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Soviet Economic Plansirst Look
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SOVIET ECONOMIC PLANSIRST LOOK
SUMMARY
ihe disappointments of the Ninth rive-Year Planlargely caused by two disastrous harvests, the Soviet! intend to useplan period to get back on track and stress quality and efficiencygoals.esult, the new pbn is an unusually restrained andand will makey far the lowest postwar growth decade.policy objectives will remain similar to those of the last Five yearindustry and defense will be the priority sectors but agriculture andwillrominent place. Productivity and trade will be stressedto more rapid growth. If the plan to slow investment growth isrendising share of the gross national product (GNP) goingshould be arrested.
for the major sectors are:
Industry-rtht'iycly rapid growth similar to that of the last IS years with the highest rates achieved by machinery and chemicals.
ontinued firm resource commitment and ambitious grain and livestock goals.
Consumer welfare-continued osculations in consumption caused by fluctuations in farm outputubsequent restraint in income growth.
rogram dependent on an unprecedented commitment to completing old projects and expanding existing facilities.
Marymmr-tiower growth of the labor force but no acute manpower shortage until.
Foreign rmrfe-rapld growth of all trade-especially with the West-olthough financing will be more difficult.
espite the moderate projected growth, major targets still seem too ambitious. Another two years of poor harvests, highly possible, would again wreak havoc on the five-year plan. Failure to achieve productivity targets would also retard
growth. The fad that the Soviets are planning no majorons! or managerial schemes bodes illise in productivity substantially above the rates achieved over the fast ten yean.esult of these and other factors, -are estixnate that growth in GNP will proceed at an annual rate of aboutompared with the planned rate
Soviet leadership appears to view its economic prospectsbut manageable. They probably rationalize that their majorculitary burden, rising consumer expectations, and declining growth-aremany mature economies Their biggest headache, so ere fluctuationsoutput, can be attributed primarily to unfavorable weatherThere will be little pressure for economic change as long as thehas sufficient strength toormidable military posture,industrial might, and gradually improve consumer welfare. However,of economic problems is in prospect for, whichgreater changes.
DISCUSSION
Introduction
The "main directions" of the Soviet economyere first published in draft form onS. They were adopted6 byh Party Congress with few substantive changes. The Party instructed the Council of Ministers to submit the plan to the Supreme Soviet in September. If the scenario of the last five-year plan period isook containing plan details will not be available until
The draft planolitical as well as an economic document and is therefore long on rhetoric and short on substance. General goals are given but the means of achieving them are largely missing. Thus, resource allocations! policies and economic priorities are difficult to discern.
Soviet planners had to contend with many complex problems while plotting economic strategy for this five-year period. Some were old ones, almost endemic to the Soviet system-declining productivity growth, lagging technology, and unsatisfied consumer demand. Other problems were relatively new orew urgency about them, such as the extreme fluctuations in agricultural output, the development of Sibe 1a, and continuing large hard currency deficits.
Two extremely poor agricultural years were responsible for slowly economic growth and causing wido annualow growth rate%2igh%ndustrial growth, the largest contributing sector to GNP, was also below that,esult of the repercussions of the poor harvests.orhortage of agricultural raw materials and the recruitment of industrial labor and vehicles for farm work helped reduce Industrial growth to the lowest rate since World War IL
The stagnation In agricultural outputas largelyfor an absolute decline% in factor productivity (output per unit of combined inputs of capital and labor) comparedrowth%. If Industry alone is considered, factor productivity grew% compared, still not fast enough to compensate for the cont'-iulng decline in the growth of inputs.
The decline in economic growth was reflectededuced growth in allocations to the principal resource claimants, consumption and investment. As in the past, outlays for investment grewigher rate than GNP. This ledurther increase In the share of GNP allocated to investment,05 the relative share of GNP going to consumption, the remainder going for other government expenditures, including defense. The slow growth In other government expendituresrobably reflects drawdowns In Inventoriesargely because of the poor harvest and continued growth in imports relative to exports.
The much-touted emphasis on agricultural and consumer goods ou'put was frustratedy the poor harvests. The resource commitment, however, appears to have remained firm. Inputs into agriculture-investment and deliveries of mineral rertilizer-giew even more rapidly than the high rates planned. When farm output fell below requirements, major efforts were made to maintain livestock herds and meet consumption levels by using scarce foreign exchange to Import grain and meat.
Another primary goal of the Ninth Five-Year Plan was to accelerate technical progress. Toward this end the Soviets Imported record amounts of foreign equipment and technology. These imports contributed to the large hard currency deficit posted inevery year of the plan period. The Soviets also made modest changes in Industrial organization, notably the formation of production associations.
designed to encourage the quicker introduction and mastery of new technology. Trie fact that improved technologyhibboleth of the new plan attestsontinuing weakness in this area.
Policies ofthe New
Tenth Five-Year Plan, as outlined in the draft directives and intoh Party Congress, indicates that major economic policyFigureill be very similar to those of the last five-year plan period.
Industry and the military will maintain their prime claim on the nation's resources.
Agriculture will continue to absorb large amounts of industrially produced materials and one-fourth of total investment.
Consumers, although set back periodically by poor harvests, will againoderate increase in living levels and will competeore equal footing with other resource claimants.
Improved technology will continue to be regarded as the key to Increased productivity.
