Created: 12/1/1962

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Economic Intelligence JRef*ort



CENTRAL INTELLIGENCE AGENCY Office of Research and Reports

Economic Intelligence Report




This material/contains tnformautfn affecting the Nationa/ Defense of the united States within tha' meaning ofC., the txans-nuaslonfOT rerelatlon of which In any manner to on unauthorized person ts prohibited by law.

CENTRAL INTELLIGENCE AGENCY Office of Research and Reports


This report contains the general and summary sectionsoreproject in vhlch are surveyed the directive plans for technical advance in the nonagrlcultural sectors of the Soviet economy. That part of the project surveying the. individual branches of Industry and some service sectors has been published separately as CIA/RRoals of the Soviet Seven Yearor Technical Changes ln the Konasricultural Branches of the Economy,RET; The derivation of much of the basic data for the sections on technical change ond industrial employment and on technical change and capital formation will be found in that report.

The projecthole is designed (l) to summarise the plans for technical advance in the nonagrlcultural sectors of the Sovietoomprehensive basis for comparing the plans of thebranches with one another and with the total program,o examine the requirements for capital and labor implicit In the plane. It is hoped that the various pro grans nay be placed into someso that "glamorous" programs with minor economic significance are not given undue weight and so that "unglsmorous" programs with major economic significance are not ignored. In many respects the project is intended to raiee questions to be answered, hopefully in subsequenteither of this Office or of the many other groups and Individuals engaged In studying the Soviet economy.

The attention of the reader is directed to the fact that this reporturvey of Soviet plans and intentions preparedreliminary step to future evaluation of the prospects for the Soviet plans, theof the Soviet plans as found herein should not be interpreted as an evaluation that the plans will be fulfilled, for the Soviet programs face serious problems arising in the processes of planning,and Implementation.




of Soviet Technical Development

II. Technical Change and Industrial Employment

Plans for Change in

for Reductions in the

Force5 and


III. Technical Change and Capital Formation

Cost of Programs for Technical Advances

Investment and Increases in Labor Produc-


IV. Problems of Planning Equipment Supply and Technical


Tor Decisions on Investmentause of

Shortages of

Supply for Priority Projects

and Administrative Framework for Technical

V. Preliminary Evaluation of the Impact of Technical Changes

on Future Soviet Industrial Growth


Appendix A. Methodology

Appendix B. Source


Employment of Wagevorkers and Implied Labor Sav-

ings from Change in Productivity, by Branch of Industry,

for the Seven Year Plan

Industrial Investment, by Branch of Industry, for

the Seven Year Plan

Comparison of Change in Fixed Capital per Worker

and Output per Worker, by Branch of Industry, for tbe

Seven Year Plan

I*. USSR: Estimation of Industrial Fixed Capital, by Branch

of Industry, Selected Periods,

- vi -




The USSR plans to achieve an Increase ofercent ln Industrial production during the Seven Yearith an increase of aboutercent in the employment of industrial wageworkcrs. Although some part of the increased labor productivity is scheduled to result from betterbat is, less interruption of work because of faulty uneven flow of material andhe major share of theis to come from the application of better production techniques or advanced technology. Tbe advances in applied industrial technology0 tte XoWevel existing in the base period. The USSR claims9 an industrial labor productivity of kO toercent of that in the US. Because of differing methods of estimating the value added in the industries of the two countries, the Soviet worker is to be credited with producing little more than one-third of the product of his US counterpart. In any event, measured in terms of labor productivity, the average level of Soviet industrial technology lags far behind that of the US, leaving ouch room for technological

of any technology new either to the

ussr or to the West.

Previous Soviet preoccupation with increasing the total industrial output, togetherimited capacity to supply the needed capital equipment, has resultedailure to retire otherwise obsolete plant and equipment In other cases, efficient main-process equipment has oeen installed but not the labor-saving materials handling and other auxiliary equipment. In other words, scarcity of capital and an abun-


Tncontinued operation of outmodedequipment

in spite oi the wide discrepancy in efficiency of thelaborwith plants of more recent design.

During the Seven Year Plan period the relative availability of the factors of production will change markedly, if the investment program of the Seven Year Plan is carried out, lhe fixed capital of industry will increase by moreercent while production Is planned to increaseercent and the labor force by aboutercent. Capital per worker is planned almost to double while capital per unit ofis planned to increase by one-fourth. It is apparent that, for

* 'J,hc estimates and conclusions in this report represent the best judgment of this Office as

planning purposes at least, large lnfuoione of labor are not available for transfer Into Industry from agriculture. Rather than make theln agriculture that vould permit shifting even more workers to industry, the Soviet planners have chosen toizable Investment ln reducing the labor requirement per unit of output in industry.

The lesser weight assigned to the growth of the labor force in the Seven Year Plan may be Illustratedomparison with recent trends.he average annual Increase in industrial employment of wagevorkers Is planned to beercent; in Industrial fixed capital, more thanercent; and ln output,ercent. The corresponding average annual increases realizedercent,ercent, andercent, respectively. 9ndustrial employment, industrial fixed capital, and industrial output all grow at rates greater than planned.

The Soviot labor force in industry83 million wageuorkere. Given the planned increase in output, if there were no increase in annual labor productivity, more thanillion workers would be required to achieve the planned output Because of the planned Increases in labor productivity,illion toillion wagevorkers ore expected to suffice

Planned investment in Soviet industry during tbe period of the Seven Yeor Planillion rubles.* It is estimated7 billion rubles of investment are required to replace assets physically retired during the period. otal ofillion rubles ln addition would have been required to erpand fLxod assets proportionately tofor oach of thendustrial branches included. There isesidual Investment ofillion rubles in excess of that required if production? were to bo achieved with the same capital-labor factor mix as existed One might say that the Soviet planners expect to save aboutillion workers by investingillion rubles, orubles per worker displaced, but unfortunately an industry-by-industry look quickly dispels the notion. The excessrangesubles per worker displaced lo the electric power Industry0 rubles ln the oil and gas Industry. The wide disparity calls for further refinement of the data beforecan be reached. For Instance, investment data for oil and gasubstantial amount for construction of pipelines that displaces rullroad workers, not oil and gas workers.

* Ruble values in this report are given ln new rubles established by the Soviet currency reform ominal rate of exchange based on tho gold content of the respective currencies0 ruble to This rate, however, should not be Interpreted as an estimate of the equivalent dollar value of similar US goods or services.

Of perhaps more pertinence to the increase in Soviet laboris tbe planned increase in industrial fixed assets per vorker0 rubles&ubles There is again,ide and growing disparity between industries in assets per worker. 8 the electric power industry hadimesubles per worker of light industry. 5 it will haveimesubles per worker of light industry but will be surpassed by the oil and gas industry, which is planned to have UO times the capital per worker of light industry.

Much of the improvement in Soviet labor productivity will come from investment in mechanizationhat is, the provision of some tool or implement to'reduce the physical effort required of the worker. Iolmost one-half (U7 percent) of the industrial workers performed significant amounts of manual labor. Achievement of the goal of the Seven Year Plan would not entirely eliminate workers performing manual labor owever, most of the feasible reductions of manual labor will have been made. The continued growth of laborto achieve the goals0 will depend,n the introduction of new technologies more sophisticated than the mereof manual labor. At the same time, unless capital investment is to grow inordinately, the Soviet planners will need to find technologies that are capital-saving as well as labor-saving. With respect tothe period of the Seven Year Hon may well be regardederiod of experimentation and intensive application in selected plants tofor the broader applications to bc made during.

