Intelligence Memorandum
Soviet Economic Performance8 and the Outlook
cia historical review program release in8
Secret
ER9
Copy No. t>
intelligence memorawdiim
Soviet Economic Performance, 8 and the" Outlook for9
Surr.'nary
The Soviet economy growoderate pacebut performance of the various sectorsuneven. Gross national product (GNP) an estimatedpercent, slightly belowof the annual rates achieved Althouqh agriculturala rocord level for the fifth year in aproduction registered the lowest
rate of growth In general, theribution of output among the principal end uses continued tho trend established7 of favoring tho military and the consumer. As shown in Figureutlays for consumption and defense8 once again increased at annual rates higher than those. Total investment also grew faster. However, the fastest growing part of
investment is in sectors supplying goods
services directly to the consumer.
I
i
Soviet industrial growth fell7ercenteflectingof lower rates of growth ofand increased inefficiency in the usoand capital. The drop in growth waspractically all sectors ofithexception of the machinery sectorof producer and consumer durables andequipment. The rate of increase inmaterials dropped sharply, and the rate
Note: Thia memorandum vae produced solely by CIA. It was prepared by the Office of Economic Research and wae coordinated with the Office of Strategic Research.
growth in the production of consumer nondurables was down moderately. Industrial investment increased at about the low ratend the backlog of unfinished construction increased by nearlyercent. The rate of growth in labor productivity in both industry and construction fell sharply. The new incentives provided by the economic reform, which now affects enterprises accounting for more thanercent of all industrial production, have yet to pay off in significant gains ln efficiency*
Agricultural outputercent, thanks largelyumper grain crop estimatedillion tons and to record production of potatoes and sugar beets. The increase in livestockhowever, was the lowest in several years, mainly because of insufficient supplies of feed in the socialized sectorecline in output from the private sector. The large grain harvest will enable the USSR9 to meet domestic demand for high-quality bread, to increase grain reserves, and to export grain. The strikingess in boosting farm output, however, has contributedeakened priority for the development of agriculture. Although total in agriculture increased moderately inhe rate of growth dropped in the delivery of mineral fertilizer, tractors, and trucks to the farms.
The consumer experienced another substantial increase in living standardslthough the increase was smaller than in the fiftieth anniversary More appliances, clothing, and quality foods were available,harp rise in money incomes widened the gap between supply and demand for consumer goods, services^ and housing, and savings deposits increased by aboutercent. These latent inflationary pressures were reflected in moderately rising prices in the collective farm market, the only organized free market in the USSR.
GNP will probably increase somewhat more slowly9 thanperhaps atercent, assuming average weather conditions for agriculture. Current plans show no upsurge in the growth of resource allocations either to industry or to agriculture Judging from the results thus far, the timid economic reforms
will not bring about the improvement in economic management that is critical for raising the rate of growth of productivity.
With respect to the allocation of resources, the trends of the past several years seem likely to continue Defense and consumption probably will again be favored; there islanned resurgence in growth-oriented investment. Comparison of the goals for output of civilian machinery with those for total machinery indicates that another increase in expenditures for military equipment seems to be planned. The regime's intention to continue the recent high rates of improvement in consumer welfare is indicated by the riseercent planned for per capita real incproe. arge boost in moneyillion rublesis scheduled to be matched by an equal rise in consumer goods and services- As often in the past, however, this matching may not in fact take place, thus intensifying the existing inflationary pressures.
Soviet economy expanded at GNPercent in realwith an average annual increase ofpercentsee In allmajor sectors the rates of growth'but, with the notableindustry, were well above the rates achieved
. The rate of growth of industrialwas the lowest posted
allocation of output among theend uses (consumption,ontinued to some, which favored theconsumer at the expense of The growth of outlays for bothand defense, while less rapid, still was well above that Although the rate of growth ofremained at the relativelyhe fragmentary data availablethe share of consumer-oriented investment more rapidly than that ofas The swingvor
of consumption that has been in progress5 was designed to compensate for the neglect of housing, services, and consumer, when relatively greater emphasis was placed on the growth of investment in the producer-oriented sectors of the economy (especially heavy industry, transportation, and communications).
chronic problems and inefficienciesmanagement of investment programs continued
8 and in some respects apparently*grew worse. As illustrated in Tableross additions of new fixed capital and the rate of growth in labor productivity in construction fell'sharply. In addition, the backlog of unfinishedincreased by nearlyercent. Thecampaigns launched during the year to reduce, or at least to stabilize, the vast amount of capital tied up in uncompleted investment projects
* Consumer-oriented investment includesagriculture, light and food industry,
(equal in value toercent of the8 investment program) careo to naught, as have similar campaigns in the past.
