not representative of the entire population, excluding lov? income groups who tend to eat more grain products than middle and upper income groups. Furthermore, this balance calculation is particularly complicated because the grain and grain products group containsifferent kinds of grain products, all of which are converted to flourwith standard factors.
57
The unit prices used to aggregate the preduction-based series are less satisfactory. Unit prices are either retail prices (used if tho product moves through the retail channel only) or combination prices reflecting all marketing channels. In both cases, the retail price (or part of price) is based on Moscow observations or on official price handbooks that may or may not. reflect real retail prices, but are believed to be the best available. Prices for products consumed in-kind and purchased in collective farm markets are taken from: Gross National Product0. f. (hereafter GNP,. Although the average prices may not be exact, the relative levelsfor example, between meat and fruitare reasonably accurate
58
Sample
sampleYc
comprises overercent of consumption
asasket of goods and services in as
much detail as possible from regularly published data. It
V, total food and durabletotal consumption of health
and education services, overercent of soft goodsand nearly all of the major householditems not represented, such as matches, kerosene,of tho lesser services, are relativelyabsence probably does not bias the index
The expenditure weights used to aggregate the component inde^sfood, soft goods, and so forthare from. 8. Aboutercent of the price or purchase weights used to aggregate the line items within the components are based directly on published data in the base year. The remainder are based on adjusted production valued at prices of the base year or on estimated total expenditures. General Notes on Sources
Production, per capita consumption, and retail sales data, as well as the price indexes to deflate retail sales data, are from the annual Soviet statistical abstractNarodnoye khozyaystvo v Also from the abstract
are data on inventory change (wholesale and retail) used to adjust
59
production data. Foreign tr^de data, also used to adjust production data, are from the annual foreign trade statistical
abstractVneshnyaya torgoylya zagod. Sovetskaya
torgovlya,nd various issues of the monthly statistical journal, Vestnik statistiki, added usefulon the distribution of some productsiven line item category.
In order to eliminate double counting of products at different stages of production, the portion further processed is netted out of the quantity available for human consumption. For example, flour and sugar used in confectionery arefrom total flour and sugar consumed, adjustment is made for canned foods, and so on. Adjustments are based on sources such a3 L. V. Opatskiy, Razmeshchcniye pishchevoy promyshlennosti SSSR,. P. Zotov,ishchovaya promyshlennost' SSSR,nd N. V. Vinogradov,konomika pishchevoy promyshlennosti SSSR,
Two types of prices are applied to the production data to value those line item scries that are production basedretail and combination. Retail prices are used for those products which move primarily or entirely through the state store network; combination prices are used for those products which move through collective farm market and in-kind channels as well
60
as retail. Retail prices arc based on price observations in Moscow. Retail prices for fruits and vegetables are seasonally adjusted. Combination prices are based on retail prices (observed in Moscowverage collective farm market prices and estimated in-kind prices (from.fl and estimated prices paid by the military. These prices are weighted by their respective shares of the total consumed.
The component weights and estimates of0 arc from. 8. Annualservices are estimated with the aid of*indexes to moveweiahts. In some cases, such as housing where theis housing stock, the result is probably areflection of trueother cases, however,
such as recreation, art, and culture where the indicator is movie admissions, the result is less satisfactory. The bulk of the data used to derive the services indexesbudget, employment, wage, investment, construction, transportation, communication, and so onar* from the annual statistical abstract. Various textbooks and trade journals wore additional sources of useful information, particularly in the utilities sector.
61
Impact tif Changes in Weights and Methodology
The revised index uses base year weights0 instead The new weights are takenomprehensive and consistent set of national accounts0 (CNP,. The weights for major components of the consumption index, therefore, are much more reliable than those previously used. With respect to individual line items within major components, prices0 were obtained directly, thus obviating the need to update the5 prices with official price indexes. Changes in the base weights per seegligible impact on the index for total consumption. Rounded to one decimal place, the average annual rate of growths the4 percent) with both sets of weights. Aside ft"ob base yearumber of revisions were made in rt-^spect to components and individual line Items, with the ofc-jective of Improving the accuracy of the index. The net effect of all these changes was to slow the growth of the index for total consumptionercentage points per year.
Revisions were made for particular components and line items ar. follows:
Food
(1) The fish index is based on per capita consumption instead of deflated retail sales.
he confectionary index is based on productionfor quality change instead of deflated retail sales.