Trade with the West will post another rapid rise.
new plan, however, differs from its predecessors in twoFirst, there is some Indicationhift in the allocation of resourcesprincipal claimants. In the past, investment consistently grewigherGNP, increasing its share of total resources., however, newgrowth will slow dramatically, growingower rote than thatGNP (seehe slow growth of Investment as well asto GNP plannedubstantial rebound in growthgovernmente believe that this reflects unannouncedincrease growth in inventory formation, to accelerate the rate of growth ofand toetter balance between imports and exports.
he Soviets hope to compensate for the decline in investment growth by concentrating on completing projects long underway and on expanding and modernizing existing facilities rather than constructing new ones. In this way they
Flour, 1
USSR: SELECTED INDICATORS OF ECONOMIC PERFORMAPOE
i ir Annual Rata of Growth (Paicant) Grot* National Product
Highlight.
lan
3.8
5.0
Modtrito GNP Gro-rlh
roduction
lan
G.O
6.5
Continued Steady IndLilrlal Growth
Agrlcuh-ural Production
Ratoound In Farm Output
Plan
6.6
Coroumptlon
Un
WJTSSSSSSSSSSA
ImpJCaramont for th. Cofmjrrw
New Flitod Invntmint
WPtan
3.5
0.4
Dramatic Slowdown
In I
stage of development, the Soviets must rely on improved technology and better monagement to achieve the productivity gains necessary Tor future growth. Indeed, If overall growth targets are to be met with scheduled Inputs, factor productivity must groweruch faster rate than attained. To achieve the industrial output goal, an annual productivity boost ofs needed, doubleate.'
r^nomte Output
Industry; Reliable Growth
he industrial growth rate% plannediffers little from tho rates achieved over the lastears, but shifts In emphasis reflect two main themes of the new directives-higher quality and improved technology (seend
Tible3
USSR: Avenge Annual Rates of Growth ofoductloo
Percent
Plan
p4wds>rtfan Materials Electric power Coal product! Petroleum product
6.0
6.5
natural gas
Ferrous mollis Nonferroui metali Forestaper and paperbosrd Construction materlali Cnemfcab Machinery
Consumer nondurableioods Soft goods
5.4
emphasisis roost evident insuch as ferrousplanners arenllty andto help compensate forslowdown in the ratesof the physical volumeThe high growth ratesfor machinery andthe official call foron "those sectorstechnical progressn addition,rate projected for thesector reflects theon technology andshare of investment goinginstallation of equipmentof existing
Chemicals
chemicals, about twicefor otherajor attentionon production ofsynthetic materials.bber, and manrnade fibers).quantitative goalsas is the task ofproduct mix andoutput of newerfor example, Isuch faster rate thanof telativery less modem
Figure 2
USSR: GROWTH IN MAJOR SECTORS OF INDUSTRIAL PRODUCTION
Arm* Anaaal Rate oC Growth (rvrctal)
6.9
IndutlHal Mtwriah
I
9.2
s.4
1
S
Comumer
4.8
3.1
0
lan
plastics, and rnannude fibers. The types of equipment purchased also reflect the priorities of the current fire-year plan, and additional orders are imminent. Increasingly, these purchases are based o' compensation agreements, whereby long-term Western purchases of Soviet chemicals help defray -quipment costs.esult, substantial quantities of Soviet ammonia, plastics, and intermediates for the production of polymers will be marketed in the West beginning in the.
Metals
Over the last decade, the rates of growth of metals output in physical units have been falling, partly because the industry has been struggling to satisfy the economy's demand for more specialized and sophlstlcatroducts. Also, the slow growth in steelmakingabout half of that planned was addedas retarded development. For excmple, the steel industry's program to add new oxygen converters continues to lag behind schedule, forcing reliance on the traditional open hearth furnace, long supplanted in the West.
The Soviets apparently plan to compensate for the unfulfilled domestic demand by continuing to Import steel from the West. Soviet purchases of Western steel3 billionnlike the chemical industry, little interest has been shown in massive purchases of Western steelmaking equipment to spur growth.
Aluminum and copper rates of growth also have been reduced for the current plan period. However, the Soviets are seeking Western participation in major expansion projects that should permit increased exports to the West following completions in the.
Fuels
The plan dir_.trves indicate that the production of primary energy will grow at an overage annual ratebout the same rate as the Lastears and generally consonant with the rate of growth of GNP. The targets for oil and natural gas, however, are optimistic and, unless met, couldhortfalln the target for primary energy output.0 tho share of oil and gas in the overall fuel balance should be about two-thirds compared withoal's share should decline to slightly more than orv- fourth0 compared with about two-fifths
Fulfillment of the oil and gas goals0 depends on rapid development of West Siberian deposit! and substantial improvements in technology,
neither of which are likely to be achieved to the extent planned. The oil target presumes that West Siberian output, which Is to supply ail of the planned increase, willvailable data on West Siberian oilfields suggest, however, that the maximum production capacity will be. Even if new fields are discovered, their output will not contribute significantly0 and may only offset depletion of older fields.
To compensateossible oil shortfall, the Soviets could curb consumption, as recently suggested by the Minister of the Petroleum Industry. If annual increases in oil consumption can be held to aboutinstead of the% of recent years-the USSR will have adequate oil to meet domestic needs, increase deliveries to Eastern Europe, and maintain sales to the West near present levels. In the event that consumption growth cannot be slowed, the Soviets must either cut oil exports to Eastern or Western Europe or import more OPEC oa The USSR is heavily committed to providing the bulk of Eastern Europe's oil, and the need for hard currency would militate against substantial reductions in sales to the West Because large direct purchases would be limited by hard currency shortages, the USSR probably would seek to get OPEC oil by barter, perhaps for military equipment
Technical problems, mainly with pipeline construction, continue to hinder gas industry development. Efforts to provide better equipment and technical know-how for gas pipeline operations have lagged badly, and no breakthroughi are in sight Much of the line pipe, valves, and compressors for pipelines will have to be imported from the West. We estimate that gas production0 probably will notUbon cubic meters compared withillion planned.