I. Background

A. State-of-the-Art

Any consideration of Soviet targets for technical advances wist take some account of the state-of-the-art in the application oftechnology. To do so completely would require aa examination shop by shop, plant by plant, and Industry by Industry far beyond theof this report.* In this report, there will be illustrated only those general characteristics thatearing on subsequent attempts to analyze tho Soviet plans for technical advances In state industry.**

As measured by labor productivity, the level of Soviet industrial technology8 was low. The Soviet Industrial worker In that year produced less than tbe claimed kO toercentf the levelS Industrial workererhaps as little as one-third as much. Hot only was tbe average low, but the application of technology was very uneven bb between Industries and also as between plantfl in an Industry and even as between shopslant. Perhaps the greatest contrast is typified by nn old Soviet woman sweeping the streetwig broom in preparationarade of guided missiles. The USSR without doubt has demonstrated great technological skills that have been preponderantly applied to military production rather than to satisfying the wishes of consumershence the complaints of tbe textile Industry of lowresulting from the continued use of spinning and weaving equipment more thanears old. In the iron and steel industry In the Urals region not far from Magnitogorsk, ln the largest steel mill in the world, small crude plants using charcoal rather than coke, which were typical of the early Tsarist industry, are still in operation. Even ln the Larger steel mills where output of pig iron per yard of blast-furnace capacity is equal to that in the US, the total employment of labor per ton of steel produced ls about twoalf times as high.

It would appear, therefore, that in spite of the failure in Soviet cost accounting to make adequate allowances for the cost of capital, tbe scarcity of capital haB forced the continued use of fixed assets thatompetitive sense arc obsolete. Or, put another way, tho Sovietwith growth of output has been such that the management could not afford the luxury of shutting down inefficient units. The capability

FOr the Industries considered in this report, some lndustry-by-industry coverage is provided InFor serially numbered source references, sec

In this report, references to "industry" pertain to state industry only and exclude handicraft und cooperative industry.

of adding nev units of capacity vas oo limited that each new unit had to be plannedet addition to capacity in order to satisfy more nearly the total demand for the end product. Ir. terms of marginal analysis the effective for product has been so great aa tothe continued operation of old and technologically Inefficient plant and equipment at the relatively low wag* rates that have prevailed.

The continued operation of technologically less efficient equipmentumber of Implications for an understanding of Soviet claims and plans for technological advances in industry. learneeds to bc made between the average level of technology and the marginal capability. The latter can be Improved only by research and development at home or abroad leading to new techniques of production. The average Industrial technology, on tbe other hand, can be greatly increased, with no Increase at the margin, simply by replacing obsolete processes with already known Improvements or by making all nev additions at the upper end of the range of technologies represented ln the Industry. It is with the average technology measured in terms of the average labor productivity that Soviet plans for the introduction of nev technology in industry are concerned. Therefore, lt is impossible to Jump froa the planned improvement in the average level of technology applied In an industry to any conclusion about the scientific achievements of the USSR.

Dealing with the average technology measured ln terms of laborit is impossible to Isolate ouch marginal considerations ae "How much was the USSR willing to invest ln order to make the lastin labor force requirements?" Yet the fact that the measurement of the relative value of capital and labor is not so refined need not cause too much concern, because an economy is being dealt with ln which the values of capital equipment, of labor, and of their product are all determined Independently of the relation of supply to effective demand. Limitations of supply have often not been reflected in the price but rather in some administered system of allocations. Tbe pragmatic choice to keep scarce capital equipment In use long after it would competitively have been oboolete has already been commented on. Conversely, in the case of labor, up to now It has bean the practice to divert additional labor Trom agriculture to meet the needs of industry. These actions recognise, as the Soviet price structure does not, the very real ecar-city of eupital and the relative abundance of labor. During the period of the Seven Year Plan these relationships will be changing rapidly. Capital assets in industry are planned to double and more while the amount of labor planned to be diverted Trom agriculture to industry Is very modest. Although wages and prices of capital equipment may change during the period, it will not be ln recognition of their changing availability. At best, in the subsequent analysis, only scoe general evaluations of the Soviet plans for Introducing new technology into industry can be arrived at, and for this purpose an Indication of some changes ln the average level of technology will suffice.

B. Objectives of Soviet Technical development

Soviet political theoreticians see the Soviet economy as beingtage of evolution toward the creation of the material-technical basis necessary to the final achievement of Communism. 3/ Theof this basis is to be characterized by the prevalence of large-scale production founded on electrification; full automation ofthe large-scale use of chemical processes; the use of atomic energy for economic purposes; and the development of workers who are widely educated, highly qualified, and culturally advanced. In slightly more pragmatic terms, the USSR links the achievement of this high level of technology to victory in the race to overtake and surpass thecountries" in per capita production.

Although it would not be fruitful to dwell now on the ephemeral visions of the Communist future, three conclusions can be drawn from them. First, technical change Is viewedecessary part of theof the Soviet economy. Second, technical changeroper area for competition with the Western economies. Finally, technical change is viewed as somehow related to the development of Communist manin other words, lt has significant sociopolitical implications.

If technical change is inevitable, indeed essential, then the specific programs for the development of the Soviet economy must attempt to control and manipulate such change. Yet, because technical change has elements of randomness and or response to circumstances that cannot be readily foreseen, therearge element of unpredictability.

On the positive side, there is evidence from research thatprogress is related to the resources devoted to research andto the skills and attitudes of the people, to the growth of capital investment and the structure of investment, to the nurturingocial and institutional environment favorable to productive changes, to the availability and the dissemination of new techniques, and to the criteria used to judge successful management, iiy careful attention to all these factors, the leadership of the USSR hopes to create conditions in which technical progress can flourish.

Recognition that the USSR isonscious effort in this direction should notrejudgment that the effort will succeed. There are many areas where conflicts in policy may inhibit, timely choices favorable to technological development. First, the concern of the regime for economic growth is more obvious than are the objectives of that growth, ond certainly to many within the USSR willoubt ae to the desirability of growth for growth's sake. Second, the preoccupation with establishing the material-technical basis of Cotmunism is more obvious than the Shape and nature of the new Coccunist society that is

II. Technical Change and Industrial Eaployment

A. General Plans for Change in

In the context of Soviet plans, technical advances are viewed in the form of technical programs that change the efficiency of inputs and, more particularly, that change labor productivity. Technical change so defined would include the effects of structural change in the economy (as the shift in the fuelconomies of scale;in education; changes in the mix of final products; changes in economic institutions and in the organization of the economy;in tbe utilization of labor; and, finally, technological changes In the production function (that is, changes In the alternative ways of performing production processes).

Tn economic analysis these topics usually can be simplified to three major groups: changes in technological coefficients andfunctions, changes in input prices, and changes in efficiencyof economies of scale, but the Soviet source material usually does not make such distinctions, and in this report it will not be possible to make these distinctions. onsequence, it is necessary to focus on the plans for increasing labor productivity and on the plans forthat support this program.

Iteading objective in Soviet plans for technical advances that labor productivity be increased significantly, and achievement of this objectiveajor consideration ln the detailed formulation of actual programs. For this reason, it is of Importance to consider the plans for increasing labor productivity even though an Important share of such increase can be obtained without qualitative changes inor processes. Labor productivity can change in severalhangeroduction functionas the result of economies of scale or as the result of changes in the cost of labor relative to capital that alter the optimal combination of capital and labor among the available production alternatives. Such changes in factor cost, however, are rarely instantaneous, and both factor costs and production functions are likely to change during the passage of time.