62
canned goods base weight isinstead of production.
The alcohol and soft drinks index is based on production adjusted for net trade instead of deflatedsales.
Tobacco has been transferred to the foodfrom soft goods.
The net effect of these changes has been to slow growth
in total food consumption slightlyercentage point per year. Soft Goods
The index has. been expanded and now includesine
items, comprisingercent of the base weight. The new items are household soap and synthetic detergents, toilet soap and perfumes, school supplies, and publications. The net effect of these changes is to speed growth of total soft goods consumptionercentage points per year during
andtMisecilanoous Goods
The durables goods index has been completely revisad. Originally an index basedmall sample of durable goods measured in physical units, it isroadly based series, including not only durable goods but miscellaneous other goods as well. Items such as toys, sporting goods, jewelry, and medical supplies are now included. Indeed, the series covers all items in the weight. The index represents retail sales of these products calculated in constant prices. Since data in current prices are regularly published in official
statistical abstracts, the procedure for calculating the
index amounts to deriving the price index for them that is
implicit in the official price index for non-food goods and
the Indexes for given sub-categories. More specifically, the component serios for durables was calculated as follows:
Total retail sales of non-food goods are published in Soviet statistical abstracts in current prices for eachonstant price series can be calculated using the official retail price index.
Retail sales ofroups of soft goods (accounting forof all sales of" non-food goods) are also given in current prices for each year: constant pniccs serios can bc cal/aclated for each group, using official price indexes.
Summation of the values for theroups in current and constant prices in each year results in series for total sales of these soft goods in the two sets of prices.
Subtracting the current and the constant price series for Eoft goods sales from the respective current and constant price scries for total retail sales of non-food goods results in two residual series representing sales of all non-food goods othor than theroups of soft goods. The residual group is arbitrarily labelled "tturable and other miscellaneous goods". The series so obtained in constant prices is the new component index.
The index has short comings, in that it rolios on dubious official price indexesess than complete understanding of how those indexes are calculated. .Moreover, tho component
64
index does not exactly match the base year weight in respect to coverage. Nevertheless, the new index is much moreand representative than the old index, which overstated growth significantly. The sample (all that could bo obtained with available data) was made up almost entirely of products which had experienced phenomenal growthlose-to-zero base The new index grows byercentage points per year less. Services
(1) ew lino itemtrade union and Communist Party dueshas been added.
Base weights for utilities, recreation,and communications have boen expanded in coverage.
Allowance for privately supplied services has been made in the line-item for repair and personal care.
Several of the indexes used to move the base year weights have been broadened in coverage. For example, the communications index formerly relied on officially-roported revenues of the communications industry; it now is based on the summation of expenditures on the various types of (see
Manhours owrked, rather than average annual is now used to move the wage component of the base year weight for health and education. Revision of the materials purchases component of the indexes for health and education could not be completed in tine for this monograph.
65
II
r::
:s
::
MEMORANDUM FOR:
Table 2
USSR: Indexes of Consumption
Item, heets as follows:
Alcohol, soft coods,(
1
soft goods,5
personal and communal,
(DATE)
tn
i il
III
til
III
III '
IE
'III
ui Us
as aaas sse
m mm ns mm mm'
safe -tetfis . S
* 'ff-
a?
r
it t
u
C2
sssa
II I
I Em
i mi
g
I mi
* rt r- x
ift!i
" A -1
3
(1 >a" s
-J
6 |
A * a :
3
a *
a o
riff
. a.
n n
-
l
y " "
OM M
o i"
fi.na ;
f
6 on q
a f n
p 0"
a i> u o
fl a -_
" !7 (
' k- - -
! :
n ii b
f-
f a
ii
Footnotes to Table 3 I
I
a-. Cannot be adjusted for trade or inventory change because the necessary data are net published.
Officially reportad per capita consumption data could not bu used because they include industrially used vegetable oil.
Product does not snter USSR foreign trade, d. The assortment problem precludes adjustments for trade or inventory change.
e- Quality adjustment is based on roduction Sumetail sales of bread and bread products,groatsr'astimated military consumption ofollective farm market sales of grain;estimated in-Itind grain Assumed tof category, "other food goods, thethoserior3 when data on salesand non-alcoholic beverages" woro .Cannot be adjusted for inventory change because theare not published. .
Includes synthetic fabrics. .
Price index derived from data on'sales in constant and in current pricos.
