INDEX OF CIVILIAN INDUSTRIAL PRODUCTION IN THE USSR 1950-61

Created: 9/1/1963

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INDEX OF CIVILIAN INDUSTRIAL PRODUCTION IN THE

CIA/RB ER

CENTRAL INTELLIGENCE AGENCY Office of Research and Reports

INDEX OF CIVILIAN INDUSTRIAL PRODUCTION IN THE

CENTRAL INTELLIGENCE AGENCY Office of Research and Reports

This reportumcaxy description of tne data used and tbe method of construction of the Index of civilian industrial production in the- Wore detailed information on prices, physical production, value-added weights, and their derivation is containedupplement that is available on request to CIA, Office of Research and Reports. This supplement contains the following appendixes:

Appendixof Industrial Materials in theO-61

Appendixof Civilian Machinery in the

Appendixof the Civilian Machinery Sample in the USSR

Appendixof Processed Foods ln the

Appendixof Soft Goods in the

AppendixPrices of Industrial Materials in the USSR

AppendixPrices of Civilian Machinery in the USSR

AppendixPrices of Processed Foods in the USSR

AppendixPrices of Soft Goods ln the USSR and Documentation

Appendix J. Adjustment for Distribution Charges on NondurableGoods in the5

Appendix K. Four-Digit SIC Categories of the US FR3 Index That Are Represented in the Sample of Production for the USSR

Appendix L- Derivation5 Value-Added Weights for Civilian Production in the USSR

Appendix M. Official Soviet indexes, by Branch of

Appendix N. Linkage of the faut.ll Sample of Production in the USSRo the Sample

Appendix 0. Source References (for the supplement]

- Ill -

Thle report covers the01 Inclusive* When rates of growthpecified period of time are given, however, the base year for the computation Is the preceding year.

Tbe following abbreviations occur frequently ln this report: FRB (US Federal ReserveBMW (machine building andnd 8IC (Standard Industrial Classification of the US Bureau of the Budget).

Pane

Summary and

I. Introduction

II. Construction of Indexes of Industrial Production for the

US and the

of the Federal Reserve Board Index for tbe

of the Index for the

Product Coverage

Weighting

Price Weights of the Product Series .

It.

Problem of

Probable Biases of Calculated Indexes

III. Industrial Materials

Products and Natural

H.

J. Evaluation of the Aggregate Materials

IV. Civilian

Coverage of the

Civilian Machinery Sample

Civilian Shipbuilding

Civilian

Gaps in Coverages and the Imputed Growth of

Missing Categories

of the Civilian Machinery Index with

Soviet Investment ln Machinery and Equipment

V. Nondurable Consumer Goods

Textile Industry

3* Leather Footwear

h. Evaluation of Soft Goods

Food

VT. Comparison with Other Indexes of Soviet Industrial

Nutter, and Kaplan-Moorsteen Indexes

and Other Western

and Official Soviet

VII. Comparison of US and Soviet Industrial Growth and

Apper.riix

Source References

Tables

1. Indexes of Civilian Industrial Production ln the USSR,

I

?- Average Annual Rates of Growth for Civilian Industrial

Production in the,

and

- vl -

3- Value and Indexes of Civilian Hachinery Production in

the

a. Value and Index of Investment for Hachinery andin the

5- Indexes of Investment in Hachinery and Equipment and

Production of Civilian Machinery In theO-61

6. Value and Index of Production of Processed Foods ln the

USSR,

7- Value aod Indexes of Production of Soft Goods ln the

USSR,

8. Comparison of Indexes of Production of Processed Foods

in the

9- Three Indexes of Civilian Industrial Production In the

5

of CIA and Other Indexes of Industrial Pro-

duction in the

of CIA and Official Soviet Indexes of Indus-

trial Production in the USSR, by Branch of Industry,

. U8

of CIA and Official Soviet Indexes of Indus-

trial Production In the

13- Comparison of Indexes of Industrial Production ln the

US and thel

14. Average Annual Rates of Growth of Industrial Production

in the US and the

15- Comparison of Value-Added Weights for Industrialin the US and the

Charts

Figure 1. USSR: CIA Indexes of Civilian Production,

ollowing page

- vil -

Page

Figure 2. USSR: Indexes of Production of Civilianand Investment lnollowing

FigureSSR: CIA Indexes and Official SovietIndustrial Production, by Sector,

Figure 4. USSR: CIA Indexes and Official SovietAggregate Industrial Production,

Figure 5- US and USSR: Indexes of Industrial Production,

ollowing page

irOKX CF CIVILIAN ElDUSTRI/u, PRODUCTION TN THK USSR

Summary and Conclusions

Civilian Induetrial production in thes measured by the index calculated for this report, grew at an average annual rateercent0 Annual rates of growth differed perceptibly among the three major sectors of civilian industrialindustrial materials, civilian machinery, and nondurable consumer goodscivilian machinery being the fastest growing and nondurable consumer goods the slowest. Each of the major sectors as well as the over-all indexonsiderable reduction in the rate of growth The trends of the index and its major sectors are summarized in the following tabulation of average annual rates of growth (in percentages) and in the chart.*

materials

machinery

U

consumer goods

Industrial production includes manufacturing, mining, and utilities. The index is called an index of civilian industrial production because production of armaments has been excluded. However, goods such as trucks and processed foods sold to the military sector have not been excluded. Because of the way in which Soviet economic data are presented, it is not feasible to exclude these latter goods. The index in this report is therefore essentially an indexonarmament industrial production."

** Following p. 2. For further detail on the component indexes, seewhich follows on For average annual rates of growth for the major sectors and their components, seewhich follows on

*** Text continued on p. 5-

No analysis of the determinants of Soviet industrial growth or of the causes of tbe recent slowdown in civilian production has been attempted in this report. Recent events, however, which probably***

Table 1

Indexes of Civilian Industrial Production in the USSRO-6I

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Civilian nacfiiopry deluding

excluding alaatronloa

consunor goods

roods

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17

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intern arc ptonadosantnmic vertical teak,result being that equal slopes of tht Una* repment equal precentasa rata* cl srowtn.

Table 2

Average Annual Hates of Growth for Civilian Industrial Production ln tha,

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Table 2

Average Annual Ratei of Growth for Civilian Industrial Production ln,Continued)

.Le r. aJM

ery arr-tar

Flour

Confectionary aooda

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contributed in some measure to the slowdown, are aa follows: he reduction of the workweek from hi hours7ours by the end0he acceleration ln defense and space procurement and production during the last few years.

During the whole postwar period, Soviet industrial production has grown considerably faster than US industrial production. For the. when the average annual rate of growth in the USSRthe rate in the USercent.

In brief, in construction of the index of Soviet civilian industrial production, series forndividual items were obtained either directly or indirectly from official Soviet data, and indexes were constructed for production in various branches of industry. These branch indexes in turn were combined in the final index by use of value-added weights* for the Of the three major sectors of civilian industrial production, industrial materials accounted3 percent of the weight; civilian2 percent; and nondurable consumer5 percent.

The accuracy and reliability of the calculated index are difficult to assess. An intensive effort was made to supplement the regularly announced list of products with estimates of important new products such as electronics, civilian shipbuilding, civilian aircraft, plastics, snd some nonferrous metals. Nevertheless, Important categories of products such as spare parts of all kinds and metal products other than machinery still are missing from the index. Possibly even more important Is the question of quality. Quality Is difficult to measure even with the best of data, and the tacit assumption in market economies that quality, diversity, and balance are kept ln appropriate relation to quantity by consumer demand is not automatically applicable ln aadministered economy. There Is some evidence that theand longevity of producer durables in the USSR may haveln the last few years.

* Value-added weightseasure of the economic activity carried outarticular branch of Industry snd are calculated byfrom the value of the final product of the branch its purchases of raw materials and components produced ln other branches, or,as in this report, by aggregating the payments to the productive factors employed In that particular branch of Industry.

The index presented in this reporthereafter often referred to as the "CIAreater rate of growthhan tho Index constructed by G- Warren Nutter of the National Bureau of Economic Research or that by Norman Kaplan snd Richard Mooreteen of the RAND Corporation. The differences lie mainly in the civilian machinery (see

> as shown in the following tabulation of average annual rates of growthin percentages):

Industrial

Civilian

Consumer

The CIA calculations give consistently lover results than the official Soviet Indexes partly perhaps because of differences inand partly because of methods of computation that are believed to give an upward bias to the Soviet Index. Five illustrative comparisons of average annual rates of growthollow (in percentages):

Official

CIAIndex

Electric power

Forest products

Machinery***

Soft goods

Total industrial production***

P- below.

or the purpose of this comparison, consumer goods include durable consumer goods.

*** The CIA index excludes and the Soviet index includes armaments production.

In recent years, there have been two major attempts to construct Indexes of Soviet industrial production, the first by Horman Kaplan and Richard Mooreteen of RAND Corporationnd the second by C. Warren Nutter of the National Bureau of Economic Research/ Both of these Indexes were constructed on the basis of Soviet production figures for Individual coramoditieo. The calculation and weightingwere similar to those used in constructing the Federal Reserve Board (FRB) index of industrial production for the US. (Unlessstated, the term "the US index" as used in this report refers to this FRB Index.)

lor the postwar period, both the Kaplan-Moors teen and the Nutter Indexes suffer from reliance on the officially announced sample of physical production of commodities. Although many recently published statistical and technical handbooks and articles have greatly expanded CIA's knowledge of industrial activity ln the USSR, the available sample of physical production series still ia limited in number and coverage. Specifically, many industriesuch as electronicshich ore likely to be rapidly growing axe omitted or are not fully reported.