During tho period of the Seven Year Plan the relativeor the factors of production will change markedly. If theprogram of the Seven Year Plan is carried out, the fixed assets of industry will increase by moreercent while the labor force is planned to increase aboutercent and production is planned to increase GO percent. Capital per worker is planned almost to double

while capital per unit of output is planned to increase by one-fourth. It is apparent that, for planning purposes at least, large infusions of labor were not available for transfer into industry from agriculture. Father than make the investment in agriculture that would permitmore workers to industry, the Soviet planners chose to make ainvestment ln reducing the labor requirement per unit of output in industry.

The lesser weight assigned to the growth of the labor force in the Seven Year Plan may be illustratedomparison with recent trends. 95 the average annual increase inemployment of wagevorkers is planned to beercent; in industrial fixed assets, more thanercent; and in output,ercent. The corresponding average annual increases realized60ercent,ercent, andercent, 9heears of the Seven Year Plan, industrial employment, industrial fixed capital, end industrial output all grew at rates greater than planned.

for Reductions in the Workweek

Analysis of changes in annual labor productivity must recognize the complications introduced by changes in the length of the workweek.9hereeduction in the average workweek in Soviet industry fromours to approximately ho hours. Although lt was Intended that the various industries begin transitionhour workweekhe new Twenty Year Plan states only that the transition to the workweek ofoours will be effected "during the comingears" (tliut is,. h/ This vagueness in commitment makes it unwise to count on any further reduction in the vorkveek

For this reason, and for the further reason that the directive plans have been prepared primarily on the basis of requirements for the labor force as derived from plans for changes in annual laborthe analysis in this report has been conducted in terras of the plana governing annual productivity. On the basis of the reduction in the workweek already accomplished, the targets Tor changes in labor productivity on an hourly basis5 would imply an8 almost one-third greater than the targets cr. an annual basis.


In terms of the wagevorkers and excluding the salaried personnel, the Soviet economy83 million inillion inillion in railroad transport,illion in


communications. 5/ Without gain in productivity (in annualhe requirements for employment5 would be as follows: for industry, more thanillion; forillion; forillion; and forillion. Achievement of the targets for annual gain in productivity would permit reduction of these figures by aboutillion industrialillion constructionillion railroad wageworkers,communications wageworkers.

The industrial labor requirements stated in the foregoingand subsequently throughout this report ore derivedranch-by-branch application of the planned increase in production and in productivity to8 labor force. Unfortunately the data on labor productivity and the planned increase in production by branch ofare derivedumber of various sources and may or may not precisely equate to the unknown numbers used by the Soviet authorities in the preparation of the Seven Year Plan. In tho case of industrial labor productivity the Seven Year Elan announcementoal of an increase of U5 toercent. The computations by branch of industry shown in Tablemply an increase ofercent. This discrepancy, which is small enough not to affect the validity of any conclusions that might otherwise be drawn from this preliminary survey of Soviet plans for the introduction of new technology, can arise in whole or ln partumber of variations, among which are the following:

Data on productivity by branch of industry are from sources subsequent to the plan announcement and may in some caseshigher goals than those on which the original plan announcements were predicated;

For several branches of industry, data on productivity either hove been estimated or perhaps have been rounded in the official announcement;

In some coses the measure of increase in productivityranch of industry may have been basedefinition of the labor force different from that used in preparation of the plan.

Had the total number of workers required in industry increased in proportion to the index of increase in production of the plan announcemen5 labor force requirement for industry would haveorkers rather5 million, with no increase in productivity. The labor saving in industrial employment resulting from the midpoint of the announced increase ln productivityoercent would have beenillion. It would be the rarest of coincidences, however.

* elow.


Jf the labor requirement without change in productivity rose exactly in proportion to the index of change in the grose value of product. The only conditions that would satisfyesult would be an exact equality in output per worker in each branch of industryonstant rate of increase in gross value of output for each branch of industry. Neither of these conditions appears to be true either for the base period or Differential rates of change in labor productivity by branch of industry and its correlation with the introduction of new technology through investment are the very subject toward which this studymall beginning. The differential in planned rates of growth between heavy and light industries is already too well known to require comment. Essentially it is to be expected that the weight of any branch of industry in the total industrial labor force will differ from its share in total gross value of product. With differential rates of growth by branch of industry the total gross value ofwill increaseote to some degree different from the increase in total labor requirements even though the labor requirements expand proportionately to production in each branch of industry.

As indicated above, when calculated by branch of industry the increase in labor force requirements with no change in productivityl percent rather than theercent Indicated by the announced planned increase in total gross value of output. This apparent high degree of correlation is partly to be expected because the USSRigh weight to labor cost in the value of product. On the other hand, the correlation may not be so close as lt appears. The Indexes of increase in production during the period of the Seven Year Plan are the best estimates of responsible branches in this Office and are ba6ed on numerous Soviet announcements. Not all of the announcements, however, are linked to the original plan, In some cases the plan announcement, like that for the coal industry,lanned increase ln tonnage to be produced without regard to differential price or quality or place values. Furthermore, ln the case of gross value of industrial output, there is no base period total or breakdown by branch ofagainst which indexes of growth can be tested to determine how fur the estimates by branch of Industry differ from the increase ofercent of the announced plan.

In spite of the lack of Soviet value of output data, which woulduch more accurate calculation of labor productivity, capital output, and increase in production, it is believed that the indexes of production and the data on labor productivity available will permit of meaningful analysis at least for the purpose of determining theof expending effort on future refinement. As can not betoo often, an estimate or calculation by branch of industry that appears to differ fron the plan announcement does not mean that the plun has been revised any more than the statementlan figure means

- IB -

J..T1 " Ti 1 "*

that lt will be occocpllehed. Rather, the dlacrepanclee are tbe result of the inability, vith the sources at hand, to reconstruct fully the Soviet calculations in order toatrix consistent ln precisewith all parts of the Seven Year Plan, if Indeed the Sovietthemselves hadatrix.

With full recognition that the data by branch of industry may belose approximation of the information on which the Soviet authorities based the Seven Year Plan announcement, the analysis can be continued as long aa the basing of major conclusions on minorin the numbers is avoided.

Tho rapid growth planned for industrial output will permit an increase ln Industrial employment in spite of the vast labor savings created by the increase in labor productivity, planned savings that will amount toillion industrial wageworkcrs as the annual average-

, ln tbe US, the Increase io productivity ofworkers in Industry has been core rapid than increases Inoutput, and the number of production workers haa declined9 million workers72 million workers in Given an increase In output amounting toercent ln mining,ercent In manufacturing,ercent in gas and electric utilities andthese Indexes by employmenthe industrial0 would have been more thanillion workers In the absence of Increases in productivity. 6/ Hence the total labor saving during theears70 totaled almostillion in US Industry, for an average annual saving of.

The Soviet Seven Year Planate of Increase in annual labor productivityercent, somewhat less than the average rateercent during4 Indeed, the average annual Increase realized during91 did fallercent. This decline, however, may be attributed ln large part to the effect of reduction in the workweek. Evidently the Soviet plannersesumption of high annual rates. The Twenty Year Plan would require an average annual increase In labor productivity of moreercent10 and of

For rough comparability with the Soviet data, the data include only production workers, not total employment, in mining, in manufacturing, and ln the gas and electric utilities.

these rates are based on official Soviet data and tend to be biased upward ln relation to rates calculated using intelligence estimates of output and Western methods of calculation.


7ercent1 The longer term plane, however, areummary of the expected effectsoncrete development program than theytatement of the objectives to be sought in future formulation of programs. In this respect they are notuseful for present consideration.