Includes synthetic soaps. Includes porfumerr.e. ml Data on assortment and prices of published material, available, indicate the average woighted price has not changed significantly.
n. See text of Appendix, p. or brief explanation of the technique used to derive the base weight and series ofomponent.
The series for each service is an index based on one or more types of data. When more than one type of data is used, either.in index form or absolute, the segments are weighted ;J together with their0 expenditures, p. ER), USSR: Gross National Products Accounts,
S, p,i For example, number of subway.rides at0 price, numbers^treetcar rides, passenger ilometers on planes, trains, ships and so on.
r. For example, postal, urban and rural telephone, telegraph and so on.
si Excluding housing repair.
APPENDIX B
Estimate of Personal Disposable Money Income in the' USSR
The following tables update the estimates of personal money income in the USSR that appeared in. The format has been changed and the data have been ummarizes money incomes and deductions from incomes and derives real per capita disposable money income.resents money income by source, andets out deductions from money income by type. Detailed sources and metfendology accompany each table. The estimates5 are preliminary and can be expected to change when morebeciomes available.
Soiare of the earlier estimates have been revised on theew data or changed methodology. The main revisions pertain to military pay and insurance indemnities and premiums. Several new items have been added, namely, trade union and Communist Party membership dues, interest on savings accounts, and lottery winnings. esult of these changes, the new estimates for personal disposable money incomere smaller in most years byercent, as compared with estimates previously published..
While the new estimatesore comprehensive picture of personal disposable money income, coverage is not complete. The total of missing income is believed to bo small, amounting toercent0 (see Much of the missing income is thought to be derived from privately suppliedategory that cannot be reliably estimated. In addition, income from the smaller lotteriesDOSAAF (the Voluntary Society for Assisting the Array, Air Force andportloto, and so onis not included because of lack of data for years priorevenue from these lotteries amountedillion rublesbout the same as that from the "money-goods" lottery (Finansy SSSR, no.. Also missing are receipts from the sale of personal property, incomes from travel expense accounts^and miscellaneous money payments by enterprises not included in the wage fund.
On the deductions side, outlays for miscellaneous dues (paid to professional organizations, DOSAAF, sporting clubs, and the like) and those for compulsory insurance premiums are not included because of lack of data. Neither item is large. Miscellaneous dues are estimated to have amountedillion rubles0, aboutercent of total dues paid. Premiums for compulsory insurance
7f
paid by individuals have declined fromercent of total
premiums paid for all forms of insurance0 toercent
hen compulsory payments wereillion rubles
(FTnansy SSSR/ no.)
In Tableer capita disposable money incomes are
expressed in real terms with the use of two consumer price
indexes: n "official" index that combines the Soviet
official index of state retail prices with an index of collective
farm market prices based on officially published data; the
two components are weighted with their respective shares in
total retail and collective farm market salesnd
n "alternative" index of prices for consumer goods that
is implicitomparison of an index of purchased goods in
current pricesimilar index in constant prices.
The current price index is based on the values of total
retail and collective farm market sales in current prices
regularly .published in Soviet statistical handbooks. The
index in constant prices is derived from the goods components lof the;
'index of total consumption given in Appendix A, Table 1.
Specifically, an index of goods purchased in retail trade
and collective farm markets is obtained by subtracting the
value of consumption in-kind in each year from the total value
of goods consumed, both values expressed0 prices.
The derivation of the index of consumption of goods is explained
in Appendix A. Estimates of consumption in-kind0 prices
77
were made by Constance B. Krueger for benchmark years,
0, following the methodology
described inp.. Values for other years
were derived by interpolation on the basis of the trend
in the share of consumption in-kind in total consumption of
food.
The nature and respective merits of the two price indexes are discussed in the text. The shortcomings of the Soviet official retail price indexes aro well known. With respect to the "alternative" index, it is in no sense an independently calculated index based on observed prices. Rather, it is an implicit price index, and its accuracy depends on the accuracy of the measures of consumption In constant prices presented in this paper. Since the "alternative" price index is derived from largely independent sets of data, year-to-year changes aro not necessarily accurate. The trend seems reasonable, however, and accords well with other evidence concerning changes in prices actually paid by consumers during the period investigated.
to
Personal Disposable Money Income Sources and Methodology
1- Total personal money income a. Allable 2.
Deductions from personal money income a- Allable 3.