The primary aim of this report is to present on index of Soviet Industrial production that includes the most important product groups omitted from the officially announced sample and hence is an index that is more representative of Soviet Industry and more comparable in coverage with the US index. Construction of this index with its broader coverage requires considerable use of indirect indicators of output, but it should be noted that even in the case of tha US index there is widespread use of indirect indicatorsthat is, direct physical production series are not available for many of the commodities included in the US index.

*For serially numbered source references, see the Appendix.

Accordingly, the civilian machinery sector of the Soviet indexin this report bas been supplemented by ruble estimates inprices of the value of production for electronics, civilianand civilian shipping. In addition, greater commodity detail has been achieved in the machinery sector by disaggregation of some physical units of measure reported, into models (for example, different tractor models) or representative units. Subdivision of cccjoodlties, by model or representative unit,eans of taking partial account of quality changes and new products. The materials sector has been expanded by estimated series for nonferrous metals and plastics. Aa one would expect, the resulting indexes give higher rates than indexes that do not have the expanded coverage.

Even with these modifications the CIA index for the USSR Is Inferior to the US index In coverage and detail. Many groups still are in highly aggregated categories. There are fewer Intermediate stages of processing represented than ln the US sample, and many industries still are missing. Tbe absence of many new products, models, and types of equipment probably results in some understatement of Soviet industrial growth.

The CIA index for the USSR, like the US index. Is weighted by value added, as between Industries. The weight basehich is near the middle oferiod and close in time to7 weight base of the US Index.* The use of prices and weights0 would haveomewhat higher rate of growth. Soviet Industryowever, still was affected strongly by recovery from war damage, snd prices of that year would not be representative of the following decade. On the other hand, prices9 were changed very littlend the use9 weight base probably would have changed the Index only negligibly.

Ro attempt has been made In this report to analyze or evaluate the performance of Soviet industry. Thisask beyond the scope of the report and can be done only through the use of extensive data on inputs of capital snd labor, on quality of output, and on performance ln tbe rest of tbe economy. Interesting trends in Soviet Industry or itsare noted and commented on briefly, but the main objective of the report is to present the index series and explain their derivation.

This report consists of seven sections and one appendix. Section II briefly describes the comprehensive PRB Index of US industrialpresents the adjustments to be madecomparable'" FRB index that matches the coverage of the Soviet index presented ln this report; end discusses the construction of the CIA index for the USSR, Including problems of sample coverage, weighting, and changes in quality of The industrial materials sector of the CIA index is described in -Section III, tbe civilian machinery sector in Section IV, and theconsumer goods sector in Section V. In Section VI the following substantive results are presented: omparison of the CIA index with indexes ln other studiesnamely, by Nutter, Kaplan-Moorsteen, andomparison of the CIA results with Soviet official indexes. Section VIIrief comparison of Soviet and USgrowth rates-

* Beginning inhe index of the Federal Reserve Board (FRB) was shiftedew comparison*

All values that pertain to tbe USSR, with same minor exceptions, are expressed5 rubles. Major emphasis ln the report is given toeriod, although some datareand certain long-run cooparisoas are made.

II- Construction of Indcxca of Industrial Production for the US

In this section the structure of the FRB Index of industrialin the US is described in very simplified fashion to set the stage for the constructionimilar index for thc USSR. Thenescription of the methods used and the problems encountered Inthe Soviet index.

Structure of the Federal Reserve Board Index for the

FRB Index or industrial production in the USeasure of change in the aggregate level of production in mstnufacturing, mining, and gas and electric utilities. alue-added weighting system isto combine the component parts of the Index Into the over-all Indexthat is, changes in the production of industrial raw materials, intermediate products, and final products are weighted in proportion to the economic value added at their respective stages of production.he value-added weights used at present are drawn from thend are distributed as follows (in

nondurable

Utilities

general, tho FRB Index may be expressed by the following

a is the physical quantityiven product produced in any given period,*

s the physical quantity of tbe product produced^he value-added component of price ln thend

s the value-added weight7 expressedroportion of >fyl ercent.

The formula above reducesaspeyres index, as follows:

v P

7

In practice, however, construction of the FRB index ismore complicated than the preceding discussion implies and involves considerable estimating and adjusting of data. Data on physicaloften are not available, and dollar values of sale must be used, entailing not only adjustments for changes in inventories but also adjustments for changes in prices. In other instances, changes ln physical output are estimated on the basis of changes in man-hours used in producing the product, the data being adjusted for estimated changes in output per

A vast amount of data Is collectedurrent basis from trade associations and other government bureaus to ascertain monthlyin output of the products and product groups Included in the index. The revision of weights and the expansion and refinement of coverage, which are periodic long-run tasks, rest heavily on information collected by the US Bureau of the Census in its Census of Manufactures,lus annual supplements in the Annual Survey of Manufactures.

* The FRB index isonthly indicator, and, for manyphysical volume data for each month are expressed as relatives to the comparison base period.

he final data for8 Census of Manufactures recently have beenut the results have not yet been incorporatedew benchmark in the FRB index.

The Federal Reserve Board publishes, in addition to the over-all index of industrial production, numerous subordinate indexes for various sectors of industry. In the construction of these sector indexes,establishments are grouped by primary product according to the

Standard Industrial Classification (SIC) system of the UShus the primary and secondary production of an establishment are not distinguished in arriving at the total value of production in the industry. For example, military production in electronics,and other machinery products is not isolated, and comparison of the nonmilitary components of some US machinery categories with the USSR is difficult.

B. Description of the Index for the USSR

1. Product Coverage

"The index for the USSR calculated in this report is basedample consisting primarily of final products of three major industrial materials, civilian machinery, and nondurablegoods. Production at an earlier stage normally is not counted if dataater stage of production are available. In contrast the FRB index for the USrofusion of intermediate stages weighted by value added.

Armaments per se are excluded. Production series for all other industries, however, insofar as possible, are comprehensive and include production for both military and civilian use. Thus, for example, production for all uBes of electronics, motor vehicles, and tractors Is included in the index. Military purchases of merchant ships and transport aircraft are excluded because of lack of data.

The index for the USSR in this report is basedample ofroducts. This sample isandom sample, being made up of those important items for which data exist or for which estimates can be reasonably made* The various product series have been classified first into minor industry categories patterned after the Soviet classification, by branch of industry. 9/ These more narrowly defined groups have been combined into three sector indexes: industrial materials, civilian machinery, and nondurable consumer goods.** Consumer durables are placed in the civiliansector rather than in the consumer goods sector.

* The revised FRB industries follow7 SIC scheme.* For the composition of the three major sectors, see Table.bove.

The classification system is basedommodity Each series represents total productionommodity wherever produced. Even though some ferrous metals are produced by machine building enterprises, all are classified under ferrous metals. Many consumer durables are produced as secondary products of various machinery industries. These consumer durables are separated out and grouped togetherpecial category within the civilian machinery sector.

Tne Soviet sample Is much smaller thaneries in theFRB index for the US* and even more so thaneries in4 Census of Manufactures benchmarkreat part of the inferiority of the Soviet sample, however, is loss of detail rather than loss of coverage. The US series are disaggregated, both by stage of production and by detailed product classes. Ih the Soviet index the entire integrated iron and steel industry Is represented by one series of rolled products, whereas in the US each stage is included alongetailed breakdown of final steel products. As another example, tons of synthetic rubber represent both rubber and rubber products (for example, tires) in the Soviet index.

The list of production data announced by the USSR is seriously deficient in coverage. Important industries that areore nonferrous metals, many new chemicals industries. Industrial electronics, civilian shipbuilding, and aircraft. Even thoughphysical production data may be missing, estimates basedariety of partial sources and indirect indicators can be made for these industries and are included in the index presented in this report.

To ascertain the degree of coverage of all industrialrepresented by the Soviet sample, value added would need to be known for each commodity or Industry representedommodity. Unfortunately, this information is not known. As an approximate check on coverage, however, the US breakdown of value added, by industry, may be used, and the portion of US value added that would beby the items in the Soviet sample may be ascertained. These steps have been carried out atigit level of industry igit industries in the FRB index that arein the Soviet sample are identified. These industries can be aggregated to form an Index of US production comparable in coverage to the Soviet This comparable FRB index accounts forercent of the value-added weight of the comprehensive FRB index. When the comparable index is divided into the three major divisions of the Soviet index, the comparable index is found to coverercent of the comprehensive FRB index in industrial materials,ercent in

*3 FRB revision of the US indexnnual series, and approximately the same number vere included in9 revision.

"* For the listing of SIC categories of the FRB index that are in and out of the Soviet sample, seef the supplementary volume. The greater the number of digits in the classification numbers, the finer the breakdown of commodities.