Table 1
USSR: Indicators of Economic
Average Annual Rates of Growth (Percent)
8
Gross national product
<
in
sectors
sector a/
sectors
;
end uses
(per capita)
b/
.0
to S
measure of agricultural output exeluee of farm products butmake an adjustment for purchases byother sectors. Het output, or value addedgrew by an averageear
investment comprisesin agriculture, light and foodand serviced.
USSR: Indicators' of Capital Formation
c/
Annual Rates of Growth (Percent)
Gross additions of new
fixed capital a/ Backlog of unfinished
construction b/ Labor productivity
in construction
additions of new fixed capitalgroee fixed investment in that it iecount only those investment projects which
equipment installed in unfinishedincluded in thie category.
a. Estimated.
Agricultural outputercent, the fifth year of increaseow. Output in the fiveveraged more than one-fifth above the level, when production nearly stagnated. The relatively good performance of Soviet agriculture8 was highlighted by an estimated increaseercent in crop production. Livestock production, however, was upsee Table
The increase in total crops was 'due mainlyumper grain harvest and record outputs of potatoes and sugar beets. The grain crop amountingillion tons was the second largest in history, ranking next to the record cropillion tons harvested The government purchasedillion tons of grain from producers of8 crop, one-fifth above average annual procurements. esult, supplies
of grain will be ample to meet domestic needs for high-quality bread supplies They will, moreover, enable tho USSR to export grain for the
Table 3
USSR: Production of Major Crops and Livestock
7
Rates
Growth
products a/
Metric Tons
crops and live-
products b/
beets
(billion)
Excluding changes in inventories of herds, b. Estimates of production are lower than'offiaial claims for grain, meat, and milk.
second year in succession and to increase grain reserves. Reserve stocks of grain at Che end of the current consumptionill probably be on the ordor ofillionons, equal to about one-half of the annual consumption of grain for food. Thus the USSR iselatively good position tooderate decline in grain productionor example, toilliontonshaving to import grain.
6. Relatively large crops were obtainedven though weather and growing conditions were not uniformly favorable. Moisturefor crops in some major regions werebut above-normal conditions prevailed in
other areas. On balance, weather was slightly more favorable8 than7 and thus contributed to boosts in yields per acre of most crops; other contributing factors were continued improvements in tillage practices and the use of better plant varieties and soil additives and lime).
7. In contrast to the large increase inof crops, tho tonnage of majorproduced8 increased at lessthe rate achieved. Meatincreasedercent and milkercent. Livestock output waspartecline in farm supplies ofover from the preceding harvest, bypoor grazing conditions during thein areas affected by drought, and byroduction in hog numbers onstate farms that occurred Thefactor in the sharp slowdown inof livestock production, however, wasdecline in output in the privateof tho firstand certainly the
popularacts of the Brezhnev-Kosygin leadership5 was to relax Khrushchev's restrictions on private faming. he first yoar in which the more lenient policy was in operationprivate livestock holdings spurted byercent, and6 the private sector contributed more than two-fifths of the total output of livestock products. owever, the size of private herds declined and by the endad returnedevelercent above that The reason for this phenomenon is not apparent.
8. In conjunction with other factors, the striking success in boosting overall fa'rm outputpparently has lederious weakening of the commitment in5 Brezhnev program to accelerate development of agriculture. Theto agriculture of machinery, fertilizer, and other industrially produced materials8 either continued at unimpressive rates of growth or declined. Although the rate of growth of total agricultural investmentittleost of the increase represented construction activities, since the rates of growth in deliveries of tractors and trucks to farms fell sharply (see The
USSR: Planned and Actual Flow of Resources to
Actual Plan Actual Plan
Average Annual Rates of
Machinery deliveries
Tractors
agricultural
Million Acres per Year
Land reclamation a/ b/
Groae addition to irrigated and drained area, b.lan specified groee addition ofillion toillion acres for the plan period.
The supply of mineral fertilizer increasedut its rate of growth was the lowestnd againittle or no progress was made toward tho goal of expanding the stock of reclaimed (irrigated and drained) land. Annual grossto both irrigated and drained land remained at aboutevel and, cumulatively for the6re only slightly over one-third of the target foreriod. The actual stock of reclaimed land has remained unchanged because of the withdrawal from use of land previously reclaimed. Its average quality, however, is now higher.