Electric Power
Increase in electric power output slated forper year-is the lowest rate of growthive-year period since WorldThis sv-^ests that some power shortages may occur because
Industrial output is slated to growigher annual rate
increased mechanizationeduced share of manual labor in industry, prescribed by the plan, will require the increased electrification of industrial processes; and
the share of electric power allocated to the rural sector is scheduled to rise.
Moreover, tome regional shortages could develop In the European area because of limitations in the high-voltage transmission network and the emphasis placed on building electric power generating capacity in the Eastern regions., new nuclear and hydroelectric powerplants willarger share of total installation of electric generating capacity, with the result that the share of new conventional thermal powerplants will drop.
continuing failure to commission new capacity onlan infrustrate achieving evenlew tatesof growthhis speech toh Party Congress, the Minister of Power andconcern that in the past few years the annual increment in demandhas begun to exceed the commissioning of new electric powerminister attributed this to the failure to deliver the required machinery anddrafting of power construction personnel for major projects such as* theVolga Motor Vehicle Plants.
Machinery
X Tata* itawfl) ntea an for to* mwbw of phytfcalrraambiy. a* qualluimti tr* naoa. lb*m of oalpvrt *rl& growatac rata.
machinery output tlx: sourer of equipmentnd consumerplanned to grow more rapidlyannual average ofthansthis reflects the emphasis on new technology and on raising the sharefunds spent on equipment rather than construction.Within thecategory, rapidly growing product groups include computer hardwareInstruments and automotive. numericallytools (aboutn physical units and probably much faster inmachine, and chemical and petroleumome items that were growth leadersill grow atrates, including motor vehicles, tractors, andThe dramatic slowdown In growth in the motor vehicleannuallyomparednthat near-capacity production has been reached, pjulcularly atthat quality and Improved design will beor example, trucksare to be tailored to the need, of agriculture, construction, mining,transportation. Production of tractors and agricultural machineryto grow in the current plan period at about half the rates achieved In
ere, as In the automobile Industry, production capacity Limits growth in the next five years. The reasons for this slowdown also may be greater concentration on quality.
puzzling is the difference between the planned rateof the machinery) and the planned rate of growth estimatedequipment component of gross fixedogic dictatesrates of growth should be similar since producers' durables, theof machinery output, is the source of investment in equipment.was also observed in the previous plan, but when actual performancepublished, the growth of Investment in equipment closely paralleled the output
of producers* durables.
Agriculture: The Spoiler
The performance of Soviet agriculture will be crucial to the successful fulfillment of the five-year plan since this sector contributes about one-fifth of GNP and la subject to extreme fluctuations in output. During the Lastlan period, disastrous harvests25 put most of the original plan goals out of grasp. The continuing repercussions of5 harvest and the possibility of two poor years againrobably make the new five-year goals too ambitious. The planned growth in the flow of resources to agriculture, although in keeping with the investment program for the rest of the economy, has been sharply reduced from the last five-year plan. Considering the planned increases in output, this change seems to stress efficiency and productivity gains not warranted by agriculture's record,
The grain target apparently was not scaled down in light of the poor crop last year (seehe goalillion tons per year appears to be projected fromrend line of gross harvests, whereas if5 harvest is Included, an annual average of onlyillion tons is projected. Strtementa by the leadership Indicate that they are banking heavily on good weather over the next five years. Kosygin toldh Party Congress that the agricultural output plans "must be regarded as minimal since the materia] and technical resources which tue being earmarked make It possible to achieve higher indicators, given favorable weatherf history Is repeated, however, one or perhaps two of the next five years will encounter serious weather problems, making fulfillment of the grain output plan unlikely. Since grain output constitutesf net agricultural output, failure to hit the grain target also threatens fulfillment of% average annual Increase planned for total agricultural output.
T.bte5
USSR: Annul] Avmg* Output of Important Agricultural Producti
MlUba Mrtrfc Toni1
Pun'
Sugsrbeeti
Cotton
Meat (carcass weight) MUX
fygt (billion unlii)
8
5 SI.S
5
Maintaining the high rales of growth of mineral fertilizers is critical if grain production goals are to be met,f the plannedin grain output Is to come from higher yields. The chemical industry plans large increments Innd willboosting the output of the phosphate and complexbadly needed to increase grain harvests. Much of the fertilizer, however, will not be available until late in the plan period, and thus the effect on grain yields during the next five years will not be steady.planned applications to grain will be difficult to meet unless losses In transportationre reduced.
The slowdown in the delivery of equipment,tractors, in partthe fact that the industry Is approaching its outputOfficial policy calls for farm managers to cope with the cutback by using existing equipment more efficiently and possibly by retiring the park more slowly. Soviet press articles indicateheer In ere aw in numbers is not as
3
USSR: GROWTH IN AGRICULTURAL INPUTS
AamtJ Kate of Grow* (tarcrnt) Invtrtmtnt
8.7
3.4
Otllvtrkiof Mlnaral Ftrtlluw
uo_ ine
0.7
Net Ackfitlom of Irrigated and Drained Land
6.8
4.6
0.8
1
lan
Tabk7
USSR: Average Annual Rites of Growth In Per Capita Consumption
Percent
0 Plan
Totil per caprti
Durable
Personal
fluctuations in farm output, however, there will be temporary setbacks, particularly in food consumption (see