*** The comparable items were selected by CIA, and the FRB calculated an industrial production Index based on the smaller sample and7 value-added weights.

nondurable consumer goods, andercent for civilianiscellaneous series amounting toercent of the frb index were not classified in the three divisions mentioned above. these have no counterparts in the soviet sample.

in general, it can be argued that the soviet sample covers soviet industry more completely than these percentages in the frbsample vould indicate. first, the percentages are the value-added coverage of four-digit levels, whereas in the sovietommodity may represent activity at its own and earlier stages of second, the missing industries in general probably are less important in soviet industry than in us industry. for example, drugs and medicines, toiletries, manufactured cereal and feeds, bottled soft drinks, printing and publishing, and furniture and fixtures are among those missing from the sample. on the other hand, some of the missing .categories obviously are large and important. two in particular should be noted: (a) fabricated metal products other than machinery and (b) spare parts of all kinds. in both these cases, fragmentarysuggests that production has grown faster during the postwar period than industryhole. more detailed consideration of industries that are missing from the sample is given in the sections on the major industrial sectors.

2. weighting system

a. gross price weights of the product series

tbe physical production series are aggregated, by industry, using as weights the average enterprise wholesale prices5 except for consumer goods, where retail prices with some adjustment for distribution charges and turnover taxes have been employed. these indexes of gross value for individual industries and major sectors are aggregated into major sectors and the major sectors into all industry5 value-added weights. the final index may be regarded asaspeyres index5 value-added veights, on the assumption that the use of price weights at the lower levels of aggregation gave approximately the seme results as value-added weights would have given.

* although ordnance and accessories have been excluded, the comparable frb indexes include other categories of military production.

except for consumer goods5 prices used as weights were derived from the ministry of finance pricebook and the coal industry pricebook. Uj they usually are enterprise. (free on board) factory or depot of seller. for construction materials,

lumber, and coal, which were pricedonal basis ia accordance with regional production patterns, weighted averagea of zonal prices were derived for thi6 report. Wholesale prices for lumber products and some construction materials have been adjusted to excludecharges. Within some groups such aa chemicala andmaterials where oneew products represent larger categories, prices are weighted average prices for several grades, types, or specifications.

For most machineryepresentative model priceedian price from several modelsype of equipment was selected as the price weight. The use of representative price data Instead of comprehensive price data for machinerymall element of error. The widespread practice of standardization of machines, however, tended to minimize the error. There was some departure from these procedures for turbines and generators, where production was available both in number of units and in total capacity Id kilowatts. Average size was computed by dividing total capacity by the number of machines produced, and prices for the average sizes were derived from prices of given models that bracketed the average In several categories of mounted equipment for construction and road work the priceet price derived by deducting the value of the tractor mount from tha wholesale price. For example,ulldozer, which la selected aa themodel for that category, is mounted on0 tractor. To avoid double counting within the civilian sector of machineryall tractors axe counted under the tractorhe value or the bulldozer minus the tractor mount was used.

* For details, seef the supplementary volume. ** In light Industry, turnover taxes6ercent of retail pricos comprlned on the averageoercent forercent for knit goods, andercent for leather. In the food industry, with some exceptions, turnover taxes ranged fromoercent of retail prices. Ih/

For nondurable consumer goods (soft goodsndividual product Frice weights arericea inclusive of turnover taxes but adjusted for distribution charges.* Some biasntroduced in that retail prices tend to be the average for the5 and not dated asuly. Because turnover taxea, which comprise the largest share of budget revenues, function as saleshey should be excluded from factor cost weights. However, turnover tax rates for most commodities are not Known.** The inclusion of turnover taxes may introduce some mls-weightlng as between foods and soft goods but does not distort the weight of consumer goodshole, whichalue-added weight derived exclusive of turnover tax. For electric power, petroleum,

and moot consumer durables, which alsournover tax, theturnover tax per unit has been deducted from the price weights.

The aggregation of production series into industries In the Soviet index differs procedurally from that of the FRB index for the US- In the former, final products (as much as possible) of each Industry are weighted by gross prices, and intermediate products axe omitted from the index. The final products, weighted by price, axe taken to be representative of themselves and earlier stages of production. In the FRB Index, intermediate stages axe included among the production series, weighted by value added. If datathis procedure should have been followed In the index for the USSR. In the absence of detailed value-added data, the method of price times final product vaa adopted. Although the latteris less precise, there is no clear apparent bias upward or downward. Some items are overweighted and some underwelghtedvarying degrees of materials purchased (for example, fuels and power) may be from outside the particular Industry and because varying quantities of intermediate stages may be sold outside the industry. One would expect errors of this kind to be largely

In the Soviet price system, wholesale prices very inadequately correspond to factor cost becauae all capital charges and land rent are not systematically Included in/ It is difficult to see that these prices wouldeneral bias to the industry Indexes, although the random errors involved reduce the accuracy of the Individual industry indexes.

b. Value-Added Weights

TJi this report,5 value-added weights employed for aggregation both at branch of industry and at the aggregate level consist of wages and salaries and capital consumptiondeally, charges for rent, interest, and profit 6hould be included, but these concepts are not recognized ln Soviet theory or practice, at least in the sense that they arc used in the West, and hence no data are available. The omission of these parts of value added is believed to have no appreciable effect on the relative weights assigned to various industries in this

For derivation of value-added weights, seef the supplementary volume. ** P.bove.

The three sectors, Industrial materials, civilian machinery, and nondurable consumer goods, are estimated to32 percent,5 percent, respectively, of the5 value-added weights (see Because armaments

per se are excluded from the index, the value-added weight of allof nachlnery has bean reduced to reflect only civilian product* plus all electronics. The final value of civilian output ls estimated to be approximately one-half of the final value of the Soviet category "machine building and metalnd its value added is assumed to be the same proportion of the value added of this category. To thie value added in civilian output la added two-thirds of the estimated value added in electronics, which Is the estimated military portion of electronics output. Theranches of nonelectronic7 percent of the value-added weight of the civilian machinery sector, and electronics3 percent of this total weight.

3- Weight Base

In this5 wholesale prices In effect serve as base year weights for individual products. 9adical changes occurred ln Soviet industrial prices. owever, the large subsidies paid to various industries had been mostlyand prices had become establishedtable pattern that reflected settled postwar relationships among the various factors of production. o appreciable changes have occurred inprices, and, in any5 prices are by far the most readily available.

h. Complexity

Tbe postwar period ln both Soviet and US industry has been characterized by rapid Introduction of new products that are highly complex; that require Increased processing at different stages ofand that give rise to new problems of Inventories, incentive wages, management control, and measurement of output. The FRB index in its latest revised form haa gone to considerable lengths to reflect this increasing complexity of In general, the index for the USSR in this report appears less adequate in this respect. The FEB index has the advantageumerically larger samplegreater detail of product and many intermediate stages of The periodic censuses of manufacturing and mining permit regular revisions to expand the Bample by the inclusion of new products. Finally, where product details appear to be insufficient, the FRB index uses value of output (adjusted for estimated changes inhus Insuring automatic and continuous inclusion of new types of products.

In this report, production data have been disaggregated into more specific types and models wherever possible. Thus theequipment and tractors series consist of individual models. air amount of detail on agricultural machinery, by type, exists and

Is included Id tbo aaaple. For most kinds of machinery, however, this kind of breakdown could not be accomplished. In electric powera partial reflection of Increased size and complexity is achieved by the use of kilowatts of capacity as the unit of measure. In moat other kinds of machines the aeries consists of numbers of machlnea of an aggregative category such aa the number of spinning machines, of lathes, or of coal-cutting machines. Metallurgical equipment sndrefining equipment axe measured in tons, thus reflecting thesize of units but not the increasing quality or complexity. On the other hand, the estimates of electronic equipment, aircraft, and shipping are estimates ln constant rubles and ahould reflect fully the new products and increasing complexity. In the case of industrial materials and consumer goods the sample aeries for the USSR are muchggregative than in the US sample and therefore reflect new products auch more poorly. In this instance, the index for the USSR is concluded to be more likely to err on the side of understatement on account of the inadequate reflection of the increased complexity of the product mix.

5. Problem of Quality

The problem of quality in the measurement of production in the USSR assumes an acute Importance not Just because of the lack of detailed data (on specifications, for example) but also becausepreferences ln an administered economy do not have tbe direct and tangible effect on product mix that one takes for grantedarket economy.

There are three recognizable aspects of quality that bear on the significanceroduction index: (a) quality of individual producta, (b) the diversity (variety) of the product mix, and (c) the balance of supply and demand for individual producta.

* elow.

Quality of individual products is used ln this report to mean not only attractiveness of consumer goods but alsoand longevity of all kinds of goods, including capital goods. Diversity or variety of product refers to the choiceew standardized all-purpose models or types and many specialized and differentiated models or types. The tendency of Soviet industry to favor fewer standardized models (as in machine tools) Isew years ago, Soviet planners decided to widen drastically the range of agricultural equipment and to bring out many new models of specialized tractors or harvesting machlnea. Partlyesult of this, output of agricultural equipment dropped drastically3 and,ad not recovered to thc level (See)

Failure to balance supply and demand for individual products haspecialty of planned economies, especially for consumerecent example in the USSR in the producer goods category has been the failure of production of tires to meet demand in theears. According to Soviet statements the shortages of tires have immobilized part of the truck fleet at times. Clearly, production of fewer trucks and more tires would haveangible improvement in product mix but might have left the Industrial production index unchanged.

These aspects of quality affect the welfare of consumers as directly as quantities do. In addition, they affect the cost or resource requirements of production. It is the latter question that is of concern for this report. Questions are raised on the extent touantity index reflects the production potential of the industrial establishment in question* and whether it is fair to assume that quality trends are the same In an index of Soviet industrial production as in an indexestern market economy with which it may be compared. arket economy the preferences of purchasers of both consumer goods and producer goods guide production not only as to relative quantities of goods (balance) but also as to quality and number of models and types The mix of quality and quantity is the mix that purchasers desire. In the Soviet economy, purchasers' preferences appear to be directly influential in only one general areamilitary production.