On the other hand, because the Seven Year Plan has been worked out now in terms of specific investment programs and plans for technical advances, it is worthwhile examining it in greater detail. In Tablehe implied labor savings from changes in productivity in Sovietduring the Seven Year Plan are summarized on the basis of the output targets and the planned change in output per wageworker. In terms of fixed capital per wageworker (eeehe five most labor-intensive branches of industry are light industry; wood, paper, and allied products; machine building and metal working; constructionand the food-processing industry. 8 these fiveemployedercent of the industrial wageworkers. hey are expected to achieveercent of the total labor savings. esult of relative differences in the rate of growth in output and in labor productivity, their share of the total employment should decline slightly toercent Although this decline does not seem very marked, lt does mean that one-third of the increment in employmentill be allocated to the capital-intensive industries, which8 employed only one-fifth of the labor force.

D. Some Significant

From the available Soviet plan data, several importantmay be drawn, as follows:

three-fourths of the total reduc-

tion in requirements for wageworkers in industry is to come from the most labor-intensive branches and in large part ae the consequence of labor-saving measures of mechanization andchange.

the branches ofarger share of

the net additions in the employment of wage-workers i6 to be directed toward branchesgreater skills in labor than are usually required in the labor-intensive branches.

*ollows on p. elow.


Table 1

USSR: Employment of Wagevorkers and Implied Labor Savings from Change ln Productivity, by Branch of Industry, a/ for the Seven Year






Snjilo (mrit


eer Marker

lb Change In Productivity


d Productivity


Ird'ntiy e/


to 1W

of braneliea

building ant)

, udroduCta


Hunt Ionials

netallurgj if





DUcaiM Indicated, ecuree Jj.

e aie for overage annuel cnplopeot or vBgevorlere Industrial production *cA eiclude aalariad enployaea uc arpluymnt Inc-opurntl'"*. labor aavlcga hava bean calculated according to tbe oojoetloa given ln Appendix A.

Soviet announced goal for output par wrKer ln Inlvelryon Ineraoaa ofoercent. Taa mdpomt of tllotad for caleulatlco* Including tCc "otfcer" category.

d. Data ore fron sourcend. IncludeIn or* ulning. a. Centrallectric paver eely, deluding dlatrltutlon.

and refining only.

"otoer" category In aliost every caseesidual or average category ar/i, e> auch. It la sjbje-?'.reater degree of Inaccuracycategories anere rore detailed and apeclfic lafamatian la available.


3. Within branches, there will be shifts infor training and education as manual labor is eliminated in large part and as the needfor workers who can supervise and service the new machinery.

Accordingecent survey, in7 percent of the Soviet Industrial workersignificant amount of manual labor. 9/ Fulfillment of plans for mechanization will displace most of these laborers aod necessitate training them for other Jobs. At the present time, one-third of the industrial workers have hadequal to some high school education or Inpecialistsollege education or higher were employed in industry,ngineers. arge part of this total was employed in machine building During the period of the Seven Year Plan it is planned that -the number of industrial specialistsollege education or higher be increased byercent above8 and the number of engineers employed by industry Such personnel usually ere salaried employees and it is significant that these increases are much higher than the increase of aboutercent in employment of industrial vageworkers (see

I*. The greatest gains ln productivity are to bein the following industries (seelectric power, nonferrous metallurgy, machine building and metalworking, and construction In the latter three, programs ofand the introduction of more productive machinery play an important role; in the former, great weight is being attached to automation even though most of the labor saving results from economies of scale from using larger, moreunits of equipment.

5. The potential gainB from the mechanization of

materials handling, plant transport, andoperations are very large. 9 million wageworkers in Soviet industry were employed in such functions, andercent of these were employed in the five mos- labor-intensive


6. Soviet writers have estimated the relative magnl-tudeB of the main factore for increase Inlabor productivity, although the methods of calculation are sometimes arbitrary. Thus Aganbegian writes that industrial laboris to increaseoercent because of the introduction of new equipment, newnew procedures, and specialiaation and that it is to increaseoercent because of factors relating to the quality and nature of the labor force. lk/

A Gosplan study9 concluded that the possibilities ofin labor productivity had been underestimated in the Seven Year Plan. This study stressed the importance of factors that did notthe supply of new equipment. Thus it found that improvedof production and labor will account for the following shares of the total increase in labor productivity: in ferrousn machine construction,ercent; and in chemicals,ercent. This study relates onlyercent of the total increase in laborin industry to capital investment in equipment and

By implication, approximatelyercent of the total labor saving of aboutillion wageworkers would be attributable to the use of new equipment and to technological changes. Ofillion would be freed through the mechanization of materials handling Mechanizationarge part of the operations now performed manually and the acquisition of more productive equipment, either new or modernized, will account for most of the labor savings attributable to capital formation. There docs not appear to be any basis to expect any acceleration in technical progress5 fromof automation in the industrial economy. Buterious effort is made to achieve the goals for industrial output and labor productivity there are major implications for the level of technology that must be achieved. It is too early to judge the reality of these goals and the feasibilities of programs that have not been worked out yet in

Much of the preceding discussion has been In terms of plansotal change in labor productivity. How it will be useful to examine

* This figure may be equivalent to another statement that expenditures for equipment, mechani7ation, and automation in Industry would lead to an increase ofercent in labor productivity; this statement was basedurvey ofranches of industry with an implicit employment of more than one-half of industrial


the plane for capital investmentn order to estimate the capital investment required toorker in each of the various branches of industry or conversely the planned increase in capital per worker needed to facilitate the planned increase in labor productivity. From these estimates, some Judgment can be madetbe degree of substitution of capital for labor that has already occurred in the various branches of Soviet Industry and the extent to which labor productivity depends on capital investment.


III. Technical Change and Capital Formation

A. Capital Cost of Programs for Technical Advances

The chief instrument of production has become the machine,ultimately by man. During the period of the Seven Year Plan the total expenditures for the acquisition of machinery for the state secto-of the economy will be more thenillion toillionf this total, approximately two-thirds, orillion rubles, are for equipment to be used in industry.*

Various Soviet writers have made ambiguous statements about the total capital Investments in "integrated mechanization and automation" during the Seven Year Plan. One source states that the "principal will costillionigure apparently not limited to Another says that the total will be "more thanillion rubles and in the context implies that this total also Includes somein the nonindustrial branches, including agriculture and Another states that inajor branches of Industry illion rubles will be From these statements it seemsto expect that 'expenditures for complex mechanization and in all industry will amountillion toillion rubles, or somewhat less than one-fourth of the total expenditures in Industry for equipment.

It is not clear Just what kinds of equipment are being procured io this category of "expenditures for complex mechanization and One likely hypothesis would bo that the category covers allfor instrumentation, control devices, servomechanisms and hoist-transport equipment (including conveyors and materials handling equipment).

This hypothesis may be checked for consistency against what is known about production of these lines of equipment. Thus the total production of 'instruments and the means of automation" Is planned toillion rubles, slightly more than one-half of7 billion rubles, would be for industry. The totalof hoist-transport equipments valued atillion rubles, although not all of this equipment isfor industry. Expenditures on these two categories of equipment solely for industrial use would amount toillionillion rubles. total expenditures probably would include certain types of

' 9 un estimated Ul percent of Industrial capital investment went for


automated equipment, such as automatic lines4 billion rublesand perhaps various expenditures on tlie "experimental modelf which there It does not appear that this particular hypothesis can be established firmly, but at least it is not lnconaiatent with the facts,

B. Capital Investment end Increases ln Labor Productivity

Conceptually the USSR could have planned to achieve the output goals5 by proportionate increases in labor and capital (fixed assets). As already seen ln the preceding section, the Increase ln industrial employment during the period of the Seven Year Plan is to be less than proportionate to the increase in output. In this section the investment plans will be considered to sec whether or not and to what extent they deviate from such proportionality. ore than proportional Increase in capital might be expected to sake up for the labor saving. It is also to be expected that there would be some basic uniformity (roughly equivalent to the uniformity of wage rate) as between industries ln the amount of above-norm investment made toorker and that lower-then-norm investment per worker saved in any particular industry would be some gouge of tho more rapidgain ln that Industry.