Figure 4
USSR: PER CAPITA CONSUMPTION
1.6
6 0 Plan
1 Byreeptitrtes produce mjgttjgoods,Groop "A" Iwdustrtw produts.roducer goods.
43. The effects of the25 harvestsodestprogram. The regime's commitment to the consumer, however, appears firm. According to the planand speeches to the recent Party Congress, the "chief task" continues to be "raising the people's material and cultural livingosygin pointed out that the traditional emphasis on heavy industry "does notny lessening of attention toward extending the production ofgoods In every possible way."also stated emphatically that "the party does not intend to renounce the course it has adopted. We regard the present tasks of the plan for Group "B" industries5 as therezhnev was particular hy candid about the reasons for consumer shortfalls. He blamed the shortage ofraw materials caused by the poor harvest, slow construction of new capacity, and an attitude that treats "consumer goods production as something of secondary
importance orideoreover, he seemed to acknowledge that the failure to supply more consumer goods could damage worker incentives, thereby jeopardizing plan: "Not everyone has yet grasped that this is an issue or enormous political and economic significant; and Is directly linked with fulfilling the aims of the party's program.**
paucity of investment data for the new plan makes it difficultif resource commitments back up these verbal pledges to theAvailable evidence suggests that the status of consumers has notto other resource claimants:
The agricultural sector continues to receive priority.
Brezhnev stated at the Party Congress that capital investment in" industries and in the trade and services sphere serving these industries is "continuing to increase."
The leadership continues to call for the production of consumer goods by heavy industrial branches.
A substantial amount of foreign exchange earningss already committed to buy grain via the US-USSR Grain Agreement.
growth of the major categories within the consumergoods, consumer durables, and services-shows little variation from the firstthe decade. The impact of the poor harvests in the recent past will continuerates of improvement in the food sector, which makes up about half ofThe forced slaughter of livestock5 will substantially reduceof meat and dairy productsnd consumption may notgrow again untilhis slowdown probably explainsn the December draft directivesndraft directives-inoals for food industry outputof most other foods is scheduled to grow steadily, withi
consumption ot* soft goods,f total consumption,slated to growlightly higher rate than, but nowhere near that of
n that period, high growth resulted from substantial imports from Eastern Europe and the West and strong demand from rural consumers whose Incomes were
rapidly increasing. With demand for basic items now largely met, future growth depends on improving quality and assortment and on producing "fashionable" goods.4
n hli ipeech toh Party Coocrea. Koryjui said, "It Is oot tome restricted <drcle of consumer! but pfactlealhr all the urban sad mralre persistently making dentines about the quality, conrttrfrnca, and ore-nets of foods."
The consumption of durable goods is planned to growigh rate, although somewhat more slowly than. This category will include goods that the Soviet consumer has never seen before, such as self-defrosting refrigerators, fully automatic washing machines, air conditioners, and video tape recorders. In contrast to the previous five-year plan period, rapidly increasing sales of automobiles will not play an important role in boosting growth rates of consumer durables. Because automobile production is planned to increase only slightly-abouter year-annual sales to the population are expected to remain at roughly5 level. Nevertheless, at these rates, the stock of privately owned cars will roughly double, from anillion5illionrarseople. Such salesbsorb about one-third ofillion rubles currently held in savings accounts and thus ease inflationaryoost consumer morale,rop the waiting periodar to several months instead of several years. Recent proposals to initiate installment purchase of cars would facilitate purchases by lower income families.
The supply of personal services will growlightly lower pace than during the past ten years, although it is this category that needs the greatest improvement. Housing continues to head the list of unsatisfied demands. If plans are met, per capita hous'ng space0 will nearly meet the nine square meters standard promised by the leadershiphe volume of state-provided everyday services (such as barber shops, public baths, and shoe and clothing repairlthough planned to grow, is still far below Western levels.he total value of sich services amountedillion rubles or aboutubles per capita-only enoughoman to have her hair washed and setonth.
Income goalsndicate an even more serious attempt than during the last plan period to stifle Inflationary pressures (seehe growth in average money wages per worker at an% Is the lowest rate in the Brezhnev period and equals the growth rate planned for per capita consumption. Moreover, there is no "somethmg-foreveryone" welfare package this time as Implemented,art of the anti-inflationary policy. Past attempts to hold Incomes in line with the availability of goods ond services were
A -i
USSR: Ptraoral Money Incomei
Plan
Current Rublea
money income
which:
of wage
salary worker*
JO
paymenti :
collective farm worker*
payment!1
deductioni from Income1
_
money income
capka disposable money theory
annual increase
per capita disposable income'
payment*ttoni and wtlfire payment-,to nudenta, loin tervlca, and town nee fndemnttfer.
Total Mate deduettoni tachido direct taxaioo the poputatbn, localale loiro, trade onion and ptrty(murine* premJumi
Awrage annual raicpowth during each frro-year period wrth the terminal yeari indicated.
frustrated largely because the cost of new welfare measures exceeded estimates. The only new welfare measures fall into the category of pensions and benefits. Minimum old age pensions will increase, and women with children will receive various benefits,horter work day and week and longer paid leave after giving birth.
he leadership apparently does not intend to sop up excess purchasing power by raising the prices of consumer goods. The directives claim that the policy of "securing stability In state retail prices for basic foodstuffs and nonfood products Is to beith selective price reductions.
Economic Inputs
Investment: More from Less
triking difference between the current five-year plan and its predecessors is the low rate of growth projected for capital investment (seehe average annual rate% is only about half that recorded In
Table?
USSR: Indicators of Optra] Formatton
Ayeraw Annua! Percentage Rate ofPlan
Total new fixed
Cross addit ions of new fixed
1. Exetudii nettol repair, tnd chinest In tnreptorfci.
Ut Mm differ, from -grOBftaod bvreAment" In thit tt cotinti onlylirrettRient projecti which wan completed.