It has been tacitly assumed by some observers that quality of production in the USSR, though admittedly bad, has become no worse in the postwar period and may have improved and thatuantity index might be suspect on grounds of coverage andof sample but probably not on grounds of quality.

In the light of recentudgment concerning quality perhaps should be suspended until further evidence is accumulated. production apparently has been expanding recently in the USSR and putting considerable pressure on the civilian sector. How much this may have affected quality, diversity, and balance in the civilian sector is uncertain.

* iscussion of these and related problems, see.

Evidence on production of spare parts for machinery and equipment highlights the problem of reliability and longevity. evidence on spare parts for motor vehicles, tractors, andmachinery indicates that production of parts0 Increased faster than production of complete units of equipment and faster than the stocks of equipment. 90 these spare parts were about three-fifths of the value of output of complete units.

In the US the corresponding ratio is about one-fourth. Yet, at the same time, the Soviet press is filled with complaints about the shortage of spare parts.*

6. Probable Biases of Calculated Indexes

Ihe calculated indexes for the USSR correspond generally in product coverage and methodology with the coDparable FRB index. Although some items may be overweighted and some underveighted, errors related to employment of gross price weights instead of value-added weights at the commodity level are largely offsetting and do not seriouslygrowth foreriod. Neither is there likely to be any significant bias imparted to the indexes from the particular value-added weights employed for purposes of aggregation. The net effect of using wages and salaries and capital consumption allowances instead of full value-added weights seems to be negligible.

The supplementary ruble estimates for electronics, aircraft, and shipbuilding mayonsiderable range of errorthat is, relative to estimates derived from reported physical production, they are more likely to err on the side of overstatement. Inadequateof complexity and new products, however, may impart some downward bias to the index for the USSR especially in machinery categories.

On the whole, the industrial production indexes presented in this report can be argued to have relatively mmII quantitative biases and to err if at all probably on the downward side. On possible bias resulting from quality problems, the argument of the preceding section suggests that the reader keep an open mind.

III. Industrial teterlals

Nine Industrial brancheslectric power, coal, petroleum products and natural gas, ferrous metals, nonferrous metals, forest products, paper products, chemicals, and construction materialsconstitute the industrial materials sector of the index. Indexes for the whole sector and for the nine branches are given in* and average annual rates of growth within the sector are given in. ajority of the series are derived from announced data, which have been supplemented by estimates for certain nonferrous metals and chemicals.

* Information on3 plan and2 achieved production of spare parts for these categoriesecrease in the rate of For more details on production of spare parts, seef the supplementary volume.

** P. P.bove.

The rates of growth for the sectorhole roughly parallel the pattern for the indexhole, which is not unexpected, for this sector accounts3 percent of5 value-added weight. Considerable variation exists in the rates of growth of the nine branches, as described in the sections that follow.

A. Electric Power

The USSR reports gross production of electric power inclusive of power generated by stations for their own use. For conpaxability with the US index, net production of electric power excluding station use is calculated and used in the CIA Index. Until9 revision of the FRB index, electric power production was not included in the US measure of industrial output.* Consumption of electric power by industry (excluding construction) accounted forf total electric power generated5 in thehereas, in the US, onlyercent represented consumption by industry. Soviet production of electric power increasedate9ear5 percent,3 percent during all. long-range goals for electrification of the Soviet economy under the Twenty Yeartress continued rapid rates of growth.**

B. Coal

8 the USSR attained first place in world output of coal. In standard fuelowever, the US production and the Soviet production were approximately the same in thatecause the high share of lignite,ercent, reduced substantially the average heat value of Soviet coals. The Soviet coal industry accountedof5 value-added weights, whereas the US industry (FRB comprehensive) accountedercent of7 value-added weights.

* Pursuantecommendation0 by the UN Statisticalthat production of electricity and gas be included in indexesactivity, the FRB developed these physicalut did not combine them with manufacturing and

** It might be noted again that the branch-of-industry concept used in this report is the broader one of primary product wherever produced. Only two-thirds to three-fourths of electric power output would beunder the establishment concept of branch of Adjusted for heat value at the ratellocalories per

t Hydroelectric and atomic energy, fuelwood, peat, oil shale, crude oil, and natural gas are included in this comparison.

5oal declined fromoercent of the primary energy resources available in the Production

of coal grew at an average annual rate8 percent, respectively,ercenteduction in the rate of growth was scheduled for the Seven Year Plan period, mainly reflecting the shift in the structure of the primary energy balance toward expanded production of oil and

Products and Natural Gas

An attempt was made to match on the Soviet side the following petroleum products categories employed in the FRB industrial production index: automotive gasoline, distillate fuel oils, residual fuel oils, aviation fuel, kerosene, lubricants, and some syntheticggregate Soviet production of petroleum products was based on the estimates of refined products derived from nongas products and refinery gas; of associated natural gas; and of crude oil consumed, added to storage, or included in net exports.* Natural gas from gas wells was added for an aggregate estimate of the oil and natural gas industry. The share of crude oil and natural gas in the Soviet fuel balance has Increased considerably Its share Is planned to be almost one-half5 compared with one-thirdjj These products srew annually9 percent2 percent duringeriods, respectively,'* percent. In percent of total value added the petroleum products and gas categories accounted* percent of the Soviet weights

Turnover taxes levied on petroleum products have been sizable,lt billion rubles5 and had increasedh billion rubles Wholesale release prices for refined products were adjusted for turnover taxes, transportation charges, and the operating costs of the product distribution system.**

Metals

Because the calculated index is for value of final product, crude oil will be that output not elsewhere shown. ** Turnover taxes on petroleum products accounted for about kOof the release/

*** Rolled products were reported in the following categories: rails and rail accessories, heavy sections, light sections, wire rod, pipe and tube, strip, plate, and

The index for ferrous metals is the physical index of production of rolled steel announced by the Soviet government. ample of rolled products as reported in the SEE Steel Committee's Quarterly Bulletin of Steelas selected as representative of the final output of 6teel. Changes in definitions and specifications of

Hens of the various categories, however, made lt Impossible toforonsistent series that reflected the shifting composition of steel products. Production of rolled steel declined from an annual rate1earercent. l this branchercent rate of growth.

Hptais

roducer and consumer of nonferrous metals and minerals, the USSR ranks second to the US. The basic nonferrous productsaluminum, lead, copper, tine, tin, and magnesiumave been included in the Soviet sample. The USSR is believed toull range of rare metals and other nonferrous materials that bave importantapplications. The rate of growth of the sample of above noted primary nonferrous commodities declined5ercent foreriod. It5 percent. The metals sector (ferrous and nonferrous) accounted8 percent of aggregate value-added weights.

Products

At present the USSR uses more timber than any other country in the world. 8 the USSR bad become approximately equal to the US in production of industrial logs and In that year, logging, wood processing, and paper industries employed lk percent of the Soviet industrial labor Forest products are repre-aented in this report by production series for lumber: for fuelwood removed from government forests; and for industrial wood, exclusive of sawlogs used in production of lumber. With the rapid development of the petroleum and natural gas industry, the relative importance of fuelwood has/ Thus the inclusion of fuelwood In the seriesampening effect on the forest producta index. aawlogs processed in the form of lumber accounted forercent of production of industrial wood (logs). The remainder of industrial wood was used primarily as pit props, crossties, construction timbers, pulpvood, plywood, veneer logs, and chemical

The lack of data on processed wood products such as furniture,lywood, andecessitates thc use of materials inputs as an indicator of output activity in the forest product sector. The absence of these final products from the Index probably results in

* The bulk of wooden containers is made from boxboards, which are included in the lumber series.

** ortion of the value of production of plywood and veneers isas plywood and veneer logs included in the industrial log series.

an understatement of the growth of this sector. On the other hand,mall percentage of Industrial wood is used in the finalhe calculated indexes for forest products were the slowest growing item in the materials sample. Increasingercentear, respectively, and. This branch accounted forercent of total value-added weights.

Products

Sixteen series on paper and paperboord products available from the industry handbooks represent this branch, which isof the total value-added weights. Production of paper, cardboard, and cellulose haeagging branch of industry, dropping from on average rate of growthercento an averageercent.

Although thetems in the sample of chemicals were fromsources, information is generally limited for this industry.umber of the industrial chemicals ore used in furtherof other chemicals, the sample with both final and Intermediate products has an undetermined degree of double counting. Intrabranch consumption accounted foroercent of the official measure of gross industrial production of the combined chemicals andt0/ The synthetic rubber series is assumed to be on appropriate proxy for tires. ruck tiresf the reported production ofnd the tirendercent of synthetic rubber output0espectively, klf

* The Soviet chemicals industry does not include soap and vegetable and animal oils, as does the US classification. 3j/ Both coke chemicals and petrochemicals may be included partly in other branches of industry or hidden partly in other areas of the chemical industry itself.

** Ammonia and nitric acid are consumed largely in production offertilizers. Approximatelyercent of synthetic rubber wasfrom ethyl The coal tar crudes are used as solvents and intermediates. Sulfuric acid, the most important industrial acid, is used in the manufacture of inorganic and organic acids, synthetic drugs, and technical gases and in preparing soluble Reported production excludes aircraft and bicycle tires.