Personal disposable money income
a. Alline 1. less line Ppr_ capita personal disposable money income
ineivided by mid-yearU.S. Department of Commerce, Bureau ofForeign Demographic Division.
5. Real Per capita disposable money Soviet bmctTJT^re^Tna^x'*
eflated by an index of prices paid by consumers for goods. The deflatoreighted index based on the official retail price index,ollective farm market price index derived- The weights are the respectivetotal sales0h..
stimated.
implicit price index
1. Allineeflated by the "alternative" implicit price index (see Appendix b, text).
S EE
E E
s i
EE
5 E
= i
S li
e.j
S ES
E E
I !l
E 1
E EE
1 I*
J [
E IE
I I
G 1
E EE
I I
E i
1 S
5
n1
5
ng
S IS
S S
I Ig
i!
E EE
E EE
i 1
l 1
1 I1
E 1
EE illik
1 1
a j
E {
E SE
5
I j"
s I
?
s S
* ;
a s s
5
ay6
Personal Money Income
Sources and Methodology
money income
a. All yearsSum ofnd
earnings of wage and salary workers
khozyaystvohereafter, N. Kh. andyear). Includes gross earningsartisansillion rublesillion rubles5 respectively. artisansage equal toof industrial wage and salary workersto US 3ureau of the Census, Producers'in the Soviet Union, by Frederick A. Population Reports Series, P
, p. The average annual
number ofeported in N. Kh.4 ,
. The average annual industrial earnings are
fromSSR,.. Producers'
cooperatives were converted into state enterprises
0 and members wore then classified as state
workers.
N.. are the product of the averageof wage and salary workers and theearnings, adjusted to an annual basis. the USSR Central StatisticalCSA) changed the reporting ofto include bonuses from non-wage fundin this table have been adjusted accordingly.
C. el'skaya. 1.
3- g.Payments to collective farm members a.
avid w. Bronson and Constance B. Kruegcr, "The Revolution in Soviet Farm Householdn James R. Millarhe Soviet Rural Community, University of Illinois Press,.
b. 74 Derived for each year asfficial statistical handbook datawage payments (moneymade
by collective farms to collective farm members for their work in socialized activity of the farms the share constituting money payments only. Data for total wage payments (money plus in-kind) are availablen Sel'skoye khozyaystvo SSSR, Moscow,;;nsifrakhodu (hereafter Tsifrakr. Money paymentsf total payment: (money plus in-kind*5 . Zhurikov. Solomakhin, compilers, Spravochnik po opiateolkhozakh,.%9 . Rogachev, Ekonomicheskiyeazvitiye sol'skogo khozyaystva, Moscow,0 (Zhurikov and Solomakhin, or>. cit.). Money payments are estimated to amountn line with0 share, and to2
4. Net income of households from sales o; farm products
Net income of households from sales of farm products is derived as the differenceotal money income of households from sales of farm productssales to state procurement and stato and cooperative trade organizations, sales in collective farm ex-village markets and commission trade, and sales of livestock tooney outlaysurchases from outsi.de the soctor of materials and services used in production of these agricultural products and indirect taxes. Included in indirect taxes are
2
fees charged collective farm market traders and taxes levied on livestock holdings of households.
a. All yearsUnpublished estimates of Constance B. Krueger, Central Intelligence Agency.
5. Profits distributed to cooperative members
Consumers' cooperativeseparate trade network, paralleling that of the state stores but designed primarily to service rural areas with stores and restaurants. ooperative is usually composed of residentsingle village. Nominally, the cooperatives system is controlled by its membars, but the government actually exercises strict control over profits, prices, and earnings. mall share of profits is distributed to members. 4 million rubles were distributed to cooperative members according. Ilyushin0 let sovetskoy potrebitel'sKoy kooperatsii,.. Total cooperative profits for those yearsillion rubles. (N. Kh.nd N. Kh..ividing distributions by profits, resultsistribution rate2 percent. This rate is applied to reported profits for each year.
.a. . Kh...
N. Kh...
N.. ssumed equal
6. Military pay and monetary allowances
The USSR publishes no data on aggregate militaryestimate of total pay0 was recently published This is usedase weight and is moved fromthe current year by an index based on militaryparamilitary personnel such as border guards
. 3.
other yearsIndex based on militaryfrom the annual publication of theInstitute for Strategic Studies, The London.
3
7. Transfer payments
a. All yearsSura of lines5
8. Pensions and welfare pavrents
The Soviot Union has established an extensive program of social serviceside range of contingencies. The state social security programwhich includes benefits for sickness, maternity, and large families, and pensions for old age and disabilitycovers workers in state enterprises.imilar but more limited program has existed for collective farmers. Pensions and welfare payments are derived as the difference between total outlays for social security and social insurance, including pensions, and the sum of outlays for health resorts and sanitoria, outlays forand pioneer camps, and miscellaneous outlays.
. Kh..
the sum of reported welfare payments (linesxceeds total welfare payments derived by subtracting reported pension payments from reported total pension and welfare paymentsillion rubles. Therefore total welfare payments and,consequently, pension and welfare payments have been adjusted upward by that amount.
N., adjusted,between expenditures0 as reported
in N. Kh., and in N..pplied Welfare payments and, consequently, pension and welfare payments adjusted upwardillion rubles, asG above.
K. Kh. . , .
N. , p. , Finansy SSSR, no. 1,
9. Pensions
State workers and collective farmers are given pensions for permanent disability, survivor, old-age, and long service.
a. N. Kh. p. .
Estimated to beercent ofsed on the
. Kh. p. .
. Kh. p. inansy SSSR, no.
payments
a. Total pension and welfare payments (lineess pensions
disability benefits
Sickness and injury benefits are payable from the day of the disablement until recovery oredical commission certifies that the patient is incurable and shouldension for permanent disability. ll state workers have been eligible toercent of their earnings for temporary disability resulting from work-connected injury or from any one ofesignated occupation illnesses.
N..
N. Kh. . .
..
W. Kh. p. .
Paid maternity leave was lengthened fromays Payments are based on earnings and length ofranging fromercent if employed for less than one year to full compensation is employed for three years or more.
a. All yearsSources tobove.
to large families and unwed mothers
a. f60Gosudarstyerinyy byudzhet SSSR i
byudzhety soyuznyk'h' respublik,
Gosudarstyennyy byudzhet SSSR
H. Kh. . Other grants
Includes payments for retraining state workers and burial paynents for state workers and their families. Total welfare payments ess temporary disability benefits , maternity benefits, and grants to large families and unwed mothers .
Stipends to students
Raskhody na sotsial'no-kul'turayeno gosudarstvennomu byudzhetu SSSR, Moscow 1
N..
N^ Kh. p. .
Estimates based on numbers of students
in higher education (W., and N.nd average stipend paid5
- Estimate based on increase in numbersin higher education) .
indemnities
Sum of compensation received for personal property and life and accident insurance claims.
Laptevinansy. '
A.G. Zverev, Natsional'nyyinansy
SSSR, Moscow, p.1
G.P.0 letsccw, p. "
A.G. Zverev, Natsional'nyyinansy SSSR,.
Ekonomicheskaya gazeta, no. p. 6.
6
i. inansy SSSR. no. 1,.
Based on Ekonomicheskaya gazeta. no. p. ndSSSR, no. 4. p_ 8.
Finansy SSSR. no. 4,
Finansy SSSR, jio. 6,.inansy SSgH, no. 5, p.
17. Loan service
. Kh. B, p. .
N. Kh. p. .
N. Kh. p. .
N. Kh.. p..
udget reporting has carried no item on loon service. Estimates2 forward are based on the followingi
Don/gi i' kredit, no. 1, p. 4. billion rublesercent lottery bonds were sold
redit, resumed redemption of them 4 and5 1were to be paid to the population. Total
loan service for each year also includes anillion rubles, of paymentercent lottery loans. > 4,onfirms thatillion rubles of loans were paid Wot borrowing
The difference between long-term loans to theoutstanding at the end of the given year and loansat tho end of the previous year.
vostnik statistikl, no...
N. Kh..
N. Kh. ..
N. Kh...
V
N. Kh. . .
N. Kh.. Interest on savings
State savings banks offer the following major types of accounts for individuals:
j
demand (vklady do vostrebovaniya)ercent yearly interest;
time (srochnyye vklady)ercent yearly when held for moreonths;
lottery deposit (vyigryshnyye vklady) paying an averageercent yearly in winnings. . Sakharov. Chirkov, Operatsii sberegatel'nykh kass,tT
For all years,nterest payments are assumed toercent of average ^annual reported deposits, based on Vestnik statistiki, no.hich stated that interest on savings amountedillion rublesercent of average annual deposits in that year. Long-termeposits make up the bulk of savings accounts, amounting1 percent1 according toredit, no. The same article stated that no significant changes occurred in the distribution of deposits by category. he proportions remained about thesame;f savings deposits were in long-term accounts/"
owever, interest payments are assumed topercent of total deposits because, according to
a. b. c. d.
e.
statistiki, no.nterest payments were loweredercentercent
. Kh. . . Kh. p. 7 Kh. . . Kh. p. .
jr^Sel'skaya.