3. quipment tnMDed in unfbihbed pBnii ii tododed In this category.
the three previous five-year plan periods. Planners hope the reduction willore judicious use of investment funds by (I) concentrating on completing unfinished projects and expanding old facilities,aising capital productivity by incorporating the latest technology and employing better managerial techniques.
he proliferation of new projects has tied up resources and lengthened construction times, even by Soviet standards.5 the amount of unfinished constructionf total state capital investment. The new five-year plan directives pledge that this number will falloward this end capital investment will be concentrated on completing and commissioning new capacity and on raising the proportion spent on new equipment as opposed to starts of new buildings. In his speech toh Party Congress Premier Kosygin warned ministries and departments not to seek "additional capital investment allocations but to fulfill the planned volume of capital work and commission new production
Backlog of unfinished
capacities in good time in accordance with then this way the USSR apparently hopes to obtain an average annual boost% in gross additions of new fixed capitalith an annual increase of% In new fixed investment, compared with% growth in gross additions achievedacked% rise in Investment.
imilar campaigns have been waged in theth mixed results.or example, investment growth was targeted at% and new construction starts were to be heldompared with morelannedhese efforts were successful; gross additions of new fixed capital3 increased at about three times the previous year's rate, while the increase in unfinished construction droppedo less4S the restrictions were relaxed tomewhat,f all centralized investment was stUl to be concentrated on projects nearing completion. Although fairly good growth In gross additions of new fixed capital was achieved4he annual rate of increase in the backlog of unfinished construction each year shot up to more than double3 rale.
The Inability to hold down new starts and complete old projects is inextricably linked to the system of planning and management. Overriding concern with growth and high investment rates impels ministries and enterprises to press as many projects as possible on the planning agencies. Project completions are frustrated by endemic bottlenecks In the distribution systemack of Incentives In construction organizations where phut fulfillment is largely based on the value of work completed. Basic constructionf high value but finishing work is not
A concentration on project completions could lead to an Imbalance in the availability of new production capacity. Forlant completed now might depend on Inputs from plants whose construction has been postponed. Moreover, if new starts are limited In those sectors counted on for output growth -such as fuels and power Iromhe Soviet economy couldhortage of essential materials in. This concern was expressed by the Minister of the Coal Industry ath Party Congress.
The CPSU Central Committee draft forh Congress outlines the development of the Kansko-Achinsk basin. Butear plan does not provide for resources for starting the construction of new projects. We
ask (he USSR Gosplan to allocate the necessary material and financial means, when it amendslan, bearing in mind that it willears to create enterprises in new, sparsely Inhabited areas.
In addition to increasing the capital stock, the emphasis on completing unfinished projects is aimed at raising its technological level. Currently, constructiono long that the embodied technology is already obsolete when production begins.irst deputy Chairman of the USSR State Committee on Science and Technology, V. A. Trapeznikov, identified construction delays as largely responsible for the Soviets' technological lag behind the West. He advocated cutting the number of construction projects in half.
The new plan also emphasizes the reequtping and modernization of existing enterprisesoncomitant increase in the rate of retirement of outdated equipment Accordingly,the share of expenditures on equipment In the total volume of capital investment Is to bef state capital investment1 in industry will be channeled Into existing enterpriser
The plan directives give scant detail on Investment by sector or branch of Industry. As noted above, agriculture will take one-fourth of total investment funds. Brezhnev indicated to the recent Party Congress that thisong-term commitment: "The improvement in the quality of agricultural production requires time, toil, and hugee only recently started to allocate large funds to thisithin industry, priority will be placed in those creas that "insure the acceleration of scientific and technicals In the last plan period, these are identified as machine-building, the chemical and petrochemical Industries, and electric energy.
Manpower: Slowdown Ahead
S. M laKatt-owntd ealerprhnof-milt*
tMMp-bat Midaind for to-wmeiloa ofhoutinf.
new plan directives fail to reveal the plannedndmanpower. Nevertheless, sufficient demographic data and secondarySoviet labor intentions permit the construction of estimates believed toaccurate for the major labor force components. Assuming that laborrates remain at their current high level, as Is likely, the Sovietforce will grow% annuallyompared withhe USSR will employ approximately three-fifthsthan the United States, but many of the Soviets will be engaged In unskilled
activities and assisted by little machinery, resulting in low output per worker compared with the developed West. For example,oviet agriculture will still employ more thanillion workers compared with fewerillion in the United States.
espite the slight slowdown in growth projected for the labor force because of fewer youths reaching working age, the USSR will not face an acute manpower shortagesec. Sufficient workers will be
Table 10
USSR: Avenge Annual Rates of Growth of the Labor Force
Percent
cnilun labor force Agriculture Nonagriculture Industry1
Plan
IS
-IJ
T. InduHrtal ernptoyment.
available to man all priority endeavors, including Siberian oil development, construction of the Baikal to Amur railroad, and industrial expansion. If some shortages occur, they will likely be in the services sector, where employment growth has been the most rapid and which is labor intensive.
he strain on manpower resources will be eased by theof the slowdown In the growth of industrial employment.entire five-year period Industry is expected to add fewerecade ago, Soviet industry was adding more workers thanyear. Planners are counting on increased productivity from more andbetter educated workers, and improved work scheduling.will become even more important in theeryIn manpower growth is projected. During, the laborgrow at an estimated rate of only abouter year,esult ofdecline in birth rates during the
dxtcth>uy: The Key to Future Grotrth
he average annual growth of combined factor inputs -capital, mannours, ands estimated atomewhat slower than thechieved0 (see Tablendiven this growth, if
Mb II
USSR: Average Amml Rate* of Growth of bpuia. Output, and Factorto Groat Natiotaal Prod net
Pticeet
Plan
inputs'
worked
product rvtty
lapais or mjoto
captuu. and bad
coaMxd
nd
*
<UMar feoa
pro
ranctk
eights repr
um
of UbOt o
capital coata d
aanra
arata fbud capital.
and land Wit
Mbaaa rear
afl Wan
lha froaJculitictu.