The calculated indexes for this branch, which accountedercent of value-added weights, increasedk percent annuallynd declined slightly5 percent foreriod.

I. Construction Materials

Twenty-three construction materials products correspondto the product groups of the Federal Reserve Board's stone, clay, and glass category. In accordance with US classification practices six Items* are treated as metal products and are transferred to the machinery sector. Intrasector duplication is considerable, necessitating several double-counting adjustments. Thus cement inputs into precast concrete, asbestos cement shingle, asbestos cement pipe, and wall materials have been removed. Gypsum inputs into cement and dry gypsum plaster board were excluded. Rock products (stone, sand, andhich areinto cement, precast concrete, lime, and wall materials also have been adjusted for double

The construction materials indexercent of the value-added weight and grew7ear5 percent duringeriods, respectively. These rates of growth vould be higher than an index representing all construction materials as Inputs into the construction sector. Such an index vould include two important slowly growing items, steel and lumber, which would reduce the rate of These two products are covered in the ferrous metals and forest products categories of the CIA index.**

J. Evaluation of the Aggregate Materials Index

The materials sample accounts3 percent of value-added weight for civilian industry. The calculated materials indexes may be biased slightly downward because of the failure to measure fully the improvement of physical product. Within the chemicals industry, some items have experienced rapid and significant qualityossible understatement of growth in ferrous metals may result from the failure to reflect shifts in the product mix. Forest products are represented by three categories, which hardlyproduct diversity. Because forest products carry more than one-fourth of the materials sector weights, the shortcomings ln the quantity and price dataore serious Impact on the aggregative index than either chemicals or ferrous metals.

* Heating boilers, heating radiators, sewer pipe and fittings, enameled bath tubs, enameled bath water heaters, and corrugated pipe. ** imnl1 amount of construction steel (reinforcing steel) is included in precast reinforced concrete and thus is double-counted.

Some assurance of reliability of these estimates can be based on the following considerations: (l) physical quantity indexes of leading commodities and the value-added indexes for the various branches correspond closelyeasonably accurate

value-added weights could be established for aggregating production of the various branches within the materials sector,he generally low degree of fabrication to be found in the materials sectorignificant amount of double counting. If the differences in coverage for each industry are taken into account, the materials industries in-dexes are fairly reliable indicators of growth. With the exception of petroleum the material branches experienced some decline in rates of growthompared with the. Iferiod is dividedegments, the retardation is seen to De concentrated in theears. The weighted materials, index grewercentercent,ercent,, respectively.

TV. Civilian Machinery

In the civilian machinery sector the methodological pitfalls and the scarcity of data are more formidable obstacles to construction of reliable indexes than they are In either the industrial materialsor the nondurable consumer goods sector. Additional series that have been estimated in order to supplement the machinery seriesby the Soviet governmentuch greater effect on the over-all industrial index than the additional series for the other major sectors. The value of output of the sample of machinerybyajor subdivisions is shown in This sectioneneral discussion of the product coverage of the sample of machinery products and an evaluation of its representativeness.

A. Product Coverage of the Sample

Civilian machinery items are defined by industry of origin and do not precisely reflect exclusive civilian end use-** The series for trucks and electronics, for example. Include production for military as well as civilian use. Under the Soviet industrial classification schema it is as difficult to disentangle civilian and militaryin some branches as it is in the US.

* ollows on escription of civilian machinery categories, seef the supplementary volume. ** Wherever possible, the civilian components of Important branches such as aircraft and shipbuilding have been isolated from totalof these branches of industry.

The civilian machinery index has been constructed primarily from physical production series published in statistical handbooks and technical Journals. The sample of announced production series,has been supplemented in two ways. First, estimates based on

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indirect indicators for electronics, civilian aircraft, and civilian shipbuilding have been constructed, and, second, disaggregation of physical output Beries into various models or typeseans of taking partial account of quality changes has been undertaken.* equipment, tractors, agricultural equipment, and construction equipment have been treated in this manner.

The major industrial groups represented in the civilian sector of machinery vary widely as to coverage of commodities. Tn the case of metalcutting machine tools, motor vehicles, tractors, andequipment, coverage is essentially complete. On the other hand, the samples of products in electric power equipment and equipment for light industry represent less than one-half of the output in those categories. Whereas tractors and agricultural equipmentairly extenBlve count by models for most years, metallurgical, petroleum refining, and chemical equipment have no specific product detail The expanded sample of items in the civilian machinery sector consists ofajor subdivisions (as shown in) representing Soviet branch-of-industry categories for machine building.

Because of their impact on the civilian sector machinerythe following supplemental series are discussed in greater detail: electronics, civilian shipbuilding, and civilian aircraft. All three of these aeries are ruble estimates of total production.

B. Expanded Civilian Machinery Sample

1. Electronics

* eport on an attempt of the Federal Reserve Board to treat quality changes for selected commodities by subdivision of items, see source kkf. ** bove.

*** The electronics category Is not specifically isolatedranch of industry in either the US or the Soviet economies. According to the most recent data, products classified in this category may be scattered in the electrotechnical, radiotechnical, snd instruments branches of Soviet machine building.

The electronicss defined broadly as those enterprises producing equipment in which electron tubes andare the essential components. This definition embraces radio and television sets; broadcasting equipment; commercial telephone and telegraph equipment; industrial electronic equipment, includingand data-handling equipment; automation equipment; scientific and industrial test and measuring equipment; and, finally, the highly diversified sphere of military electronic equipment. Although military

electronics is by far the moet important sector of this branch oftwo categories of civilian electronics (radio and television sets and computers) have been accorded special priority at various times.

0 the volume of production of the Soviet electronics industry has increased more rapidly than any other major industry. The gross value of output5 was reported by the USSR to haveercent The index used here is simply the over-all production (for both civilian and military uses) of electronic tubes and semiconductors. The Justification for the use of tubes andas an indicator of the growth of output of the industry is that the number of these componentseasonably good indicator in the US- The ratio of value of tubes and semiconductors to value of final output of electronics has been fairly stable In the US in the postwar period, even ln times of changing product mix such as the Korean War- In addition, tha average price per unit of components has not changed much in the US.

The index of tubes and semiconductors grew) compared with the Soviet claim of 3U0 percent for gross value of the industry. Two other series also provide evidence of rapid growth in this Industry. Civilian television sets and radios grew to an index of Ulnd computers to an index.

Soviet dataasis for estimating the value of electron tubes and semiconductors The value of output and hence the value-added weight for the electronics sector orefrom the US ratios of value of components to value of output and value added." The employmentS relationship probablythe Soviet value of slectronics final product. Thisoccurs because civilian radios and television sets, with small tubes,uch larger part of total production ofn the US than in the USSR, where the military demand for Increasingly complex components has been the dominant and most rapidly growing part.

2. Civilian Shipbuilding

' For details, seef the supplementary volume. ** The US annual Index lo based on the "work done" for large vessels estimated from keel laying and completion and tonnage data, on the number of small vessels completed, and on employment in repair

Because of thc long production cycles In the shipbuilding industry, the appropriate measure of amount of production is the value of work done, including the value of repair activities.** The basic

data, however, are expressederies of "completions" of new civilian ships. This series, in turn, is based on observations of ships athen the USSR embarkedrogram of increased domestic production of vessels for its maritime fleet, the changes in the value of output of the Soviet merchantave been sizable (see- The variable completion cycles, however, are not anreflection of construction activity, and on this account thevessels seriee haB been smoothedear moving average. Shipbuilding data have been adjusted to be Inclusive of repair and to represent work performed.

3. Civilian Aircraft

* The observations give the sizes of shlpa and the dates offrom which the dates of completion can be deduced. Thiahas been collected by the US Maritime Commission, kj/

** The maritime fleet Includes all classes of vessels assigned to the maritime fleet such as cargo vessels, tankers, tugs, schooners, lighters, barges, passenger cutters, and miscellaneous auxiliary types. Categories included under merchant vessels are the maritime fleet and bove.

t Because of the leadtime between input of materials and completion of the aircraft, measurement of output should not be based on completed units. The FRB index noweflated value of work done in the aircraft industry.

tt In9 revision of the FRB Index, military aircraft accounted forercent of the weight of thc aircraft and partstt For details, seef the supplementary volume.

Estimated expenditures for procurement of no military Soviet aircraft, excluding electronic equipment, rose6 billion00 billion rublessee. * the USSR has given very high priority to development and production of modern transport aircraft. 4o/ it is likely, however, that, in the USSR as In the US, production of military aircraft accounts for the major part of output of the aircraft industry.7* There mayonsiderable margin of error in the production estimates derived for production of civilian aircraft. Although CIA haa not completely identified the product mix, estimates of the total piston and high-performance (jet and turboprop) units can be ascertained from Inventories of aircraft for fourpositions (early, two midrange, and late years). wo-engine piston aircraft were used almost exclusively, end6 the civilian airline (Aeroflot) was largely reequipped with Jet and turboprop aircraft (mostly four-engine aircraft).ttt

Production data derived from benchmark inventories oreby other estimates calculated from average daily rates of utilization of aircraft in Aeroflot and from flight schedules. Although the estimated average rate of production for the second half oferiod correlates well with passenger and freight kilometers flown, the incompleteness of the data tendsonservative Helicopters, which have appeared in considerable numbers in the USSR, are missing from the index. Furthermore, it ls likely that new models of aircraft, which have been discussed in Soviet publications but have not been reported in the Aeroflot inventory, are already in production. Their omission understates production01 by an unknown amount.