Tbe USSR plans toillion rubles in Industry duringeriod. The replacement value of fixed capital at theof the period was estimated to be aboutillion rubles. lanned Increase In production ofercent would haveheoretical net increase ofillion rubles in fixed assets. Because moreroportionate share of the increase in production is to take place in Industriesigher chare of capital than of value of output, the application of the varying increases in production to fixed assets of each industrial sector shows that tho Increased capital requirements3 billion rubles if the capital/output ratio of each Industry is to be maintained. Froaillion rubles ofprovision first must be made for the replacement of fixed assets estimated7 billion rubles to be retired during the Seven Year Plan to determine the net increase of fixed assets, which3 billion rubles. Deducting3 billion rubles required tothe capital/output ratio of the component industrial sectorsesidual "above-norm" investment0 billion rubles. Thus the first expectation of an Increase in capital more than proportional to the increase ln output is fulfilled. It remains to be seen, however, whether the "above-norm" investment can be directly related to labor saving.

The detailed distributions of investment by industrial sector ore shown in In order to facilitate subsequent thinking about

* ollows on


the increase in fixed assets per worker employed, the investment required to maintain the capital/output ratio of the component industrial sectors has been subdivided into that which equips new workers to the level per worker8 and that which ls planned to go to increasing tho capital per worker. The result of this analysis is to distribute the investment as follows:


Estimated requirements to replace

Estimated requirements to increaseassets of each industrialin proportion to


To equip new workers planned to


To increase capital per

Estimated additional investment that raises both capital per worker and


In Tableillion rubles of Investment nvulloble to substitute for labor have been divided by the labor saving shown in* It would have been very easy to conclude that the Soviet planners expected to displace aboutillion workers for theInvestment ofillion rubles and thereforealue ofubles on each displacement. Upon looking at the Individual industrial sectors,ide variation ls found. The additional planned Investment per worker displaced rangesubles in the electric power industriesigh ofubles in the oil and gas industry. If those industries In which plannedis less than that required to maintain the capital/output ratiofood processing, electric power, machine building and metalworklng, and "other" Industriesare loft out of7 billion rublea are planned to be invested toillion workers, orubles per worker displaced. The range is only slightlyubles in light Industry to0 in the oil and gas industry. Any search for some rough uniformity In Investment per

bove. ** bove.




worker savedonsequent ability to detect deviations from that standard is therefore not crowned with success.

A number of considerations in fact preclude the determinationapital-labor substitution ratio or any final conclusions about theof technology from the data ln For example, in the oil and gas industry, planned investment includes construction offor transporting petroleum, but in the base period the Investment and any workers to be displaced were In the transportation sector, not in Industry. Conversely, In tbe case of coal, high cost (and hence by definition high-valuef brown coal in the Moscow Basin and in the Northern Urals) ls to be reduced and replaced by lowow value production of better steam coal in more remote fields such as at Ekibastuz. The result will be cheaper and better fuel to the consumer butarge part of the final value credited to output of transportationmaller part to the coal industry. Much of the required Investment in the Seven Year Plan is in the coal industry rather than in transportation facilities that were built In preceding plan periods. In the case of electricarge part of the planned investment is for the purpose of raising the relation of capacity to output. In other words, investment per unit of capacity is going down but, measured in terms of outputsbecause tbe plain callseduction-In the hours of use. in tbe hours of useor increased standby capacitytogether with large investments to be made in the distribution system will provide safeguards against interruptions in electric service that have high real value. Certainty of service is not normally fully reflected in the value of output, because it relates to quality rather than quantity of service. Planned investments in ferrous and nonferrous metallurgy ore complicated by the necessity to process lower grade ores and to improve the finishing of metal. Capitol saving improvements in blast-furnace and refiningsuch as the larger furnaces with oxygen and natural gas injection to be used in the steel industry are obscured by the large investment in mining and beneficiating low-grade ores.

Even in the case of the food-processing and machine building and tnctalworking Industries, where there islanned saving both of capital and of labor in relation to output8here is no way to determine from the gross data the extent, if any, to which such saving should be attributed to payoff on past Investments orto the introduction in the period of new technologies. In the case of machine building and metal working, thererowing suspicion that the fixed asset data and investment plans do not Include those for facilities producing military equipment, whereas in the labor force data those employed in such production are counted in this sector.

' bove.

*" Soviet plan data arc in terms of gross value of output, which in most cases varies directly as production cost.


All of the Industrial sectors containeterogeneity ofas touch closer loos at the component branches than is possible here prior to any final Judgments on the effect of planned changes in technology on investment requirements.* Along such linee it would be of interest to examine the association between the growth of fixed capital and increases In labor productivity forbranches of Industry in recent years. Time series data for the fixed capital of Individual branches, however, are very scarce, and more research is required. Such research is now underway.

Bearing in mind the necessity for more detailed sub sectoral analysis before final conclusions can be drawn, it is nevertheless of interest to compare the planned rate of growth of assets per worker with the planned* rate of increase in output per worker. The estimated value of assets per worker at the end85 in thousands of rubles and as an index6ase is shown in* The value of assets used here is conceptually the undepreciated replacement cost as5 of all assets used and useful in the industry asby the USSR at the end9 moved back6 and forward5 on the assumption that the planned investment of the Seven Year Plan will be made In increasing increments starting atercent of the planned investment9 and about double that Allowance also has been made for assets estimated to be physically retired ineriod (see Table k..

For industryhole the value of assets per worker is planned to increaseublesubles, or byercent. In five of the industrial sectorsoil and gas, electric power, coal, ferrous metallurgy, and nonferrous metallurgythe investment per worker8 was above the average for all industry. In each of those industries, except electric power, the increase in assets per worker is plannedreater rate than for all industry. Assets per worker ln tbe chemical Industry are planned to more than double and will move from just below tbe industrial average to Just above it. On the whole, however, thosethat had above-average capital per worker8 are planned to have relatively more capital per worker Leaving out the "other" categoryhich is subject to the compound errors of allhe electric power industry hadimes the capital per worker of light industry According to plan,5 the disparity will have grown somewhat, with the oil and gas Industry having more than kO timoc the capital per worker of light industry and the electric power industry aboutimes. In other words, therelear tendency for the most capital-intensive industries to grow even more so.

* omewhat mere detailed look at plans by industrial sector, see. ** ollows on p. P. kO, below.


Toole 3

UOSR: Comparison of Change la Fixed Capital per Worker and Output per Worker, by Branch of Industry, for the Seven Year

Capital per Worker v


1 ate Lndustr



Industry b/


building and metalworking

paper, and allied products







and gas

rubles converted to new rubles establlahcd by the Soviet currency reform. All data for total Industry are aggregates of branches except tho official plan for output per worker (see the discussionbove).


when tho planned lucreaee In capital per worker lo compared with the planned Increase In output per worker, capital rises more rapidly. There are three exceptions noted abovehe food-processing industry, the electric power industry, and the machine building and metalworking industry, in which labor productivity is expected to rise more rapidly than the capital per worker. On the basis of the six industrial sectors in which capital per worker is planned to exceed the average5 the index of capital per worker ranged, whereas for the other five sectors it is. For the same two groups, there le no corresponding discrepancy in the index of output per worker, which rangedor tbe first groupor the second. Theretrong implication, therefore, that the ratio of capital to output is rising more rapidly ln the first group than ln the second.

It should be pointed out that the five industrial sectors that will have below-average capital per worker5 employedercent of the Industrial labor force8 but had only k'f percent of the fixed assets in that year. During the Seven Year Plan, onlyercent of the planned investment is scheduled for those Industries, but they will nevertheless contribute about three-fourths of the reduction in labor requirements resulting from planned increases in labor Because the planned labor saving is so high in relation to tbe modest capital investment, it is apparent that gains in laborwill result from several factors of varying importance, in-eluding gains arising from organisational and administrativearticularly the more even flow of materials; the improvement of plant layout; tbe addition of instrumentation; and the extension ofespecially in materials handling.

In the six industrial sectors that will have above-averageper worker0 percent of the Industrial workersercent of the fixed assets 5 these same sixore planned to have more than half of the industrial fixed assets end only about one-fifth of the workers. The growth of output in these industries is clearly associated with extensive additions to fixed It la not surprising, therefore, that these are the Industries must often mentioned in the context of eventual applications of forms of automation involving capital saving.


TV. Problems of Planning Egulpoent Supply and Technical Changes A. Shortages of Equipacnt

Although various Soviet authorities have complainedack of Initiative on the part of plant managers vith reference to theof nev equipment where feasible and appropriate, the factsthat orders for equipment exceed production, that deliveries have fallen behind schedule, and that lt has been necossary to increaseof equipment faster than originally planned ln the Seven Year Plan.

The mechanization of materials handling, for example,ery inexpensive way to get gains In labor productivity. Yet* shortages of hoist-transport equipment made lt necessary to increase the number of railroad loadersn the RSFSR. utput of hoist-transport equipment ir. the economy satisfiedf demand (in the sense of requests for delivery ofjJ There are still numerous complaints of inadequate Increase in production of this elayed delivery of equipment and the failure to produce some necessary models of equipment ledarge number of the assignments for

Production has lagged behind requests for delivery ln many lines of equipment, including various models of chemical; radio; office; instruments and equipmentetroleum equipmentorge-preosquipment for nonferrous; equipment for the coal; food-processingextilequipment for the logging, wood, and paper industriesonstruction equipmentnd equipment for the cement In thisa Soviet industrial economist has stated: "There is no branch of heavy end light Industry which has not presented and wblch will not present serious demands on our machine construction Industry to Insure supply of more modem machines, mechanisms, and Instruments. The tasks of machine construction in this relation are In order tc meet this demand, tbe expansion of the machine building industry is being uccelerated beyond the original pace of tho Seven Year Plan.

R. Criteria for Decislone on Investmentause of Shortages of iiquiFQfnt

The problems besetting those who plan production and allocation cf equipment have been widely discussed in Soviet publications. In large part the problems stem from difficulties In forecasting the demand for equipment and rest upon biases in investment criteria used ln the



To clarify this point, ltecessary to summarize some of the steps ln supply procedure. For any given planning period the plant managere are given approved targets for production, for assortment of products, and for reduction In costs. On the basis of these targets they estimate their equipment requirements for the planning period and after approval submit equipment orders to the supply organizations. These supply organizations place purchase orders vith the enterprises producing equipment, and should the latter not have the production capacity to satisfy immediate demand, the supply organizationsthe available production according to the priority of theplant. The supply organizations dealing with the more important lines of equipment notify Gosplan of any outstanding supply deficits, and Gosplan then takes measures to improve the supply.

If production of equipment could be adjusted promptly into changes in the demand for equipment, the problem would be slight. But this is not the case, for to increase production of any given item in an economy operating at full capacity would involve the diversion of capacity from other production (either creating newcapacity or transferring capacity from other uses as an interim measure) directly or for creating new production capacity for the item. Creating new capacity mayime lag; transferring capacity directly may produce complications in the supply of some other Important equipment item.

If demand could be centrally planned and regulated, ex ante, there would be no problem at all. But this situation would defeat the basic concept of the Soviet approach toward the achievement ofadvanceshat is, the encouragement of -the adoption of improved production practices on the initiative of those who know the most about the opportunities, the managers and the workers.

If the proper investment criteria were made available to the plant managers, there would still be some problem ln planning production to satisfy the demand for equipment as derived from the individualdecisions, but there would be little likelihood or any general imbalance between demand and supply of equipment. But there ere some Soviet economists who question the adequacy of the present investment criteria and imply that there might indeed be chronic imbalances. This Situation is especially true in those cases where the planning price for equipment in deficient supply is kept low. UU/

The full argument for the possibility of chronic supply problems is not developed by any Soviet economist, although it is hinted at by several. The Implicit case is summarized briefly as follows. The basic premises to the case are four: (l) that the Soviet concept of value (stoimost') is strongly biased toward consideration of labor inputs


while denying any ocorcity value to capitalhat efficiency changes are measured in terms of reduction of stolmool1 (and thusin terms of changes in laborhat Soviet pricing policy lo dictated by considerations of income distribution rather than the efficient allocation of scarcend (k) that the opportunity coot arising in the use of scarce capital resources is not fully included in the costing of goods produced with the use of scarce capital. If these statements are true, one would expect to find empirical evidence that the substitution of capital for labor le carried too far, given the available resources of each; that the demand for many types of equipment exceeds the supply (evidence would be theof new equipment and delays in the supply of equipment tond that the output plans tend to favor the growth in output of products that are capital-consuming relative to the labor inputs (oil, electric power, and the like). Furthermore, if the hypotheoio io true, theto increase the share of capital investment within the uses of national income would be quite severe.

As the USSR increases its capital resources relative to its labor resources, it lo to be expected that the wage level will rise relative to the unit coots of capital investment and that the coot of construction (whicharge wage component) will rise relative to that of Any blaseo In the Soviet pricing system would tend to intenelfy these tendencies, some of which arc illustrated below ln the tabulation on changes ln the relative costs of equipment, construction, and wages in the USSR


Equipment unit

Construction oetlmnte

Average money earnings of workers

employees (estimate of this Office

based on Soviet sourcemoney earnings ln

(estimate of this Office based on

Soviet source material)

* Hence the prices of new technical equipment are to be kept low to encourage the purchase of the equipment by plant managers. The economic gains ere thus to be passed on to the using plant rather than to the firm producing the equipment (whichource of capital for the needed expansion of Output).


Theee indexes show that, during the last decade, there indeed have been cost movements decreasing the cost of equipment relative to the cost of construction, which is strongly influenced by trends in the wage level. The expected result would be to stimulate the demand for equipment as against the demand for construction, which could take such form as an intensified emphasis on reequipping existing plants in preference to building new plants. Soviet statistics demonstrate,that the share of equipment in the total capital investment fell at the time of the Korean War, rose againnd fell again/ The latter decline is difficult to explain, although part of the explanation lies in the emphasis on housing construction during these years that tended to increase the relative share ofin the total capital investment and although part lies in problems that appear to be associated with the Bupply of equipmentthe plans for acquisition of equipment were not fulfilled during several of these years.

C. Equipment Supply for Priority Projects

On the supply side, there hasignificant trendof the responsibility for supply of equipment for Inrojects were designated

as of national priority (osobond there was to be centralized allocation of equipmentnterprises,

A new system of supply organization is being developed inwith the supply of equipment to priority consumers. ense the new organizations are an outgrowth of the industrial reorganizationhichroblem of coordinating supply flows among the new Councils of National Economy and among republics.

On the All-Unlon level the keystones of the new supplyare five outfitting administrations under Go6plan USSRthe glavkomplekty. On behalf of priority customers,iet of equipment, instruments, and cable allocated on an All-Union basis, the outfitting administrations screen requests, place production orders, and oversee delivery. Similar outfitting administrations exist at the Republic level and supervise supply Of priority items under supply proceduresst the Republic level, kjj To date, the coordination between these organizations has been relatively poor, and their operations have not been of spectacular success, nevertheless, the outfitting trusts areosition to become the vital link in coordinating the planning ofof equipment with the equipment requirements of the plans for technical


P. Planning and Administrative Framework for Technical Advances

During theears the emphasis of the regime on raising the level of production technology has shifted from the5 over the backwardness of Soviet industry, construction, and transport (see the speech. Bulganin5 *W)ore positive emphasis on the opportunity provided by technical advances for realizing output targets more This shift from gloom to hope is largely psychological in nature, restingew pride in Soviet scientific achievement characteristic of the post-sputnik era but supported only modestly by the actual implementation of plans for technical advance. Serious problems have been encountered in theof the chemical industry, in the design of economical plants utilizing nuclear energy for production of electric power, in theof adequate secondary refining capacity for oil, and in the addition of plant capacity for processing complex nonferrous ores. On the positive side, there have been some significant successes In strengthening the capabilities of ferrous metallurgy and inore rational (that ic, less expensive) fuel and energy base for the

During this transition period,5 to date, there has been extensive experimentation in the forms of organization ofand Party control over the planning and execution of measures for technical advances. In response to the charge that weak leadership on the part of ministers and heads of departmentsajor cause for the unsatisfactory execution of plans for the introduction of new equipment into the national5 the State Committee of the Council of Ministers for Hew Techniques (Costekhnika) was formed as afederal agency with broad powers of planning, control, and53/

With the reorganization7 of the Soviet economyystem based on regional planning units (the Councils of National Economy) rather than ministries, Costekhnika could not survive, because itswas basedinisterial system centralized in Moscow. 5k/

Following the reorganization the responsibility for charting the course of technical development within Soviet industry has not been tightly held within any single governmental agency. Rather, it isin recent years for plenary sessions of the Central Committee of the Communist Party to assign various aspects of the planningto Gosplan, Gosekonomsovet, the State Committee for Automation

* Ihis charge vas openly made in Sulganln's speech in5 but may nave prevailed earlier and may have been instrumental in the formation of Costekhnika in


and Machine Buildinghe State Scientific-Technical Ccemlttee (GfTTK) (now defunct) and to detail specific tasks to other agencies such as the various State Committees concerned vith industry, with construction, and with labor and wages.* The Academy of Sciencea has played an Important role ln preparing perspective planning studios, performing research and development assignments, and providing skilled personnel to the line governmental agencies for planning assignments. Within the Central Committee of the Party and the governmental bodies lt may be possible to identify some members of the Central Committee as being specifically interested in topics related to technical change."*

It now appears that recently there may have been somebetween Gosekonomsovet and the GOTICosition of predominance in technical planning. Gosplan has lost most of its long-term planning function to Gosekonomsovet,ecent revision of theof technical supply has given Gosplan an important operativein technical planning. The GKAM has major planningbut its sphere Is relatively limitedthat is, to applications of automation in the economy and to technical advances in machine building.

The GhTK had been formally vested with the authority to control and to supervise the development and Introduction of new technology In the Sovietet, because it was not granted significant operational powers, it had to functiontaff agency,ublishing scientific information, and coordinating the activities of line organisationsspecially where interbranch and interrepublic activities were involved. Early0 it was suggested authoritatively that its powers be broadened, at least in sufficient degree to permit overseeing the fulfillment of the plans adopted for the introduction of new

Rather suddenly, inl, the GKTK was replaced at the All-Union levelew State Committee for the Coordination ofResearch. Tbe new committee was given greater powers to coordinate scientific research. It was not, however, chartered as an organisation to plan technical advance as such ln the economy. Rather, coordination of research and economic planning would be insured through theof the Deputy Chairman, respectively, of Gosplan and ofln the new

For illustration,.

** Thus Kbolov, Kosygin, and A. P. Rudakov, the letter being head of tlie Heavy Industry Section of the Central Committee, were prominent among scientific and planning personnel at the funeral. Antipov, who beaded the scientific research institutes under

Actual authority for any operational planning in the area of technical advance appears to rest vith the normal All-Union and republic planning authorities, the Councils of national Economy, Cosplan, Oose-konomsovet, and the other organizations associated vith production Given this structure, it is not possible to speak of any single agency fully responsible for operational planning of technical advance. In fact, Soviet experts observe that the demise of Gostekhnika7 represented the end of technical managementingle Federal organ. 6l/

In the pattern of decentralization of responsibility foradvance the plan for the introduction of automation andmechanization emerges as an exception. In this case, there seems toreater degree of advance administrative planning (largely in the State Committee for Automation and Machine Building) and morethat tbe possible social and economic effects vlll be of such scope as to require advance planning.

Planning vithout some means of control over performance ie In an administered economy the basic controls are In the USSR, there is in being an elaborate By6tem ofcontrol over the execution of the national economic plans,arge body of evidence suggests that the Party doe6 not consider the system to be particularly effective in dealing vith the stimulation of technical change, suggesting ln turn that nev forms of administration and control vill be developed.* Careful evaluation of nev measures to Increase control over execution of technical programs nnd to heighten Incentives to Improve technical performance as tbey develop will cast some light on both the Soviet objectives and the degree of success in achieving the desired improvement in technology.

* At the date of the publication of thiBew reorganization cf Soviet industry is being undertaken, an important characteristiceturn to greater centralization of control over the planning for the introduction of new technology.


Preliminary Evaluation of the Impact uf Technical Changes onIndustrial

Maintenanceigh rate of increase in industrial laborwill be mode possible by programs to train the labor force to the qualifications needed by the newly mechanized economy, to utilize labor more effectively, to supply the labor force with more productive machinery, and to improve Industrial organization to take greaterof the economies of scale. On the other hand, industrial growth is becoming increasingly dependent on the expansion of fixed capital resources and on the introduction of advanced technology.

The Soviet government is devoting resources and efforts todevelopment oncale that it seems reasonable to concludeigh rate of increase of labor productivity will be maintained during thend possibly the nextears. There is no evidence of any Immediate likelihood that new developments ln technology will permit an acceleration In the rate of increase of labor productivity during this period.

Soviet industrial labor productivity, in spite of its rapid rise, lags behind that of the US and Western Europe. It may be argued that the rapid advances in recent years represent the inevitable outcome of the large Soviet investment program and the relative availability of advanced Western technology for Soviet utilization but that the rate of change in productivity must taper off as Soviet labor productivity reaches Western levels. On the other hand, Soviet long-term plansontinuation of the rapid growth of labor productivity and apparently are basedremise that Soviet research and development efforts will provide an adequate basis for technical changes. This issue is quite basic to any analysis of Soviet growth and must be the subject of intonsive research.

In all economics the most immediate incentive to technicalis one of cost-minimization in industrial development plans. In all economies the social and personal consequences of automation are profound. The Soviet planners hopeigh rate of growth will permit avoidance of any high degree of frictions! unemployment through absorption of labor into the general industrial expansion. They do not ignore, however, the heavy requirements for educational advance and for the retraining of workers.

The problems faced by the US of accommodating technical advances in an economy characterizedoderate rate of growth may be faced some day by the USSR and cannot be dismissed as an intrinsic difference In the two systems.


It remains to be seen bow effectively the USSR can stimulate capital-saving technical change. Until now its capital-output ratios haveto rise. If it cannot reverse this trend, it may find thatand investaent will increase competition for resources; that the rate of economic growth eventually will be retarded; and that son* of the technical problems of deceleration will arise, especially the problem of overcapacity in some industries. Although automation is potentially capital-saving ln large part and although the successful introduction of such automation shouldeneficial effect onefficiency, the excessive emphasis of Soviet investment criteria on the labor-saving effects may prevent full achievement of feasible capital savings. It cannot be proved conclusively from the scanty data, but tho possibility exists that many of the present difficulties In provision of equipment may originate ln poor estimates by planners of the extent and types of equipment required to achieve the plannedfor productivity change.

In spite of the great amount of propaganda about applications of automation, the facts indicate that the most significant gainB in labor productivity during theoears will stem from replacing manual labor with machines and instruments and that the applications of computers in industrial production technology will occurery limited scale. In this period of time the mechanization of materials handling and the addition of instrumentation to industrial processes will have far more economic impact than the introduction of full In addition, there will be significant productivity gains frorr measures affecting the organization of production and the efficiency of utilization of labor.

Io the context of longer term estimates, beyondears, great significance will attach to developments ln the following areas:

The development of procedures and organizations for the purpose of planning, administering, nnd controlling long-term programo of technical advance.

The development of planning techniques to permit better balancing of tbe demand and supply of modern technical equipment.

The expansion of lnduotrlal research and developmentto encourage development and application of indigenous

The development of decision criteria and planning technique3 to permit more efficient use of capital resources.


It is by no means assured that the Soviet economy vill solve these problems. Effectively to plan technical advance in the long-term plans, the old desire of the plannersafety factor" in his calculations must beev mathematical planning techniques must be devised to cope with the many variables, and new data on trends of technical change must be made available to planners.

To improve planning in the supply of equipment, problems oforganization must be resolved. Especially, centralized controls over capital investment must be reconciled with decentralized control over production of equipment. Again, better planning techniques would be needed to permit more adequate advance forecasts of the structure of demand for equipment.

The greatest potential gains in labor productivity often lie in industries where tbe least priority has been assigned to the various scientific institutes concerned with process development. Resources assigned for the purpose of industrial research and development must be assignedroader range of industries.

The need to improve investment criteria has been chronic and has been recognized by the Soviet authorities. Yet the present criteria are inadequate until the price system becomes an allocative system rather than one primarily concerned with the administration of income flows.

Industrial developmenthe arena in which all aspects oflife come Into play and affect the final outcometheof resources, the objectives of development, the price system, the technical alternatives of production, the production schedule desired by those planning the economy. In its nature itomplex topic and one for which all conclusions are tentative, subject to change as the variables change and as knowledge improves. Yet thedevelopment of the USSR In future years will affect US national arrairs and the lives of its citizens in numerous ways. For this reason, the topic must be studied, the data must be improved, better analytical techniques must be developed, and the development plans of the USSR must be continuously evaluated in detail.

* As the Soviet economist Strumilin has observed, technical advances themselves have often been considered the safety factor that would permit fulfillment and overfulfillment of long-term plans. The more technical advances are built into the plans, the less tbeyafety factor (and the more tbe pressure for effective planning).




Tbe estimate of labor saving is based on the assumption tout the labor requirement5 would bear, in the absence of change in productivity, the same relation to labor employed8 as output5 bears to output The labor requirement5 withhange in productivity has been estimated, therefore, by multiplying the labor force6 by5 index of production. The projected labor force5hange in productivity) has beenby dividing the labor requirement with no change in productivity by5 index of productivity. Implied labor saving is thebetween the projected labor force and the labor requirement with no change in productivity. The labor saving may be calculated more directly by the following formula:

Labor forcendex ofncrease of productivity

Index of productivity

An estimated breakdown of gross capital investments given in The amount for retirements is taken from Table Investment required to equip new workers at8 capital-output ratio was calculated for the branches of industry by multiplying the increase in employment (as shown iny the fixed capital per worker8 (as shown in. Total investment for industry was taken as the sum of the investment in the branches of industry. Investment available to increase capital per worker at8 capital-output ratio was obtained by multiplying the fixed capital8 (see Table L) by the increase in productionsee Table l) andinvestment to equip new workers. Investment for total industry was taken as the sum of the branches of industry.

Gross capital investmentess investment required to8 capital-output ratios and excluding retirements equals investment available to increase capital-output ratios. The ratio of added investment to labor saving is the amount of investment available to increase capital-output ratios divided by the implied labor saving (as shown in


U follows on p. UO.




Table h

USSR: Estimation of Industrial Fixed Capital, by Branch of Industry a/


UM tn flit* HMUl {MlHoaV


Trfh ;r MM

IWM" Ml Idle* ud !



of nuatloa, coscdwi





riud Capita; par *aiM< 1/


I :1
















qlwi'. cT atMrUn of tl. lollriOtU 'rmhii.

- UO -

The calculations used in estimating fixed assets per worker65 forre shown. Inter alia, in Tha inventory of fixed capital at undepreciated replacement cost on9 and the planned gross capital investment during the period of the Seven Yearare officially announced. Whereverranch of industry vas announcedange, calculations have been made at both the upper and the lover limit of the range,for simplicity of presentation only those based on the lover limit vere used innd 3- Fixed capital on8 vas estimated to be equal to fixed capital on9 lessercent of the planned investmentto allow formadeercent of the adjusted figure (to allow for plant and equipment retired)

The amount of investment required to replace capital retiredas been calculated asercent of the estimated fixed capital on6ercent of the gross capital investment This calculation approximates roughly the replacement of 2of fixed assets annually. tudy of Soviet amortisation practices as yet unpublished discloses no branch of industry in which tbe composite rate of recovery of the value of fixed capital is set as high as 4 The average life of the capital, therefore, is expected to exceedears. Theoretically the capital to be retired this year is that installedears (or more) ago. With the rate of investment doubling everyears, the theoretical value to be retired would notercent of the cumulative investment. Whileears appears toather long-life expectancy, two Soviet practices make it more than plausible. First, in Soviet industrial investment someercent of the total is for construction, andercent is for equipment. The Soviet tendency to use heavy structures, which vould have an average life of at leastoears in US practice,reat veight to long-lived items in the composite inventory. Second, the Soviet practice of planned capital repairs (foreparate amortization account is accumulated) is deliberately designed periodically to restore equipment to itscondition and hence extend its useful life. The Soviet planners have indicated that during the Seven Year Plan the percentage offor structures will be reduced and the retirement of equipment for obsolescence will be expanded. Consequently, an estimateercent per year of the year-end inventory has been used forof fixed capital. In order to simplify the calculation, however,ercent of the estimate of fixed capital8ercent of those to be added during the plan period has been taken for the estimate of retirements duringear period.

bove. ** bove.


Net investmentas been estimated from the gross capital Investment by subtracting retirements. Net investment plus the capital stock on8 gives the implied capital stock on Fixed capital per worker85 has been estimated by dividing fixed capital85 by employment (as shown in85hange inespectively.

* bove.

- h2 -



Evaluations, following the classification entry and designatedave the following significance:

Source of


- Documentary

Confirmed by other sources



Probably true



Possibly true





usually reliable

Probably false



Cannot be Judged


be Judged

"Documentary" refers to original documents of foreignand organizations; copies or translations of such documentstaff officer; or information extracted from such documentstaff officer, all of which may carry the field evaluation

Evaluations not otherwise designuted are those appearing on the cited document; those designated "RR" are by the author of this No "RR" evaluation is given when the author agrees with the evaluation on the cited document.

Except for CIA finished intelligence, sources are evaluated RR 2.

CIA/RR, Goals of the Soviet Seven Year Plan

or Technical Changes"he Nonagrlcultural Branches of the Economy,

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