WEEKLY SUMMARY SPECIAL REPORT THE TECHNOLOGICAL GAP: USSR LAGS BEHIND THE DEVELOPED WEST

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A007200060002-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 10
• Document Creation Date: December 20, 2016
• Document Release Date: April 21, 2006
• Sequence Number: 2
• Publication Date: August 1, 1969
• Content Type: SUMMARY

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DIRECTORATE OF
INTELLIGENCE
WEEKLY SUMMARY
Special Report
The Technological Gap.? USSR Lags Behind the Developed Wert
Secret
Np 45
1 August 1969
No. 0381/69A
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THE TECHNOLOGICAL GAP: USSR LAGS BEHIND THE DEVELOPED WEST
Throughout its industrialization drive the USSR has used every device
available to keep abreast of world-wide developments in technology, while
simultaneously maintaining a policy of cultural and political isolation at
home. I n the early 1930s the USSR borrowed technology from abroad on a
massive scale via imports of machinery and equipment. After a period of
retrenchment that lasted from the late 1930s until the mid-1950s, the USSR
began to import technology once again from the industrial West. This time
the Soviets supplemented trade in machinery and equipment with purchases
of foreign patents and licenses, agreements and exchanges in the fields of
science and technology, and the exploitation of foreign scientific and techni-
cal literature. Since 1955, they have concentrated on building a large
domestic capability for the intensive development and application of tech-
nology.
Despite these efforts, the Soviet economy has not moved ahead in the
post-World War I I technological revolution as much as the economies of the
developed West. Although the latest technology is employed in some areas-
particularly in the defense and space industries-technology in use in the
civilian economy generally lags far behind that of the West. This technologi-
cal gap, moreover, may have widened during the 1960s. In recent years the
Soviet leadership has undertaken various reforms in planning, incentives,
prices and in the research and development establishment itself in order. to
speed the diffusion of technology throughout the economy. Closing the
technological gap probably will remain an unattainable goal for the Soviets,
however, without a change in the essentials of their present system of
planning, priorities, and economic administration that have retarded innova-
tion in the past.
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The Productivity Gap in the Mid-1960's (US=100)
Gross National Product
(GNP)
Relative to Amount of
Capital and Labor
GNP
Per Worker
US
Northwest Europe
Italy
USSR
Capital Stock
Per Worker
Special Report -2
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MEASURING THE GAP
The Soviet technological lag is reflected in
the large productivity gap that exists between the
USSR and the developed West. Factor productiv-
ity is the measure of a country's output per unit
of input of capital and labor. Although it is an
inexact measure of the level of technology-it also
measures such factors as differences in the quality
of the labor force, management and natural en-
dowments-it provides a reasonably approximate
indication of the general size and trend of the gap
over a period of time.
Chart on page 2 measures the Soviet produc-
tivity lag in the mid-1960s in three different
ways: gross national production (GNP) per unit
of labor and capital (factor productivity); GNP
per worker (labor productivity); and value of cap-
ital stock per worker. All three measures indicate
that the average level of technology in use in the
Soviet economy is far below that of the US and
also well below that of Western Europe.
Measuring the rates of growth of factor pro-
ductivity in the USSR and the West reveals that
the technological gap may have widened in the
1960s. The rate of productivity growth in the
USSR exceeded that of the US during the 1950s
(2.2 percent vs. 1.7 percent annually), but was
well below the US in the 1960s (1.4 percent vs.
2.7 percent annually). The Soviet rate was also
significantly below that of all the major countries
of Western Europe except the United Kingdom
during 1950-64. During 1960-64, moreover, the
Soviet rate was less than half the rates achieved in
all countries of Western Europe, including the
UK. The postwar performance of Western Europe
illustrates the catching up that could be expected
of industrial countries which were temporarily
behind in technology because of the war. The
USSR was even further behind in the mid-1940s
Special Report
and has not caught up in the productivity sweep-
stakes, except in some areas of the military and
space sectors.
The average level of technology in use in the
industrial sector alone may be compared on a
branch basis, as in table on page 7. Roughly
speaking, Soviet technology probably comes
closest to Western levels in machinery-including
electronic and military equipment-and in metal-
lurgy. It lags farthest behind in coal mining, forest
products, textiles and clothing, and food process-
ing.
Another measure of the relative technologi-
cal levels of industrialized countries, at least in
the manufacturing sector, is the nature and extent
of their international trade in machinery and
equipment. The machinery branch of industry is
probably the most technologically intensive of
the manufacturing sector. As industrialization
proceeds, the large surplus of machinery imports
over exports, which is characteristic of a develop-
ing country, tends to decrease as the country
develops its capability to produce and sell ma-
chinery and equipment abroad.
The industrialized countries of the West and
Japan carry on a large trade in machinery among
themselves; each country is both a substantial
importer and substantial exporter in this trade.
The pattern of machinery trade for the USSR is
completely different. There is a large gap between
the share of machinery in total imports and its
share in total exports in Soviet trade with the
developed West: machinery makes up one third or
more of total imports from these countries and a
mere two to three percent of total exports to
them. This large imbalance, which has remained
essentially unchanged during the past decade, also
persists, although to a lesser extent, in Soviet
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trade in machinery with the industrialized coun-
tries of Eastern Europe--East Germany, Czecho-
slovakia and Poland.
REASONS FOR THE GAP
Education. Part of the international dispari-
ties in technological development reflects differ-
ences in educational attainment of the labor
force, particularly in the supply of college-trained
manpower. The USSR has made great efforts
since 1950 to narrow the educational gap. Total
Soviet expenditures on education have risen rap-
idly compared with the US: the USSR, with a
GNP half that of the US, now spends about three
fourths as much on education as does the US.
The average educational attainment of the
labor force rose from about five years in 1950 to
about seven years in 1968 and will probably reach
about eight years in 1975. The average educa-
tional attainment of the US labor force was 10.7
years in 1950 and 12.3 years in 1967. The pro-
portion of college graduates in the Soviet labor
force, moreover, rose from 1.7 percent in 1950 to
4.6 percent in 1968; comparable figures for the
US are 6.4 percent and 11.4.
Outlays for Research and Development. The
US devoted about three percent of its GNP to
research and development (R&D) in the mid-
1960s compared with about 2.5 percent in the
USSR. Both countries have allocated a rising
share of their total output to research and devel-
opment during the past decade. One measure of a
country's R&D activities is the extent to which its
scientific and engineering manpower is engaged in
that effort. In the mid- I960s the US had about
the same number of scientists and engineers em-
ployed in R&D as did the USSR.
Special Report - 4 -
Although the relative size of R&D efforts in
the US and USSR compared to their respective
resource bases appears similar, the US has devoted
it larger proportion to the civilian sector. In addi-
tion, the US has allocated a considerably larger
share of its total R&D outlays to development
work as against basic research than has been the
case in the USSR. This emphasis on applied re-
search generally facilitates the rapid translation of
theoretical research findings into new products
and improved production processes.
Diffusion of New Technology. In market
economies, private enterprises are the innovators
in the development and diffusion of new tech-
nology. Governments encourage and help finance
this process but, for the most part, are not the
prime movers. Even in the military field, where
governments are the only customers, competition
among potential contractors serves to induce
technological advance. This also encourages spin-
offs of military-space technology to the civilian
sector. Finally, multinational firms greatly facili-
tate the diffusion of technology and managerial
know-how abroad by investing in foreign subsidi-
aries.
In the centrally administered economy of
the USSR, however, new production techniques
and products must be "introduced" by deliberate
actions of the administration bodies; obsolete
technology and old products must be taken out
of use or production in the same way. There is no
automatic mechanism for fostering technological
progress, and the incentives devised to stimulate
innovation have been ineffective.
Soviet enterprises introduce new technology
and turn out new products according to annual
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and long-range plans. The innovations incorpo-
rated in these plans usually are not developed by
the local enterprises but by research and design
institutes attached to industrial ministries. The
whole process must then be coordinated along the
chain of command. As a result, innovations come
much less frequently and are spread much more
slowly than in the West.
An even greater barrier to rapid technolog-
ical advance than a cumbersome bureaucracy is
the resistance of enterprise management to inno-
vation because of the USSR's faulty incentive
system. Until recently, the main success criterion
for enterprises was the fulfillment of production
plans; bonuses for managerial personnel were
keyed to this indicator. As a result, managers
were reluctant to innovate because interrupting
production processes to incorporate new tech-
nology threatened plan fulfillment and bonuses.
A further restraint was the practice of increasing
plan assignments once an innovation had been
adopted. In addition to resisting the incorpora-
tion of new technology into their plans, plant
managers delayed introducing new measures that
had become part of the plan, often by claiming
that their plants failed to receive the required
materials and equipment in time.
Another obstacle to innovation in the USSR
has been distortions in the price system. Soviet
prices do not provide an accurate guide to choice
based on efficiency because they are centrally
fixed, inflexible, and based on industry-wide aver-
age costs. For years Soviet planners have tried
various formulas to calculate the effectiveness of
new investment, but none have been found satis-
factory. Until very recently, for example, capital
costs were largely ignored and amortization
charges were purely arbitrary.
Special Report
Different Priorities. The wide disparities in
technological advance among the branches of
Soviet industry vis-a-vis the West directly reflect
the long-standing priorities of the leadership. First
priority traditionally has been accorded to the
defense establishment. The military has had first
claim on resources-the brightest scientists and
engineers, the most skilled workers, the highest
quality materials and equipment, and the best
construction talent. Another advantage has been a
clear-cut, single-minded goal: an image of equality
with the US in defense and space. The military
space sector has flourished under this favoritism
and has achieved near-technological parity with
the US in many types of weapons and space
equipment.
The basic industries-steel, fuels, electric
power, producers' equipment, and, more recently,
chemicals-have received second priority even
though their output directly supports both mili-
tary production and the investment programs
essential to over-all economic growth. The indus-
tries serving the population-textiles and clothing,
food processing, consumer durables, and house-
hold products-have been lowest on the scale of
priorities.
EFFORTS TO CLOSE THE GAP
The Soviet leadership hopes to achieve a
breakthrough in developing and introducing new
technology through a number of major economic
reforms. Some of these have been introduced over
the past three years and others are still in the
process of implementation.
A revision of planning and incentives,
launched by Premier Kosygin in late 1965, now
has been extended to most of the industrial
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sector. This reform broadens the authority of
enterprise managers in plan formulation, estab-
lishes sales or profits and the return on invested
capital as the main success criteria for enterprises
and as the basis for incentive payments, and levies
an interest charge on invested capital. The new
profits criteria and capital charge are intended to
encourage enterprises to reduce costs by adopting
new technology and scrapping obsolescent equip-
ment. The emphasis on sales and profits, in place
of gross output, is designed to spur the output of
new and improved products.
The new measures have had little effect thus
far, and are unlikely to be very effective in the
future since the Kosygin reform retains many of
the features that have inhibited innovation in the
past-centrally fixed plans for output, investment,
and new technology; central allocation of key
materials and machinery; and the continuation of
success criteria for enterprises based on fulfill-
ment of plans. Great emphasis continues to be
placed on "tight" plans, moreover, and enterprise
plan assignments are still boosted after technolog-
ical improvements have been adopted. Finally,
the rights granted enterprise managers have been
curtailed by the ministries through direct interfer-
ence and the imposition of detailed rules and
regulations.
Enterprise managers are unlikely to be more
eager to adopt new technology than before the
reform since their bonuses are still linked to plan
fulfillment. Because of the perverse price system,
the charge on capital may even lead managers to
avoid the purchase of new machinery, whose pay-
off remains difficult to determine. In fact, the
reform has complicated decision-making at the
enterprise level because the new success criteria
are inconsistent while many of the old regulations
have been retained. Thus innovation will not be
fostered automatically by the new so-called "eco-
nomic levers" but will continue to require "intro-
duction" by the planners.
In recent years the USSR has adopted a new
set of industrial prices and a revised system of
Special Report - 6 -
price formation. The new prices are generally
higher and for the first time include an allowance
for producers to pay interest on capital. Price
committees were established and explicitly
charged with "raising the role of prices in promot-
ing technological progress in all of its many-sided
aspects."
Press discussion indicates that the commit-
tees are tackling their task with a missionary zeal,
attempting to set prices in great detail. Prices for
individual machines and equipment are to be set
so as to encourage enterprises to buy new ma-
chines and discard old equipment, and prices on
consumer goods and industrial materials will be
juggled to accomplish the same objective. Prices
on new products will be set high enough to en-
courage their production, but not too high to
discourage their purchase. The over-all result of
these machinations probably will further compli-
cate the decision-making process and increase bu-
reaucratization of the system.
In October 1968 the government issued
guidelines for extensive changes in the organiza-
tion and incentives of the research and develop-
ment establishment. In effect, the decree extends
the principles of the industrial economic reform
to the R&D sector. Wages and bonuses for indi-
vidual scientists and the profits of research insti-
tutes will be based in part on the economic effec-
tiveness of their work.
The success of these reforms in the long run
may be limited by bureaucratic inertia and a
reluctance to implement some of the proposals.
Academy and university research institutes are
likely to resent the planned periodic review of
their economic effectiveness. In the past the So-
viet R&D community has enjoyed a great deal of
independence in the absence of economic success
indicators and accountability. If the reform of the
R&D establishment is successfully implemented,
however, it should encourage a greater emphasis
on applied research and promote a more speedy
introduction of new technology into industry.
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'Comparison of Soviet and Western Technology
in Major Branches of Industry
MACHINE TOOLS
AUTOMOBILES AND TRACTORS
AMA
PETROLEUM
dJ
STEEL
HYDROELECTRIC AND
THERMAL POWER
High-performance fighters and interceptors are comparable with those in the
West, but civil transport is generally inferior in range, payload, fuel con-
sumption, and engine life.
Soviet technology for producing computers, peripheral equipment, and
solid-state electronic components is behind that of the West by at least five
years, and the gap is widening. Communications satellite technology lags 3-5
years behind the West and is likely to remain so for the foreseeable future.
The Soviet stock of machine tools is considerably younger than in the
US but its composition is inferior because of poor quality and the pre-
ponderance of standardized general purpose tools.
Both the production technology and the product mix in the Soviet auto-
motive and tractor industry are obsolescent compared with the West.
The USSR lags well behind the UK in this sector, by as much as 10 years
in seismic exploration and offshore drilling.
Soviet blast furnace technology is approximately on a par with the West, but
only 12 percent of Soviet steel is made by the modern oxygen converter
process, compared with over one-fourth in Western Europe and over one-
third in the US. Soviet rolling and finishing facilities are grossly inadequate
and technologically inferior to those in the West.
The USSR leads the world in construction of hydroelectric power plants and
in high-voltage long-distance transmission. Soviet thermal power engineering,
however, lags at least five years behind the US both in size of units and in
"All
other technology.
COAL MINING
Special Report
Soviet longwall technology lags behind that of the US and West Germany,
where natural conditions are comparable, and is behind both the US and
Western Europe by a decade or more in mechanical loading, mechanization
of surface work, and coal preparation techniques.
The Soviet chemical industry is at least five years behind the West in the
technology used to produce most important chemicals, and its product mix
with its relatively small production of synthetics is obsolescent.
The food industry of the USSR, with the exception of bread production, is
a generation behind the West. Soviet textile mill equipment is 25-30 years
behind that of the US. Soviet appliances and housewares, often produced
as sidelines in heavy machinery and aircraft plants, are mainly copies of
obsolete Western models.
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ecre
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