C Major Gaps in Coverages and the Imputed Growth of Kissing

Ideally the index of industrial production should include not only machinery but also equipment that appears in the US index asmetal products and in the Soviet official index as metai working. This category includes, among other things, structural shapes, fencing, nails, screws, nuts and bolts, hand tools, metal drums, cans, and other containers. This category accountsercent of value added in the US index andercent in the Soviet index. In the absence of data this category Is not represented in the calculated index in this report.

* Data in the input-output table in0 statistical handbook specified that spare ports were included in the value of output of these branches.

** In the US, according to8 Census of Manufactures, parts and attachments accounted forercent of the value of shipment of tractors, aboutercent of the value of shipment of railroadand aboutercent of the value of shipment of other form The plan32 billion rubles isercent aboveof spare parts2 for tractors, agricultural machinery, and

A second major omission is spare ports of inds of except electronics, shipbuilding, and aircraft, for which the ruble estimates implicitly include some production of spare parts. The USSR hasa ruble value series of spare parts for tractors, agricultural machinery, and automotive equipment." This series increasesillion rubles0 to moreillion7 andion It rises considerably faster than all industry or even machine building andubstantial fraction of the value of the latter.** The decline in the rates of growth for this category0 underscores the complaints in the press about the shortage of Hot enough is known, however, about the coverage and

construction of the series for much confidence to he placed in it. There is reason to believe that production of spare parts bas risen rapidly and that its omission from the index results ln some understatement.*

Within machinery proper the most important missing categories are pumps and compressors, medical equipment, food-processing equipment, metal forming (pressing, stamping, and forging) equipment, nonelectronic measuring instruments, and miscellaneous electrical equipment (for example, switch gear).

The assignment of weights to various parts of the sample has the effect of imputing rates of growth to products missing from the sample. The question is, what rates of growth to Impute to (l) missing machinery productsabricated metals. In the calculated machineryeparate value-added weight is estimated for the electronics industry. The remaining value added for production of civilian machinery is applied to the nonelectric sample of machinery products. This procedure is equivalent to assuming that the missing products grow at the rate of machinery excluding electronics rather than at the faster rate ofincluding electronics.

The weight of civilian machinery includes value added in metal working. Thus fabricated metal products also are implicitly assumed to grow at the same rate as civilian machinery (excluding electronics) rather than at the slower rate of all industry. The Soviet official index for metal working50omparedor industryhole andor machinery alone.

* ecent statement the annual volume of production of all spare parts was estimated to be fromiUion toillion

**evision in the scope of manufacturing was made inf the SIC, in which machine shops solely engaged in repair work were transferred from the service trades to Capital repair of equipment also is performed outside the machinery sector in repair technical stationsolkhoz shops, repairof industrial cooperatives, and specialized repairore of the capital repair of enterprise own equipment formerly done byncluded in its gross industrial production may have been shifted to specialized repair plants. The most recent branch of industry classification no longer Includes district railroad repair shops and blacksmith shops under repair of machinery.

Repair work usually is not considered as manufacturing activity in theut the Soviet definition of production of machinery has included repair on industrial and construction equipment, railroadships, motor vehicles, tractors, and agricultural machinery. Soviet data indicate that the repair category of the machinerymounted

toercent of gross industrial production of machinery* Repair vork is represented in the CIA sample only through ship repair, which, because it involves the same kind of activity as new production, should be treated as production.

D. Comparison of the Civilian Machinery Index with Sovietln Machinery and Equipment

This sectionomparison of the index calculated for civilian machinery (excluding consumer durables) with the announced Soviet Investment index for machinery and equipment. The general scope of the two series is approximately the same, but there still aredifferences in statistical method. The series for investment in machinery and equipment Includes some imported equipment and somefor the early years, although the largest share is newproduced machinery (see Tools and implements delivered to purchasers are recorded in transfer prices (inclusive ofcharges). Uninetailed equipment would be counted in the production index but not in the investment index. Finally, inveetoent lags behind production by an unknown tlmespan.

The investment index is compared in* and in the chart.ith the index calculated for production of civilian machinery exclusive of consumer durables. Because the investment index isand reflects new products more fully, lt should perhaps rise faster than the production index, whichasedample. Alao, if the change in the amount of uninstalled equipment Is significant, the

* Based on data from the interindustry tables presented in0 economic handbook end adjusted to include only the specialized repair activity of the machine building and metalworking (MBMW) sector. As definedepair work in the MBMW category would include special^ ized enterprises for repair of metalcutting machines and pressing-forging equipment, specialized enterprises for repair of industry end construction equipment, and specialized enterprises for repair ofrolling stock and communications equipment. Inclusion of repair workers in the weight for the machinery sector may overstate the weight for this sector. An acceptable estimate isillion repair workers in the machinery sector/oviet author hasillion This figure includes not only workers engaged in repair directly at MBMW plants but also workers at state industrial enterprises specializing in repair of equipment.n CIA adjustments to exclude military hardware from the machinery weight, some repair workers are removed also.ollows on* ollows on-

t Following

Table 4

Value and Index of Investment for Machinery and Equipment in the

6 75 Rubles

plan and decentralized a/

8 2

capital investment b/

5

jO, USSR, ye Statistiches>;iye Uprgvleniye, Capital' noyeSSR statisti-cheskly sbornlk (Capital Construction in thetatisticalarodcoye khoz-yaystvol godu (National Economy of the USSR,

b. The series for kolkhoz investment in machineryesidual. Investment of construetion-inBtallatlon work plusercent of total Investment as an estimate of capital work other than construction and equipment procurement are subtracted from total kolkhoz Investment. The datare from Kapltal'noyeSSR: statisticheskiy sbornlk,. Investment in machinery1 Is estimated to have decreased at the same rate as investmenthole. The rate of change is from Narodnoye khozyay-stvol godu,

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discrepancy between the production and the investment series isninstailed equipment amounted toillion rubles at the beginning5 and had reachedillion rubles at the beginningJ/ Given differences between the two series, neither can be regardedest of the other. However, the divergence between the two may at least suggest the order of magnitude of uncertainty as to the accuracy of the calculated index (see the chart.

V. Nondurable Consumer Goods

In the calculation of the index series for nondurable consumer goods, processed foods5 percent of5 value-added weight and soft5 percent. Production of nondurable consumer goodsby an averageercent annuallyseeercent annually. The index for this sector is not comparable ln coverage with the Sovietndex, which includesdurables as well as food and light industrial products.t

All of the series presented in this sector are based on data from the statistical handbooks and various technical publications. of the Items, details of sample coverage, price weights, andof results are treated in the following sections.

A. Processed Foods

* Equipment arrivingonstruction site and paid for is notIn capital investment if it requires any installation and assembly work. While such equipment is being held in storage, its cost is charged to working capital as uninstalled equipment. When it is removed from storage for installation, it becomes part of capital Investment.

** Following, P.bove.

t Consumer durables in the CIA index are In the machinery sector.

tt ollows on 0 classification of the branches of the food industry, the relative weights in terms of gross industrial production were as follows: 5 percent;ercent; bread baking, confectionery, and9 percent; flour and0 percent;ercent; milk (including dairy products and1 percent; fruit and vegetableercent;alcoholicercent;ercent; vegetableercent; and5

The CIA sample coverage for processed foods is fairlywithf the most important categories represented, as follows: meat, fish, sugar, canned goods, confections, butter, vegetable oil, macaroni, bread products, margarine, wine, beer, vodka, champagne, flour, soap, cigarettes, cheese, and milk (see. Among those not

Table 6

Value and Index of Production of Processed Foods in the USSH

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included axe tea, malt, starch and molasses, nonalcoholic "beverages, yeast, vitamins, and bottling of natural waters.

The category processed foods, as designated by the Soviet branch-of-industry classification, is comparable to the SICof combined foods, beverages, snd tobacco manufactures for the FRB Industrial production index.* In the US the Soviet sample of food items accounts forercent of7 value-added weights in the comprehensive FRB categoriesoods, beverages, and tobacco. In the calculated Indexes the Soviet definition of the foods industry 1bbecause it is most consistent with employment used in5 -value-added weights. This industryercent of5 value-added weights.

* Several commodities (soap, vitamins, alcohol, perfumes, andwhich are classed under the Soviet foods branch, are treated as chemicals in the US. Because more than one-half of the output of ethyl alcohol is used in production of synthetic rubber, plastics,fibers, lacquers, and other technical uses,these are counted by CIA as intermediate products in the chemicals sector. Some alcohol is indirectly included ln the foods branches as materials Inputs into vodkas and alcoholic beverages.

** The sugar and margarine series embrace total production. Thevegetable oil, and grape wine series exclude household production only. The meat and cheese series exclude both household and collective farm output- The bread and bakery series exclude household, collective farm, and industrial cooperative production. The scope of the remaining series is not defined.

*** No adjustment has been made for industrial consumption of sugar In other branches of the food industry. One-third of all sugar is estimated to be consumedith more thanercent of this sum going to confections, approximatelyercent to fruitercent to bread products,ercent to nonalcoholic beverages.

