REPLACEMENT OF FIXED AND WORKING CAPITAL IN THE NATIONAL ECONOMY OF THE USSR

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80-00809A000600300383-3
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 5
• Document Creation Date: December 22, 2016
• Document Release Date: September 7, 2011
• Sequence Number: 383
• Publication Date: April 25, 1950
• Content Type: REPORT

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CLASSIFICATIONFOR 14EN LDE~TIAL
t?u r I CENTRAL INTELLIGENCE AGEN RFPORTF-
FOREIGN DOCUMENTS OR RADIO BROADCASTS CD NO.
Y USSR
HOW
PUBLISHED
WHERE
PUBLISHED
DATE
PUBLISHED
LANGUAGE
1948
Russian
DATE OF
INFORMATION 1947
DATE DIST. W Apr 1950
NO. OF PAGES 5
SUPPLEMENT TO
REPORT NO.
TOSS DOCANEAT COMM I.r.NYAn0N AII6TINN T.. NATIONAL Ct1N.T
or Txr xNITtN ITATIt WITHIN TxI N1NING Or 1-0x41 ACT IO
o L11W C.. fl ANO St. At A111090. RLN ONlusnox ON TNt NIT ILA90N
Or NT11 IN 1-1 NANNTI TO AA NAOTNObIIO rIt- SS 10
NSSITTD tT LAW. NT FROISCnON OF TNII FONN It RUxINTI.
REPLACEMENT OF EX ED AND WORKING CAPITAL IN
THE NATIONAL ECONOMY OF THE USSR
The method by which fixed capital is replaced in the national economy df
the USSR differs from the method of replacement of working capital. Full re-
placement of fixed capital becomes necessary only after that capital has been
in use for a number of years. Individual parts of machinery and other elements
of fixed capital may have to be replaced at more frequent intervals, but by and
large, the expenditure of fixed capital proceeds.in gradual stages and over long
periods of time.
Working capital, on the other hand, is fully used up during a single pro-
duction cycle and must, therefore, be completely replaced after that period.
This difference in method of replacing fixed and working capital is one of
the factors determining the volume of the social product which goes for replace-
ment of the means of production.
Let us consider the main factors determining the absolute volume of fixed
assets retired, and therefore the absolute volume of the social product which
goes for replacement of retired assets. The first factor determining the abso-
lute volume of fixed assets retired is the total volume of the national economy's
fixed assets. The greater the volume, the more will be retired, and the more
replacement parts will be needed. The second factor is age. Other things being
equal, the greater the proportion of new equipment in total assets, the less
equipment will be retired. Under socialism, the proportion of new equipment is
much higher than under capitalism. In the 10-year period 1928 - 1937, about 90
percent of the fixed assets of socialist industry of the USSR were created anew,
and during the same period Soviet agriculture received quantities of new heavy
machinery.
FM *a USE K!"17-
CLASSIFICATION -CONFIDENTIALC0KFj0EHT1AL
STATE NAVY NSRB DISTRIBUTION
/.RNY AIR FBI
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Ocherki teorii sotsialistichesko o vos roizvodstva, Chapter III, by
Aleksandr I. Notkin, Ogiz, Gospolizdat, 1
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This intensive rejuvenation of fixed assets of the national economy
resulted in a sharp reduction in depreciation due to physical wear. In
Soviet industry depreciation of fixed assets due to wear was 34.8 percent
in 1928, 21.2 percent in 1932, and 13 percent in 1937. The volume of fixed
assets retired because of age and wear amounted to 1.6 percent in 1931, 1.4
percent in. 1932, anu 1.5 percent in 1933 (Sotsialistichesko a stroitel'stvo
SSSR, 1935, p 22), and was approximately the same in subsequent years.
The third factor determining the absolute volume of fixed assets retired
is the durability of the assets, which in turn depends upon the materials of
which they are made. The longevity of fix assets as a whole depends on
the proportion of long-wearing to short-wearing equipment in each branch of
industry.
In modern electric power plants, for example, the life of foundations
averages 50 years; of cables, 40 years; of buildings, :;ppruximately 30 years,
and of iron poles and copper wire, also 30 years. Power machinery lasts 10
years; hydroturbines 20, distributing equipment 15, and wooden poles 20. The
average life of industrial buildings is 60 years, and that of machines for the
production of cement, fire clay, and glass is 12-16 years.
Not only does the proportion of long-wearing to short-wearing equipment
differ in different branches of industry, agriculture, and transport, but the
proportion of buildings, power installations, and machinery in total value is
also different. In agriculture the value of buildings and other constructions
occupies a smaller share in the total value of fixed assets than in industry.
In railroad transport the proportion of constructions other than buildings is
very large. With respect to USSR industry as a whole, in 1937 the share of
buildings in the total value of fixed assets was 30.6 percent; of other con-
structions, 21.5 percent; of power installations, 9.4 percent; and of machines,
24.1 percent. In ferrous metallurgy these proportions were 25.8, 33.1, 9.6,
and 20 percent, respectively; in the coal industry they were 11.1 55.2, 5.3
and 15.4 percent; and in the textile industry they were 39, 6.3, 9.3, and 37.7
percent. Irrigation and reclamation installations compose a very important
part of fixed assets of agriculture in some areas. In certain branches of
industry and in transport such long-lasting constructions as embankments, bridges,
tunnels, subways, etc., are of great importance.
There is no doubt that the structure of the national economy exercises a
certain. influence on the volume of the social product which goes each year for
full replacement of the expended means of production and transport. Two oppos-
ing forces are at work. The increase in the relative share of heavy industry
and tLerefore in durable permanent constructions causes fixed assets as a whole
to wear out more slowly. On the other hand, the rapid increase in the use of
tractors, trucks, truck-tractors, and trailers, which wear out quickly (within
6-7 years), has the effect of accelerating the retirement of fixed assets.
The fourth factor determining the volume of fixed assets retired is the
degree of utilization of equipment. In,;ensive use naturally makes the equip-
wear out faster and necessitates more frequent replacement of parts.
The fifth factor determining the volume of fixed assets retired is the
rate of technical progress. The more opportunities there are for introducing
new equipment, the faster old equipment will become obsolete and have to be
retired. In the history of society this has always been connected with the
social organization of production. While there is technical progress under
capitalism, there are forces in it which retard the rate of this progress,
which retard the introduction of new, labor-saving machinery. Thcse retard-
ing forces are not present in a socialist society, and in fact, a socialist
society is dedicated to saving labor by the introduction of labor-saving
machinery and the replacement of outmoded equipment with technically more
efficient equipment. Also, a socialist society can plan the best time and
place to introduce new machinery.
Got FdiENTIA1
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CDNFIDENTIAI
A socialist society, planning its economic development, has to decide
the proportion of new machinery which is to go for increasing the means of
production.
When there is no shortage of labor, the economy can be expanded faster
by using new machinery primarily to expand the productive apparatus. This will
mean that in c.prtain production sectors (usually secondary), relatively obsolete
machinery can oe employed along with new equipment.
There is a limit to the use of obsolete but serviceable equipment, how-
ever, even as a source of additional production. If labor is short, and old-
fashioned equipment prevents an increase in labor productivity, then the old-
fashioned but serviceable equipment must be replaced by equipment more saving
of labor. The workers released by the use of the new equipment can then be
used in new industrial enterprises.
If a shortage of fuel and raw materials is retarding the rate of expansion,
then not only must the production of fuel and raw materials be increased, but
old-fashioned though serviceable equipment must be replaced by equipment more
economical of fuel and raw materials. Thus, remodeling Soviet blast furnaces
resulted in less expenditure of coke per ton of pig iron and remodeling of
power facilities in industrial enterprises and railroad transport resulted in
a considerable saving of fuel.
Thus the more machinery produced and the tighter the supply of labor,
fuel, and raw materials, the less can old-fashioned though serviceable equip-
ment continue to be employed efficiently.
With respect to the distribution of modern and less modern equipment, the
most efficient arrangement is to use the more modern equipment in the most
important branches of the national economy, and the older equipment in the
less important branches. When new equipment is introduced into the more impor-
tant branches of the economy, the equipment it replaces is transferred wherever
possible to enterprises using still more old-fashioned equipment, or to enter-
prises in which work is done mostly by hand labor. Thus, it is more efficient,
from the point of view of rapid expansion of the economy, to employ prematurely
retired power machinery in reserve thermal statios operated in conjunction with
hydroelectric power stations than as independent the;?mil stations. Less modern
locomotives should be used where the load is less, and less modern machine tools
should be used in repair shops and other shops where too much work is not required
of them.
Economy in the amount of social labor employed per unit of product can also
be achieved by proper territorial distribution of modern and less modern enuip-
ment. New equipment economical of raw materials, fuel, and labor must be. intro-
duced first in areas removed from sources of raw materials and fuel and in areas
short of labor.
Prematurely retired machinery can also be used in local industry and
industrial cooperatives to increase production in that sector of the economy.
As a result of such planned distribution of equipment, possible only under
socialism, there is a steady rate of technical progress and a steady increase
in the productivity of labor throughout the national economy, including those
enterprises employing equipment transferred from other enterprises for reasons
of obsolescence.
So far, we have been considering only fully replacement of outmoded equip-
ment by new equipment. There are other forms of replacement, that is, replace-
ment of worn-out parts, and modernization of existing equipment. Modernization
is equipping existing machinery with attachments which make it more productive.
CO II:IDENTIAL
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CONFIDENTIAL
There El---e economic limits to modernization and repair. Modernization and
repair are not expedient when more labor is expended on them than would be
expended in the production of a new machine.
Thus, in socialist production, the absolute volume of fixed assets
replaced der-'nds not only on the retirement of whole machines and other
fixed assets out e.lso on the rate of wear of parts, and on the use of
attachments to modernize machinery.
During the war new technological processes were developed in several
branches of industry. The technological level of war industry, especially,
was raised. What was learned here must be passed on to civilian goods
industry. In many enterprises reconverting to production for peacetime
needs, outmoded machinery is being replaced in full by modern machinery,
or is being modernized. This postwar process of re-equipping industry with
new machinery is made necessary by a shortage of labor and of certain kinds
of raw materials and fuel. Equipment retired before it is physically worn
out should be used to accelerate the reconstruction of the national economy
and especially to develop small-scale industry and industrial cooperatives.
The re-equipping process is being carried out on a still wider scale in
the restoration of enterprises wholly or partially destroyed during the war.
New inventions, discoveries, and improvements are being introduced. The resto-
ration of ferrous metallurgy in the south will result in a considerable increase
in technical level and productive capacity. The some is true of the coal industry
of the Donets Basin and of other branches of industry.
Let us consider the way in which the replacement of fixed assets is financed
under socialism. The price of goods sold by a socialist enterprise, if the
enterprise is not being operated at a loss, includes the annual depreciation
of the enterprises' fixed assets. This depreciation has been fixed by Soviet
law at 5.5-6 percent of the original cost of the assets. (See Decree of the
Council of People's Commissars USSR of 8 January 1938 entitled "The Utili-
zation of Amortization Deductions and the Improvement of Repair in Industrial
Enterprises," Pravda, 9 January 1938.) The monetary form of this depreciation
constitutes the amortization fund of the national economy.
In a situation in which the volume and value of fixed assets remained con-
stant, amortization woulu be equal to the value of the fixed assets retirec.
each year. However, in a rapidly expanding socialist economy, where the
volume of fixed assets in operation increases every year, amortization charges
for any given year amount to considerably more than the restoration cost of
fixed assets being retired. Thus, if, in a given year, the total value of
fixed assets is 100 billion rubles, amortization charges are 5 percent of that
figure, i.e., 5 billion :vbles, and assets retired amount to 2 percent of the
total value of fixed ass"ts, i.e., to 2 billion rubles, then 3 billion rubles
of this amortization fund will not be used for replacement of fixed assets in
that year. This means that the latter sum, which wi_1 eventually be used for
replacement of fixed assets, can serve for some time to come as additional
capital.
The 8 January 1938 decree cited above leaves only part of amortization
deductions (40-65 percent), i.e., the special fund for capital repair, at the
disposal of enterprise directors. The rest, which in a few years will be used
for full replacement of fixed assets, goes through the Industrial Bank of the
USSR (Prombank) for central financing of the corresponding ministry's capital
construction.
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The case of cooperative ownership of the means of production is different.
When the means of production belongs not to the state, but to a cooperative,
not only working capital, but the entire amortization fund, is at the disposal
of the cooperative. Money to finance replacement of fixed and working capital
of cooperative and collective-farm enterprises is obtained from the sale of
production, although part of working capital may be in the form of state credit.
This decentralized process of replacing the means of production in ccoperative
and collective-farm enterprises does not mean, however, that this replacement
is unregulated. The socialist state sees that the process of replacement of
the means of production on collecti:?c 'arms and in craft artels is in line with
the national plan and that there is normal replacement.
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CCNFIDENTIAL
GO~FIOE~ITls~1.
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