GNP Is to rise by the planned average annual rate of, combined factor productivity must increase by%uch faster rate than attained during the past five years. If industry Is to grow by the planned ratendustrial factor prod ;trvity must growbout double that achievedndsee.
6. Sc*ttcntcloa of aconoaile lafarm.
oscow hopes to achieve the productivity boost mainly by importing foreign technology and raising the level of domestic technology- Soviet imports of machinery and equipment have runf total Soviet investment in machinery and equipment over the last five yean. However, the assimilation of new irchm gy has been difficult. In part because the managerial incentive system is geared to quantitative targets. The directives do not indicateeform Of incentives is being considered.*
Figure 5
USSR: GNP, INPUTS, AND FACTOR PRODUCTIVITY
6.B
Amtge Annual Rale of Growth (Percent) Grots National Product
Growth In GNP
Inputs of Cipftal, Labor, and
4.1
Slowdown In Input Growth
Plan
Productivity of Caphal, Labor, andt-5
lan
Rebound In Productlvhy Growth
foreign military threats, the powerful Institutional forces which support defense programs, progress in arms limitations negotiations, and the momentum of technological advances in the defense sector.
annual Increment planned for Soviet GNP seems large enoughfor both increases in defense spending and improvement in livingthe present level of Soviet defense programs Is such thatr indeedonstant level of defenseillof military equipment to continue to rise.
Foreign Trade: Fastest Growing Sector
oreign trade was one of the most dynamic sectors of the economy, growingimes faster than GNP. This trend is expected to continue for the rest of the decade, since foreign trade will play an important role in Soviet development plans. Imports of Westernare necessary to meet some production goals, and deliveries of foreign grain may be crucial to restore forward momentum in agriculture and consumption. The Sovietsrowthn the value of foreign tradeut this rate probably will be exceeded as In the past; the actual growth rate% compared with the plan.
Eastern Europe will remain Moscow's major trading partner, but trade with the West should rise rapidly as Moscow continues to import Western technology and equipment. How much the Soviets are able to import will depend largely on markets for their export goods, earnings from gold sales, the availability of Western credits, and the amount of grain needed from the West. The large hard currency deficits of recent3 billion5illion projectedillew constraint on credits if not on new purchases, particularlyuge deficit is repeated
Much of the continued growth In trade with Eastern Europe projectedill come from higher Council for Mutual Economic Assistance (CEMA) prices. Since raw material prices are expected to rise faster than prices of manufactured goods at leasterms of trade with Eastern Europe should continue to shift in favor of the USSR. Despite the higher prices, the Soviets remain reluctant to raise the quantities of increasingly scarce raw materials traditionally supplied to Eastern Europe. Oil exports, for example, are expected to increase only5 toillion
oreover, Moscow has insisted on East European participation in the development of raw material deposits used for exports to Easternas pipeline from Orenburg to Eastern Europe is the largest such project under way. Other joint development projectsulp complex, an asbestos complex, an oil pipeline,ertilizer production facility.
Equipment and technology should accountarge share of Soviet imports from the West. Orders placed with Western firms have been largely for chemical plants, oil and gas field equipment, wood processing equipment, motor vehicle manufacturing equipment, and mining and construction equipment. Ongoing negotiations indicate that Western inputs will continue to be important in the development of these sectors. Large amounts of Western equipment, as well as consumer goods, will be particularly important for developing Siberian raw material deposits and the associated infrastructure.
Moscow has sought to make many of the Siberianatural gas, forestry, chemicals,elf-liquidating by obtaining advance commitments from Western firms toajor portion of the project-associated output. The Soviets are placing increased importance on such compensation agreements and will payarge share of equipment importsn this manner (see. Negotiations for additional compensation agreements aic under way
Tablets
USSR: Comperuatbn Agreement! Under Negotiation
and even more should be generated by the recent Soviet decision to speed the constructionecond trans-Siberian railroad, which will cpen new raw material deposits for development.
In addition to equipment and technology, the Soviets should continue to rely on the West for imports of industrial materials. Signed contracts and continuing negotiations indicate that steel products willarge component of Soviet imports from the West- Beginninguch imports rose sharply as increased Soviet demands for specialty and shaped steels could no longer be met from domestic production and/or imports from Eastern Europe. Soviet preparation for0 Olympics will also require sizable imports from the West. To date the Soviets have contracted for the construction of0 million in hotels, bringing total contracts associated with the Olympics to more than SI billion.
The extent to which the Soviets can increase their imports of Western technology and equipment will depend in part on import requirements for grain and other agricultural products. In an average weather year, the Soviets probably willillion tons ofoor harvest could double this amount.
Soviet exports to the West should recover from the recession-induced slump, which has aggravated Soviet hard currency trade deficits sinceaw materials will continue to be the lion's share of these exportsapid growth in exports of manufactured goods. Soviet exports to the West will be further boosted by increased deliveries of natural gas, timber, and coal resulting from compensation agreements signed earlier. By the end of the decade, the USSR also will be exporting large quantities of fertilizers and other chemicals produced at imported plants. Moscow's ability to expand some exports will be constrained by growing domestic needs and/or declining growth in production. For example, there appears to be little room for increased oil exports beyond the.