The processed foods indexes include only industrial processingthat is, they generally exclude production by households and collective farms.** The industrial physical production series involve considerable intrasector duplication. For example,pproximately ho toercent of meat was used for sausage products and canned goods;oercent of vegetable oil went to margarine; andoercent of sugar was consumed in industrial The followinghave been made to eliminate some of this double counting within the foods sector: flour used in industrial baking, confections, and macaroni is deducted from the flour series; meat and fish in canned goods are deducted from other meat and fish; vegetable oil is reduced by the oil inputs into margarine; and granulated sugar (sakhar-pesok) is net of inputs into lump

The soft goods category or light industry In the Sovietclassification includes the following product groups: textiles, leather articles, knit goods, sewn goods, fur, haberdasheries, glassware, and One writer states that one-sixth of all industrial workers are employed in light industry, one and one-half times more than in food and three and one-half times more than inmetallurgy. 6k/

The CIA calculated index includes no series representative of fur, leather articles (other thanaberdasheries, glassware, and chinaware. The sample covers the major categories of textiles, garments, end shoes (see The soft goods sector is2 percent5 total value-added weights.

Industry (Fabrics)

Within the soft goods sector the largest component is the textile industry,illion workers. The four products used in computing the CIA index are the four basic fabrics produced In the industrycotton, wool, linen, and silk (includinghe absence of detailed information on the mix within each category of fabric may lead to some understatement in the growth of output of textiles. Output of most expensive high-quality fabrics has beenrelative to cheaper

The calculated index for garments includes sewn garments, knitted wear, and hosiery. The indexes for knitted wear, in two(inner wear andnd hosiery are constructed from the reported number of pieces times the average price per piece. The sewn goods index, however, is the Soviet announced gross value index. For the calculated index the sewn goods gross value index is weightedase year net value.

* In addition, some repair and renovation of knitted wear, sewn goods, and shoes are included.

** ollows on* Sewn goods articles include the following types from cloth: men's, women's, and children's clothes; uniforms; special clothes; hats; bed clothes; and technical sewn articles. Articles from natural andleathers and from natural and synthetic furs, sporting goods, and some haberdashery items are

The sewn goodsithorkersolume of gross production (including the cost of basic

Table 7

Value and Indexes of Production of Soft Goods in the USSR

4

lC-.fg.T

6,

Wlltantiblm

wiM

Jir.ll uumv Knit unlnvoar BMler)'

j.aw.3

c

3

materials)87 billion rubles, accounted for the secondshare of light Beginning7 the USSRet value ratherross production index in order to evaluate more accurately enterprise performance in the sewn goods industry.* The net index (stolmost' obrabotki) represented gross production minus the cost of raw materials. An exception to the net valuation was materials for industrial use, such as canvas and belting, which continued to be valued inclusive of the full cost of The deductions are based on thc norms of the cost of processing approved by the former Minister of Light Industry on6 and on the norms approved by other departments as

8 the USSR reported that the value of gross and net production for the sewn goods industry7 billion5 billion rubles, CIA has accepted the latter figure and has estimated production for other years by moving8 net figureto the official gross production index for this branch. This methodology may contribute to an upward bias In the index. nterprises, in order to fulfill plans measured in gross value terms, substituted expensive materials, thereby inflating the value of final products. Furthermore, the gross production Index for sewn garments included, among other things, the cost of repair of garments and some intermediate products.

3- Leather Footwear

Leather footwear was Incorporated into the index according to the official Soviet announcement of the number of pairs produced.

h. Evaluation of Soft Goods Indexes

Light industry i6 roughly comparable to the combined FRB category of textile, apparel, and leather products. Comparison of theIA sample for the USSR with US dataigh coverage ratio. However, the lack of detailed product mix reduces the validity ofomparison. The calculated indexes for soft goods grewercent foreriods, respectively. Some of the difference may be due to the fact that the CentralAdministration includes internal plant turnover (goods to beprocessed by the plant) in industrial gross production of the textile

C 5 Prices

* Including production of the sewing industry ae well as enterprises with special sewing shops turning out the basic

In calculating the index of nondurable consumer goods, physical production series arc weighted by5 retail prices including turnover taxes but with some adjustment for distribution charges. Retail

prices of goods of industrial origin comprise wholesale prices ofenterprises, turnover taxes, and trade margins.* Trade margins fnatsenki and torgovlyye skidkl) have been removed, so that the adjusted per unit values are net of these items.** To the extent that turnover tax rates vary among the different products, these weights will deviate from ideal factor cost weights.

In the case of food prices, average prices for the categories in the index were estimatedimited sample of observed prices for individual food items.

D. Alternative Food Indexes

An alternative weighting procedure for an index of processed foods is to use retail sales in the base year. Retail and cooperative sales of food products5 were adjusted for the distribution charges, and sales were estimated for other years by moving5 data by the physical output Indexes of the selected commodities. The index derived from this procedure grewercentercent, respectively, compared withercentercent, respectively, for the indexes weighted by5 retail prices. omparison of these two calculated indexes and the official Soviet index, see

V!- Comparison with Other Indexes of Soviet Industrial Production

* The shares of enterprise wholesale prices, turnover taxes, and the two trade margins in the total value of state retail sales in recent years have been estimated, respectively,ndercent, but their relative importance in the prices of individual goods differs markedly. 7j/

** For details of adjusted prices, seef the supplementary volume.

ollows on

The preceding sections have treated in considerable detail problems of sample coverage, appropriate weights, reduction of double counting, and qualitative changes in the CIA indexes. In this section the indexes are compared with other measures of Soviet industrial production by Western scholars and with the Soviet official index of gross industrial production. Two comprehensive indexes of Soviet industrial growth for the plan period have been constructed recentlyone by G. Warren Nutter of the National Bureau of Economic Research and one by Norman Kaplan and Richard Moorstecn of the RAND Corporation. Nutter's index relateserminal yearnd the Kaplan-Moorsteen index relateserminal year Although both studies are based on Sovietfigures and are in substantial agreement for civilian industrial production for the prewar period, there are doubts about theof the sample of products for the postwar period.

Table 8

Comparison of Indexes of Production of Processed Foods in the

A. CIA, Nutter,ndexes

A comparison between the CIA, Nutter, arid Kaplan-Hoorsteenby sector of industry, for thes shown in

For purposes of comparison. Nutter's index of all civilianinclusive of miscellaneous machinery foreriod has been selected. Jjy ThiB index grew by u6 percent during this period compared with an increase ofercent for the comparable CIA index. In both studies, data are aggregated into sector and over-all indexes5 weights. The CIA items are classified in accordance with Nutter'sgroupsthat is, consumer durables including radios andsets are included in consumer goods instead of in the machinery sector, paper products are combined with chemicals, and forest products are combined with construction materials.

The rates of growth of the CIA indexes exceed the rates for the Nutter indexes for moBt industries. The widest divergence, however, is in machinery. In Nutter's index the coverage for civilian machinery products consists ofroducts of agricultural machinery andequipment and miscellaneous/ The miscellaneous machinery items are boilers, turbines, generators, mining equipment, machine tools, textile equipment, roadbuilding equipment, hoist-transport equipment, and other equipment that one would expect to find In any measure of production of When these arewith the agricultural machinery and transportation equipment, the Nutter machinery index increases by onlyercent0 The CIA index of civilian machinery, which includes electronics, civilian aircraft, and shipbuilding data and excludes consumer durables, increases by hi percent (see.

Some of the divergence between the Nutter and CIA indexes is attributableignificant difference in weights for the major Nutter's weight for machinery1 percent, whereas the CIA weight for machinery excluding electronics5 percent. Nutter does not reduce the machinery weight to exclude arms production and applies this large weight to his very slowly moving machinery index.

* ollows on p. Uh. ** Text continued on

- hi -

The Kaplan-Moorsteen civilisn industrial indexes of various product categories are aggregated0 wage bill weights. JJ_/ In spite of its broader coverage, the CIA index growsittle faster than the Kaplan-Moorsteen index foreriod. The industrial materials and consumer goods sectors, which account for approximatelyercent of the weight in both indexes, do not diverge significantly. The Kaplan-Moorsteen machinery sector grew byercent**

Three Indexes of Civilian Industrial

in the USSR

Industrial materials

Ferrous metals a/ Nonferrous metals b/ Fuel end electricity

Electric power Fuel

Chemicals (including paper)

Chemicals cj Paper

. U

Construction materials (including wood)

Construction materials

Forest products

lumber, wood, and paper d/

Civilian machinery (excluding consumer durables and Including added industries)

*

Civilian machinery (excluding electronics, aircraft, and ships)

Transport equipment e/ Agricultural machinery g/ Miscellaneous machinery hj

Added industries

Electronics i/ Civilian aircraft Civilian shipbuilding

j

/

Three Indexes of Civilian Industrial Production in the USSR

Continued)

Kaplan-Moorsteen

goods

and allied products Nonfoods

and allied products Consumer durables (including radio and television sets) ]j

283

civilian industrial production

steel products only are included in the CIA index. and Kaplan-Moorsteen Include iron ore, pig iron, steelcastings, and rolled products.

is included in the CIA index but not in the nutter index.

and synthetic fibers are included in the CIA indexin the other two indexes. Nutter's sample of chemicals issmaller than in the other two indexes.

the CIA index, lumber, wood, and paper, which are part ofcategory, are shown again in order to match theof the Kaplan-Moorsteen index.

automotive and railroad equipment.

disaggregation of the Kaplan-Moorsteen machinery indexfrom Mcorsteen, Richard, Prices and Production of MachinerySoviet..

tractors and agricultural equipment.

chemical, and petroleum refining equipmentfrom the Nutter index.

civilian radios and television sets in allNutter and Kaplan-Moorsteenew electronic itemsmachineryhiefly telephones and switchboards.