9. Soviet industrial growth slowed8 (see This slowdown washarp drop-off in the rate of growth of output in the industrial materials sector. Growth of output in the machinery and nondurable consumer goods sectors continued at rates roughlythose achieved, but higher than those. Total output of the machinery sectorthe source of producers' equipment, military equipment, and consumer durablesincreasedercent, continuing to grow significantly faster than either of the other sectors (see
Table 5
DSSR: Growth in Industrial
Average Annual Rates of Growth (Percent)
*
6 7 inary)
10. The various major branches ofat widely different ratesrates of growth of many importantfell off (see Table The growthmaterialsholo Coal production failed to increaseUSSR continued to concentrate onfacilities rather than on increasingproduction. Although production of crudenatural gas grewercent, this ratebelow the rates posted inferrous metallurgy, the rate of growthof pig iron saggod and the rates forand rolled steel dropped off sharplylevels. Moreover, plans to improveof steel products, largelyproduction of flat rolled steel,behind schedule. The lack of theneeded to move ahead in cold rollingcontained with delays in completingis continuing tooreuse of the huge volume of crudemillion metric tons
Growth of output of construction materialsa key factor in Soviet investment programsalso dropped sharply
The record of production of consumergoods was marked by mediocre performance in soft goods as well as in processed foods. The increase in output of processed foods was held dcwnharp drop in the growth of production of industrially processed meat and vegetable oil, especially in the second half of the year. Stagnation of output of these two basiceveling off in tho flows of raw materials from agriculture. In soft goods, the output of leather footwear increasedocaewhat slower pace than. Reflecting the steady shift away from home-sewn clothing, tho output of sewn garments increased byercent, somewhat more rapidly than.
The slowdown in overall industrial growth8 was the resultrop in the growth of inputs of labor and capital as well as of thewith which they were used. Productivity growth8 was slightly below the low average. The near collapse of productivity
USSR: Recent Growth of Output of Important Products ofnd Plan
Average Annual Rates of Growth (Percent)
8 Plan 2/
and power Coal
Crude oil Gas
Electric power
Ferrous ores and metals
Iron ore Pig iron Crude steel Rolled steel
Other basic materials
Commercial timber Cement
Machinery
Trucks
Chemical equipment Midpoint of range.
1.5
growth in those yearsain reason for the launching of an economic reform by the Brezhnev-Kosygin leadership. Despite the fact that by the end8 overercent of industrial output was produced by enterprises working under the reform, annual productivity gains in Soviet industryere still less than half as large as ins (see The economic reform has yet to prove its worth, and the prospects of its doing so are most
USSR: FACTORS CONTRIBUTING -TO THE GROWTH OF INDUSTRIAL PRODUCTION
A.ismji Anfinl Dtlm ol Growth
0
10
13. otablearbinger of problems for future industrial growthwas the continuation8 of the slackening off in the addition of new production capacities in many branches of industry {see The decreasesevels were particularly [notable in coal, oil and gaa pipelinus, rolled steel, chemical fibers, andinterestinglyotor vehicles. Dospite much fanfare and several decreos
-
about expanding capacities in thc light and food industries* meat and milk plants are being built at the unspectacular rates of thcs. Capacities to produce shoes, on the other hand, have increased spectacularly, perhaps because the regime would like to stop spending scarce foreign exchange to import them from the West. Some of the slowdown in additions of new plants, as well as their distribution among industries, apparently represents cutbacks in investment and shifts in priorities. Another major factor is the apparent worsening of the chronic problems of construction in the Soviet economy, resulting in abnormally long construction times compared with experience in the West and with the Soviet government's own established norms.
s, when annualgains in industry fell far belows, the USSR directed more andto civilian researchutlays for civilian researchaveraged nearlyillion athe next eight, outlays soaredan average ofear. To thethe rate of growth in productivityrate of innovation or technical progress,leadership could well wonder at thethe behavior of productivity and theexpenditures on research and development.
Consumer Welfare
upward trend of recent years inof living of the Soviet According to Soviot data, realcapita (which includes wages, farmand payments frccn tho state budget)moreercent, about thesee Per capitaof goods and services, however, roseless thanercent averageof the preceding two years. Scene letdownrate of growth of consumption wasan all-out effort by the regime inby the fiftieth anniversarycelebration, to give tho consumer a As in the past several years,to salt away much of their excesspower in saving banks. For the third
USSR: Gross Additions of New Capacity
/
power
kilowatts
tons
.6
and branch
kilometers
pipeline
oil and
kilometers
pipelines
tons
ferrous metal
tons
tons
tons
fertilizers
tons
fibers
tons
vehicles
.7
kilowatts per year
7
(assemblies)
footwear
pairs
sugar
quintals
processed sugarbeet per day
per shift
milk products
tons of milk per shift
Capacities commie
Preliminary.