Soviet indebtedness to the West has risen rapidlyesult of large hard currency deficits. Nevertheless, the USSR will probably continue toarge volume of Western credits. Debt service was probably on the orderf export earningsut the structure of the estimated S7 billion medium- and long-term Soviet debt with its long repayment periods and grace periods should facilitate its management while export earnings are recovering. Moscow apparently regards such creditselatively low cost means
of importing Western technology and equipment. Moreover, the growing role of compensation agreements provides the USSR with greater certainty regarding its future ability to generate sufficient export earnings to cover the growing debt service.
Western governments probably will remain wflling to extend large amounts of low-interest credits to the USSR. They recognize that creditey to the placement of new orders. Western competition for Soviet business becomes particularly keen during recessions when large Soviet orderselcome stimulus to lagging domestic economies. Sincehe USSR has received moreillion in credit lines from Western Europe, Japan, and Canada.
Heavy borrowing5 from Western commercial banks, however, may have limited Moscow's ability to borrow from this source in the near future. By the endany Western bankers had reached their self-imposed credit limits for loans to the USSR or were beginning to insist on higher interest rates. The Soviet decision to tightly control spending6 rather than to continue borrowing from commercial banks could stemeluctance to increase iheir short- and medium-term indebtedness.
The Sovietsarge stockpile of gold, and output is increasing. At current market prices, Moscow could earn about SI billion annually from soles just from current production. With Eurocurrency borrowing apparently limitedhe USSR may have to market large amounts of gold and thereby risk driving down gold prices.
The Soviets probably will be forced to take severe measures to bring their hard currency trade into balance if large deficits occur6hese measures might include diverting easily marketable exports from soft currency trading partners to Western markets; requesting delays In deliveries of goods not covered by medium- and long-term credits; or even cancelling contracts outright. On the financing aide, Moscow could expand gold sales even further or insist that imports fins need by government-backed credits% financed. An attempt to reschedule debts with commercial banks would be unlikely since this would tarnish the credit rating, which the USSR has worked so hard to achieve.
Other Policies
Private Activity: Another Swing of the Pendulum
Official support apparently will be given to the private sectorn the most important area of private activity, farming, the plan directives pledge "adequate" feed for privately owned livestock and direct collective and state farms to provide the "necessary assistance" to the cultivation of private plots. This latest swing toward the private sector follows past practice favoring private farming after harvesteriod of relatively good harvests resultsightening of the restrictions on private farming. Private producers still providef the vegetables, meat, andf the eggs,f the potatoes produced in the USSR.
Press articles and speeches by local officials last fall presaged the high-level support given in the plan directives. They emphasized the importance of the private sectorajor reserve for increasing output and expressed concern that many farmers were abandoning private activity because of higher incomes from the socialized sectoresire for more leisure time. The Georgian party boss, for example, suggested that the government supply more feed, fertilizer, pasture lands, and machinery to the private farmer. He decried as "abnormal" the fact% of the rural population do not have cows at all and are being transformedroducer of livestock products into consumers of thosee suggestedpecial commission be established to decide how to increase output in the private sector and that their recommendations be presented to the Central Committee and Council of
The plan directives also indicate that support continues for the construction of private housing in "small towns, urban settlements, and rural areas" (private construction has been forbidden in cities of moreopulation. For the first time the directives promise that the supply of equipment for heating and water for individual dwellings will increase. The leadership recognizes that such construction can help case the housing shortage., about one-fourth of all new housing was privately built.
Economichortage of New Ideas
ho production and mukeUnf or atrtcurtura] product, and the conitnicilon ot privately owned familr rwldencn .re th* primary form* of privatepermnied In the Soviet Union.
no major reform of the Soviet economich Party Congress speeches indicate that some tinkering will
continue. The new plan directives endorse further implementation of administrative reforms in the industrial and agricultural sectors aimed at promoting greater efficiency. In the industrial sector, this involves mainly completing the formation of production issociations. In the agricultural sector, work will continue on the development of "mterkolkhor, kolkhoz-sovkhoz and state-cooperative associations, and agrarian-industrial complexes for the production, processing, and marketing of agricultural output.'1
Productionroups of enterprises that use similar production technology or manufacture similar productswere first formed In the USSRhev grew outeed for "branch" management under Khrushchev's regionally run "Sovnarkhoz" system. With the re introduction of ministerial management and the economic reformhe production association was deemphasized. During the last plan period it was reviveday to streamline the bureaucracy and hasten technological progress. Its formation-often allows the abolition of one bureaucratic layer, the glavk, which traditionally stood between the enterprise and ministry. The association's size and ability to combine research and production organizations is touteday to encourage the mastery of new technology. .
Brezhnev called for making the production association the basic unit of industrial organization ath Party Congresshis was finally decreed innd the regulations governing the associations' administration and functions were adopted by the Council of Ministers ininistries were to submit general plans for implementation by the fall3 with the complete changeover to take place. Kosygin admitted at the recent Party Congress that production associations now account forf total industrial output and that the transition will not be completed before the end of the current five-year plan period. Progress has been slow because of bureaucratic inertia and resistance from those that stand to lose power to the production association, mainly the small enterprise and ministry.
Reorganization of the agricultural sector generally parallels the formation of production associations in industry; that is the emphasis is on concentration and specialization to increase efficiency. As far back1 Khrushchev encouraged interfarm associations, but change was slow. It was not3 that Brezhnev bn-athed new life into the movement In an address to the Central Committee hethat "the time has now cometep-by-step transition from small labor units to large-scale specialized production, using industrial methods
and Ihe achievements of science androgress now is being made but not fast enough to suit Brezhnev. Ath Party Congress he demanded that "this line must be pursued moreune decree of Ihe Central Committee ordered partyovernment organs to accelerate the creation ofrf arm associationsro-industrial complexes.