J. Nutter omits televisionery important and fast-growing product in the consumer durables category.

compared with the CIA civilian machinery Increase of k'f percent. Kaplan and Hoorsteen suggested that their machinery indexes may haveactual Increases in output0 because of their failure to reflect proliferation of new

58 the two over-oil civilian indexes diverge further. The averagerate Of growth for the Kaplan-Hoorsteen indexercent ccopared with2 percent annually for the CIA index (see Because of the usual index number effect, one would expect the prices for early year employed in the Kaplan-Hjorsteen study to resultomewhat faster growth than prices for the later year. However, the broader coverage of faster growing items In the CIA index more than offsets the influence of the price effect.

and Other Western Indexrn

An entirely different approach to measurement of Sovietactivity has been proposed by Francis Seton. Soviet industrial growth was estimatedegression relation between fuelteel, electric power, and over-all Industry. The regression equation was based on the relationship between these variables and the official rates of growth in manufacturing inestern countries. est estimate of Soviet growth in manufacturing and the confidence limits within which the true rate of growth could be expected to lie is Seton's estimates represent total industrial activity inclusive of military production. For comparisons of the CIA, Seton, and Kaplan-Moorsteen Indexes, Bee*

and Official Soviet Indexes

* Tableollows on Other indexes of Soviet industrial production are those by Donald Hodgmanand by Demitri Shimkln and Frederick Leedy. 8l/ ** ollows on p. Following

t For official Soviet indexes, by branch of industry, seef the supplementary volume.

The average smpaaj rates of growth of the calculated CIA Indexes are lover than the official rates throughouteriod. Aof CIA Indexes snd the official Soviet indexhe latest-year of complete data, is shown ln* and, for all years, ln the charts.nd When the official branch-of-Indus tryare aggregated by CIA weights, appreciable differences in the results do not appear ln the industrial materials and nondurablegoods sectors.* The difference ln shape between the official machinery index and the CIA civilian index is due in part to the

Ccaparison of CIA and Other Indexes of Industrial Production

ln the

CQ

CIA

9

Midpoint between the upper tolerance limits of Seton'snd the lower tolerance limits of his method 2. The later method substitutes consumption of electric power in industry for totalinput.

divergent trend in military products, which are included in theindex. esser extent thie ls true of total industry also (see Table IP*). Aside from the known difference in coveragefor example, military itemsthe official index differs from the CIAomprehensive coverage including not only nev products but also qualitative changes;ouble counting through the use of gross price weights at all stages of production;nclusion of itemsfor example, repairhich normally are not counted as output, andof inventories, mainly unfinished production.

* Tableollows on* Text continued on

- kl -

The deficiencies of our sample coverage have been discussed ln Section II. Some of the difference between the official and CIA Indexes might be attributed to the use of late year) throughout for the latter indexes. Thc official indexes were calculated2 priceB until5 price regulation became effective at the beginningt appears that the official index5 prices was merely linked to the earlier official Index2 prices. In**

Comparison of CIA and Official Soviet Indexes of Industrial Production In tbe USSR, by Branch of Industry

I960

Comparison of CIA and Official Soviet Indexes of Industrial Production in the0 (Continued)

industrial production of the fuel Industry, whichpetroleum, peat, shale, and natural gas.

on rolled steel products.

Including ore extraction as well as all processing stages ofmetallurgy.

ore extraction. 0 figure was estimated onof Seven Tear Plan goals.

and woodworking industry.

rubber-asbestosconsumer durables and electronics.

k. Machine building and metaiworklog including military machinery. 1. Official branch indexes for light and food industries weighted by5 value-added weights.

m. Light Industry including cotton, wool, silk, knit goods, leather, fur, and shoes.

n. Official indexes for food and light industry, machine building and metalworking, and industrial materials weighted by5 value-added weights.

0> Official gross value index for all Industry.

Table 12

Comparison of CIA and Official Soviet Indexes of Industrial Production ln the USSR

addition, the official index ia suspected of having incorporated into it the high temporary prices established for nev products.*

The influence of different weight bases, if any, appears to be confined to weights within major industries rather than between them.est, the official branch of industry indexes were aggregated by CIA value-added weights. The over-all index calculated in this manner does not deviate significantly from the official index (see* and the charts..

The official index of gross industrial production (valovaya produktslya promyshlennosti) Includes (l) value of final product and semifabricates released to the outside;et change in unfinished production for branches of machine building with long cycleshanges in the stock of semi fabricates produced for enterprise ownalue of special models, equipment, andproduced for own use;ny other work of an industrial Because each enterprise's activity as defined above is weighted into the gross industrial production at full value, theof the nonfinal product component of the output of enterprises and the extent of double counting in the aggregation are the areas of uncertainty.

* Production of new products in the machine building sector accounts for approximatelyercent of annual

Followingbove.

t ll machine building and repair enterprises and those turning out metal construction items were permitted to include the full cost of changes ln unfinished production in gross industrial production. Beginningew decree allowed inclusion of unfinishedonly for those products whose production cycle was moreonths. The change perhaps was related to the fact that different enterprises not fulfilling the plan for output of final goods were able to fulfill the goal for industrial production in

tt The official chemicals indexes include all products that are final to an enterprise as well as the internal plant turnover, which usually is excluded from gross industrial

ttt Under the auspices of the Central Statistical Administration, Gogpian, and

* Apparently based on the factor cost concept.

A recent Soviethowed net product indexes calculated by norms of cost ofith higher rates than gross indexes. One would expect the net indexes to exceed the gross indexes where the requirements for materials inputs are decreasing relative to output of final product. The net measures were below the gross for ferrous metals.

fuel, and light Industry. For MBMV, chemicals, wood and paper,materials, food, and over-all industry, the net indexesigher rate of growth than the gross. Without further information these results cannot be evaluated.

VTJ. Comparison of US and Soviet Industrial Growth and Structure A. Comparative Growth

As measured by the calculated CIA index, Soviet civilian industrial production1,s takenan average annual rate of growth1 percent. AlsoS industrial production as measured by the FRB index grew byercentan average annual rate of growthercent (seend the chart. For thehe average annual increasesercent for the USSRercent for the US.

* Tableollows on escription of the extension of the calculated USSR index0 backi7maller sample of products, seef the supplementary volume.

** Following Some SIC categories such as special industry and general heavy Industry machinery could not be precisely disaggregated.

To compare industrial production by major sector and byindustry in the US and theS index comparable in coverage to the index for the USSR was calculated for thet7 The comparable sample matches as nearly as possible the sample of commodities on which the Soviet industrial production index is based and accounts forercent of7 value-added weights in the FRB index. The US commodities have been distributed into sub-industry and major group categories to match the Soviet classification. The comprehensive FRB index for the US was first divided into fourindustrial materials, machinery, consumer goods, and goods not included In the comparison accounting7 percent, respectively,7 value-added weights- The items notin the Soviet sample were eliminated. The Soviet sample coverage for industrial materials wasercent, compared with the comprehensive FRB; for machineryercent; and for consumer goodsercent. Because of the difficulties of accurately disaggregating majorof the US metslworking industries and of estimating their direct weights, the degree of sample coverage may be somewhat lower for hows that the comprehensive FRB index and the comparable sample index are nearly identical in their description of movements in US industrial production. The latter index7 (late year) prices throughout rather than thc linkage of early and late prices that the FRB followed in calculating its comprehensive index.

Table 13

Comparison of Indexes of Industrial Production ln tbe US and the USSR

P

Production

Federal

, US Comparable Reserve

US y

1

0

1

O

10ft.6

rubricating Includer, machinery and other metal producta. In the USSR index,represented.

comparable

Comparative trends in the three major sectors (industrialmachinery, and nondurable consumer goods) also are shown in* Throughout the postwar period each of these sectors in the USSR has grown faster than in the US.

Rates of growth for the individual branches of industry, as measured by the USSR calculated indexes and the US comparable coverage Indexes, are.compared in The relative rates of growtnndicate that with the exception of production of electric power and chemicals the Soviet industries grewace at least twice as fast as the US.

B. Ccaparatlve Structure

Comparing7 value-added weights of the US and5 value-added weights of the USSR the various sectors and branches of industry account for the percentages shown In*

The important difference is in coverage of machinery, where production of military hardware is excluded and an adjustment has been made for inclusion of aggregate electronics on the Soviet side but where data have not been treated so precisely for the US. US ordnance and accessories (including Navy shipyards) have been excluded, but military aircraft and production of atomic energy are included. Theretriking variation in the composition of the materials sector for the two countries. For the USSR, forest products and coal account forercent of the value-added weight in industrial materials, ond for the US the chemicals and petroleum industries account forercent of the value-added weights in the industrial materials sector.

bove.

Tableollows onableollows on

Average Annual Rates of Growth of Industrial Production In the US and the

Percent

materials

power

products and natural gas

metals

metals

products

products

materials

machinery

b/

consumer goods

foods

goods

Industry

coverage

Federal Reserve Board

annual rateB of growth of US individual sectors arefrom the indexes of comparable coverage. The8 percent of thebove.

military aircraft and other noncivilian goods.

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