^
^according to Finansy^no. 4,_
e
20. Lottery winnings
A cash-or-commodity lottery was begun7 with winnings set atercent of total lottery revenues (G. Yeremeyeve, et alt, Osnoyy sberegatel'nogo dela,. innings were increased toercent of revenuesredit, no. .nd5 percent of lottery winnings were in the form of moneyredit, no. . t is assumed that money winnings wereercent of reported
lottery revenues, winnings from other lotteries are not included.
Gosudarstvennyy byudzhet SSSR i soy_iizr.ykh respublik,Moscow, .
osudarstvennyy byudzhet SSSR.
Finansy SSSR, no. 4,.
9
FFF! f mr r
i1
n
i
i
"
ii
i
i
i
6
Deductions from Personal Income Sources and Methodology
deductions
a. All yearsSum of lines
taxes
osudarstvennyy byudzhet SSSRspyuznykh respublik, (hereafter Gos.
Gosudarstvennyy byudzhet SSSRoscow,.
.
- p-
income tax
ources a.bove.
ssumedercent of direct taxes (lineaverage rate.
tax
Sources a.bove.
Assumed constant0 level.
and small family tax
Sources a. and b. above.
essnd 4.
taxes
It is assumed that half of local taxes paid for state fees, building taxes and land rents, and one-time collections at collective farm markets are paid by individuals. In addition local taxes include an "admission tax" paid solely by(US Bureau of the Census, The Soviet Financial System: Structure, Operation, and Statistics
a. os.educed by value of "admissions tax" from Gos.nd half the value of taxes paid on the three categories listed below.
: b. Goseduced by value of "admission tax'1 from Mestnyye byudzhety SSSR, "Admission taxes" assumed to grow by, the rough average annual rate.
c. Assumed constant0 level.
It is assumed that one-half of state fees are paid by individuals.
os..
Assumed constant0 level.
tax and land rent
It is assumed that one-half of building taxes and land rents are paid by individuals.
Sources a.bove.
Assumed constant0 level.
collections at collective farm markets
a. ources a. and b. ofbove.
2
b. alue too small to be reported (source b. ofbove) .
c. Assumed continued too small to be reported.
lections on transportation and on livestockcities
a. ess lines, and 9.
F
loans
os. bond purchasesillionillion rubles
Gos. byud., p.
N. Kh. p. .
inansy o. 4, , p.
union ciues
Trade union dues are the product of estimatedercent of the average annual wage. Thefound in Spravochnik profsoyuznogo,. The average annual wage is derived byaverage monthly wage, foundh. p. ,, to an annual basis. Data onmembership are scattered, but available for Membership is establishedin Emily c. Brown, Soviet Trade Unions Memberships given in Sovetskoye profsoyuzy, no.or the remaining years is estimated on thepercentage of state labor force belonging to theof by percentage increases in the state laborlabor force data are found,.
membership dues
Party membership dues are the product of average annual party membershipercent of the average annual wage. The rate is from Tho average annual wage is derived by adjusting the average monthly wage, found in K- Kh-Zi', and Sel'skaya.o an annual basis. Party membership is from Partiinaya zhizn, no. . Kommur.ist, no- archnd Sel'skaya zhizn',, p. 6.
3
14. Insurance premiums
stimate based on relationshipvalue of annual voluntary propertylife insuranceLaptev,inansy.atsional'nyyinansylf7 to voluntary life (b. below).
inansy, SSSR, no.. 3.
Interpolated.
inansy SSSR, no.
Finansy SSSR,. 7.
Estimate based on Finansy, SSSR, Premiums paid during the EighthPlanr.
inansy SSSR, no.
Interpolated.
Finansy SSSR, no. 4, .
j. stimate based on Finansy SSSR, no. 4, Premiums paid during the Ninth Five Year Plan will2 mr.
4
Original document.
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