RESPONSE TO QUESTION FROM SEN. PROXMIRE ON COMPARISONS OF US AND SOVIET CONSUMP

Created: 6/6/1975

OCR scan of the original document, errors are possible

ISTORICAL REVIEW PRQ, ^ RELf.ASE.AS SANITIZED

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Um i aponse to (Xiestion

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Um i focuses on Senator Proxmire's questions regarding comparisons ofin theSSR with particular reference to the fields ofducation.

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Background

Questiononcerns the methods and results of our

comparisons of consumption in the US and the USSR, with

particular reference to the fields of health and education.

In the transcript of last year's hearing, pageso 55

relate especially toThe1 estimates on page 52

give-Soviet per capita consumptionercent of US por capita consumption2 as follows:

Personal services

Durable goods

Soft

General Comments on Results

, These results stem from analytical work extending back moreecade. Each comparison is our best judgmentingle number thatange of possible estimates. Because of conceptual ambiguities and the incomplete nature of both Soviet and US data, however, the numerical results can only be approximations that support the following generalizations: (a) Soviet perraction of us per capita consumption, with "about one-third"andy representation of the

relation; and (b) Soviet per capita consumptionwhich is governed by the leaders' decision, not by free choice in the marketplaceis comparatively high in certain categories (food andomparatively low in others (durable goods and softummary of Method

To estimate Soviet per capita consumptionercent off OS per capita consumption, we take the geometric mean of

Soviet per capita consumption valued.in rublesercent of OS per capita consumption valued in rubles, and

Soviet per capita consumption valued in dollarsercent of OS per capita consumption valued in dollars.

The attached reportomparison of Consumption in the USSR and the US, CIA,escribes the methods and underlying dataood deal of detail. The comparison can bo summarized in the following formula:

' QUSSR

= Soviet per capita consumptionercent of US per capita consumption

opulation

nit priceiven consumption good orquantity of that good or service

Since we cannot identify the prices and quantities for all of tho goods and sorvices consumed by the Soviet and US populations, we start with categories of consumptionrepresenting both private and public expenditures as reported in the Department of Commerce accounts for US GNP and as estimatod from published Soviet data. .We then value USin rubles and Soviet consumption in dollars to obtain the comparisons described above'. The purchasing-power-parity ratios (ruble-dollar ratios) derived in the attached report serve as the bases for these conversions. Calculated from an extensive sample of consumer goods and serviceshe.ruble-dollar ratios have been updated year-by-yoar on the US side with price indexes published by the US Department of Commerce. Because Soviet consumption is estimated in5 ruble prices, the Soviet side of the price ratios does not need to be updated. Coiamenta^on. Method

Even If specifications, quantities, and prices of US and Soviet goods were perfectly known, calculations of relative consumption would vary depending on which price system is used for valuation. In general, the comparison using ruble prices favors the United"States, and the comparison using dollar prices favors the USSR. This is so because ruble-dollar ratios tend to be high on goods and services which the US produces relatively more efficiently

and low on gooda and services which the USSR produces relatively more efficiently. The geometric mean of comparisons in two different sets of prices isompromise commonly used in making 'international*

* See, for example, Paul Samuelson, "Analytical Notes on International Real Incomeconomic Journal,

In fact, the establishment of specifications, quantities, and prices of Soviet goodsainstaking task. Years of work by government and academic specialists have only partially overcome the serious deficiencies in the Soviet data and the inherent difficulties of comparing two quite different economics. In particular: the Soviet economy is not designed to respond to price signals so that certain kinds of goods aro not available (forarge number of additional housing units could be sold at existing or higher prices}, he range of choiceey aspect of consumer welfare, and the question of choice still is not taken -into account in our comparisons; oviet goods and services aro generally of lower quality than US goods and services, notable examples being housing, construction, health and education services, and maintenance and repair services. The allowances made for quality in our comparisons probably err on tho conservative side; in the case of labor services in health and education, weuality

discount basedonsideration of standards ofuality discount is also applied to the machinery and construction components of new fixed investment.

Certainly the main problem with the method is its reliance on benchmark-data almostears old. The price indexes that are used to update5 ruble-dollar ratios become less reliable as time passes. We havobeen engagedeneral revision of all of our ruble-dollar ratios, including those for consumer goods and services The new ratios will reflect Soviet and US prices of the.

3 Comparison of'Health and Education Services

The comparison of consumption of health and education services in the USSR and the United States covers current purchases of material goods and labor services; investment in buildings and equipment is classified in the new fixed investment component of GNP by end use. Inur procedure resulted in the following ruble and dollar comparisons: Curront Public and

Private Expendl- 5 Rubles 3

1

Clearly, the USSR does much betterollar comparison thanuble comparison. The reason ishe ruble-dolla ratios for wages of employees in health and education 7, respectively) are much lower than the ruble-dollar ratios for materialhe United States spends far more on material purchases per employee in health and education. uble valuation gives greater weight to the heavy US outlays on material, purchasesollar

i

valuation gives greater weight to manpower, favoring the USSR.

In health and education, as in the measurement of many services, comparisons must be made in terms of inputsman years of labor and supplies of materials. The consequences of health and education serviceshealing, prevention of illness, training, knowledgedefy measurement. Although the USSR may approach or even surpass tho US in the provision" of individual inputs such as number of doctors, elementary school teachers, or hospital beds, these are poor indicators of the total quantity of inputs allocated to health or education. In the United States, for example, the range of services provided by hospitals and the equipment and drugs that are available for patient care markedly exceed the capabilities or the operating procedures of the typical Soviet school.*

*" Because of the change in the range of services provided, measuring the real expenditures on health and education in the US05 by the number of doctors and tlie number of teachers would also resultubstantial understatement of the difference in the volume of services provided.

Attachment: CIA report, as noted.

Original document.

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