Some local leaders, however, believe that the reorganization has been too rapid, on both administrative and economicarty secretary from the Volga region complained to the recent Party Congress that the formation of new farm organizations has gotten ahead of the legal norms and regulations. He called for the Ministry of Agriculture and planning organs to formulate model statutes for agriculture similar to those for the industrial production associationshe Belorussian first party secretaryocal plenum last November that large livestock complexes were being formed before the feed base was assured. He called for "review" of the agricultural construction program and even proposed scrapping the program to build large complexes and directing investment instead to fodder production. The Georgian party chiefimilar line last September, noting that "we have been excessively fascinated with the construction of largeveryone wants to have his own economic giant,"
Ath Party Congress, national and local officials agreed that new Initiatives need to be taken in the management and planning of "intcrsectoral" and "territorial" areas: that is, where economic activity crosses either branch of industry or republic lines.
Brezhnev cited three cross-sectoral areas that need cooperative effort -fuels and power, transportation, and the production and processing of agricultural products. He claimed, for example, that "considerable losses" in agriculture stem from this "lack of coordination among departments and miscalculations inedovetailing" of the farm sector "with the industries which supply the village with equipment, fertilizers, combined feeds as well as the construction industry, and with those Industries which are responsible for procurement, receiving, storage and processing of agricultural produce."
Brezhnev cited the development of Western Siberia as an area ripe for the territorial principle of planning and management He complained that Siberian development isingleut it is currently directed by four departmental river fleets, numerous construction and supply organizations, and at least ten ministries and departments Inplenty of wet nurses butreat deal ofe suggestednited, centralized program" lo cover "all stages or work, from planning to realization."
In typical Soviet fashion, the exact form and timing of such reforms remain murky. One regional leader, Belorussian party chief Masherov, went so far as to suggestew structural subdivision under the Council of Ministers might be necessary. Brezhnev, however, demurred on the specifics and threw the responsiWUty for drafting solutions to the Council of Mirdsters and Gosplan. Kosygin, the chief spokesman for these components, directed Gosplan to take intcrsectoral and territorial marten into consideration when "elaborating comprehensivee also promised that "in the immediate future" new organizational forms must be developed.
The Soviets consistently fail to come to grips with the fact that their refusal to change the basic operating principles of the Soviet economic system seriously limits the success of any economic reform. To be effective, the reform should be accompanied by more rational and flexible prices, less central control over the allocation of materials, and relief from excessive demand for most materials. The current emphasis on improving quality and assortment will be particularly hard to achievehange in managerial incentives. Without such incentives, plant managers will be loathe to bear the reduction In quantity of output that generally accompanies production of better items. The leadership has given no indication that the radical changes necessary to improve matters in these areas will be introduced.
Outlook: The Crunch Comes in
Although the tenth Five-Year Plantep toward more realistic planning, it is doubtful that major targets can be .net.
Agriculture, Two unfavorable weather years would put the grain target and consequently the goal for agricultural output out of reach.
Consumption. Meatne of the most important consumers unlikely to grow at the unprecedented rates projected. This shortfall and others likely In the consumer sector again willap between money incomes and supplies, adding to inflationary pressures.
Investment Based on past experience, it is unlikely that the investment strategy will pay off as planned. The basic Soviet incentive system will conspire against the project completions that are necessary to yield the planned boost in capital
ProcfuciMty. Achievingigher rate of productivity growth projected will require the adoption of bold new strategies for the introduction of new technology and for raising the efficiency of investment in industry and agriculture. None seem forthcoming. If productivity fails to rise above the average annual rate achirvV during the last two five-year plan periods, GNP growth could be held to aboutnstead of the planned rate
If major five-year plan goals are frustrated, as seems likely, Moscow has several pobcy options that could limit the decline in economic growth. The most effective measures would focus on the major sources of growth, increases in investment and manpower. If the Soviets are unable to meet the target for expanding the stock of plant and equipment by reducing unfinished construction, they could (a) boost investment at the expense of consumer welfare goals and/or (b) default on planned rates of retirement on older plant and equipment, as has happened in the past Although the latter measure exacerbates the* problem of meeting productivity goals, it permits the attainment of quantitative targets. On the manpower side, the Soviets couldariety of policies to boost the rate of growth of manhours. The number of older workers could be raised by reducing pension ages and lifting penalties for part-time work after retirement. More young workers could be brought into the labor force by reducing the size of the armed forces and changing education policies to restrict tho number of full-time students.
Even If Its growth rate Is disappointing during the next five years, the Soviet economy should show sufficient strength totrong military posture and gradually raise the level of consumption of the Soviet populace. The present leadership probably believes that as long as the economy satisfactorily performs these tasks, major economic reforms can be postponed.
The problems awaiting the Soviet economy in, however, may well force the leadership to reassess the need for systemic reform. The most serious problems will affect manpower, investment, and productivity, the very sources of growth. The rate of growth of the labor force Is estimated to drop markedly to an average annual rate of less thannompared% in. Investment will bring smaller returnsarger share is allocated to capital-expensive development in Siberia, environmental programs, and projects for the consumer, such as the ihfrastnicture for the auto age. Competition from other resource clain antscludearger share of GNP to growth-oriented investment to compensate for the lower returns. If nothing is done to boost productivity, suchajor reform of the incentive system, the average annual rate of economic growth Inould fall substantially.
Original document.
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