M
Brat
Table 8
USSR: Indicators of Changes in Consumer Welfare
Average Annual Rates of Growth (Percent)
6 7 8
Per capita real income a/
affecting the growth of real income
earnings of wage and salary workers a/
Public consumption funds a/ b/
8.7
8.9
8.9
11
capita consumption
Soft goods Durable goods
Soviet official data.
b. including the financing of items euoh ae pen-si one, stipends, leave pay, education, and medical services.
yearow, savings deposits rose byercent. The rise% billion rubles, was equivalent to approximatelyercent of the increase in personal income. At the endotal deposits amounted to one-fifth of thatnyoor's levol of personal income, compared with one-eighth
16. The excess purchasing power was alsoin rising prices in the collective farm market, the only organized free market in tha USSR. Prices for perishable foods in Moscow collective farm markets were upercent in the last halfompared with the corresponding period Average earnings of wage and salary workers rose byercentercent The main reason for the sharp rise in money wages during8 was
tho implementationage reform that raised wage rates substantiallyillion machine tool operators, increased the general minimum wage byercont {fromond reintroduced longevity payments for workors in remote regions. The accelerated growth of public consumption funds was in largeesult of pension reforms that provide broader coverage and higher benefits.
17. Tho rates of improvement in per capita consumption differed considerably among the various categories. Per capita consumption of food, which comprises over half of personalin the USSR, increased by esult of the boost in farm supplies of meat and milk7 andhe quality of the diet improved. In contrast, the rate of growth of per capita consumption of soft goods fell fromercenthe fiftieth anniversary of the Bolshevikto slightlyercenthilo tho rate for consumer durables fell fromer-centercent. As, imports of consumer goods from both Eastern and Western Europeargely readymado clothing andelped to compensate for inadequate domestic production and provided goods of higher quality. The slower expansion of sales of consumer durablesnotably refrigerators and washing machinesa fall-off in growth of production of Bomo of these goods.
Improvement in housing conditions continued to be minuscule. Housing completions8 wore below those Those, howover,ercent increase in the stock of available housing and madelight increase in per capita living space, toquare feettill far short of the official standard the Soviet authorities themselves have setinimum for health andquare feet per capita).
onsumers also reaped somofrom tho accelerated efforts in the past several yoars to modernize the grossly inadequate domestic trade network, to expand educational and child care facilities, and to construct publicand municipal facilities to meet the needs of
growing urbanization. Even more welcome toperhaps, was the substantialercent) in the supply of state-provided "everyday" services (ranging from barber shops and public baths to shoe and clothing repair and cleaning). The backlog of needs in all of these long-neglected areas of personal and communal services is still enormous, however.
*
Outlook9
20. Present indications are that the Soviet economy will grow somewhat more slowly9 than, perhaps atercent. ritical factor, as always, will be the weather conditions for agriculture. Even with average weather, agricultural output probably will grow less rapidly than8 because of the small increases in allocations of machinery, fertilizer, and other industrial inputs to the farms that are in prospect. In industry, the rate of growth could drop below that. The Soviet plan goalan increaseercentis one of the lowest on record. 8 plan was under-ulfilledide2 percent planned as opposedercent actual). Indications are that the rate of growth of industrial plant and equipment will be lessnd manhours are likely to grow at the rates of the past several years* An upsurge in industrial growth, therefore.
The
would require an upsurge in productivity factors that would bring this about9 are not apparent.
Available information concerning economic plans9ontinuation of the general trends of the past several In the distribution of resources, defense and consumption probably will again be favored; there islanned resurgence in growth-oriented investment. Comparison of the goals for output of civilian machinery with those for total machinery indicates that another increase in expenditures for military equipment seems to be planned.
Tho regime's intention to continue recent high rates of improvement in consumer welfare is reflected in the planned rise ofercent in per capita real income. arge boost in money
illion rublesis scheduled to be matched by an equal rise in consumer goods and services* As often in the past, however, the actual expansion of output of consumer goods and services may not match the oxpansion of money incomes, and the inflationary pressures already present in the economy may be intensified. In particular, the growth in the supply of quality foods in the first half9 mayesult of the stagnation in theof meat and milk in the second half
-
SECRET-
Original document.
Comment about this article, ask questions, or add new information about this topic: