INTRODUCTION OF THE ECONOMICS OF CONSTRUCTION MECHANIZATION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP80T00246A009500010001-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 58
• Document Creation Date: December 22, 2016
• Document Release Date: April 29, 2009
• Sequence Number: 1
• Publication Date: March 23, 1960
• Content Type: REPORT

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 ICIIitl~~~Ilil I I`I 11 III' I9 I IIII I II I IM 1141 I 1 III1 IIIIII1111111 I 11II I J11 [111 II I' 11111 IIIIli I III I' I IIlI II I'.IIIII II q;II~IIIII IIII. I I
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1.0 Introduction
The outlays. of construction industry represent the most
oonsiderable'part of the investments used for the systematic
increase of capital investments of, the national economy. Whether
the accumulations available for the national economy in a very
limited quantity will serve the extended reproduction effectively
and rapidly is. mostly a function of the efficiency and method of
.the.conatruotion Industry. Therefore it is highly important that a
more profitable production would be made possible.
The mode of production in the sooialisD is planned economy
and that is why a good knowledge of factors and their relations
influencing the development of production is essential; the two
latter representing the most impor~ant preliminary conditions for
a fully conscious scientific planning. A successful planning of
production has.to be based on the analysis, evaluation and prediction
of all factors of production especially the technical and economical
parameters determining the process of production. The clue to a
farsighted planning as well as to more scientific political economy,
is a continuous analysis of the process of production with the
guidance of the economy of production.
The economical analysis of production can be done from the
points of view of the outputs and the inputs. Output and input
are not always considered as absolute magnitudes but often their
comparison to each other and to other factors ofIxoduction are
taken Into consideration.
-Production - as every economic phenomenon is performed In
the time and the time factor determines the production so. much
that actually production is understood.as production per time;
CONFtDIE TIAL
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 another principal subject of economic analysis.
The above mentioned two complex fields of economic analysis
include a'multitude of related factors and their interrelations.
"speed of production". Moreover, only this concept can be defined
as adequate for the purposes of economical analysis of production..
The analysis of speed of production and related parameters is one
of.the.most important research areas of economy of production.
The effect of time factor from the aspect of input is not of
less importance, however, in this case there is a more important
basis for comparison, the expression of input in function of output
that is the category of cost. The magnitude and change of cost is.,
.Among those stress has to be laid on the composition. of productive
.forces which is a foremost determining factor of the phenomonon
of both mentioned fields of analysis. The composition of productive
forces can be expressed by proportions of living labor and materialized
labor in the cooperating means of production.
Now-cl-days the degree of mechanization Is accepted as the most
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all J, I E. .7 T11 IN'
The instruments of labor for the modern production are machines.
world. Consequently the economic analysis of production has to be
very particular about mechanization and the related technical and
economical interrelations especially in those fields where the
progress of mechanization that is the changes in the composition
of productive forces was very rapid since a. socialist industry has
been established. As it is known (that) construction industry is the
most typical one of these fields, mechanization has its effect on
.the speed of production and on the other hand it influences the
magnitude and composition of input..
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characteristic parameter for the mode of1production all over the
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~y a' '1 I it"?:L
L
Another establishment includes the well known thesis of,
socialism that mechanization substituting living labor exempts
laborers from heavy work.
Therefore, the economy of mechanization and the related
,technical economical analysis has to be concerned with the
question, how mechanization effects the speed of production and
with the,outlays made necessary by mechanization, i.e., with cost.
On% former field the actual subject is the quantity of'
commodities produced in certain time intervals, generally speaking
the output of mechanized production as subject and goal of analysis,
thus the real task of analysis in this relation is to allocate the
capacity of machines and the time.
The second field; the analysis of inputs of mechanization
has two dimensions. The analysis has to cover the change of
proportions of living labor input and the materialized labor input.
The measure of living labor input is the working time, so the task
is to analyse the allocation of working time connected with
mechanization.
The analysis of materialized labor?input is a complex
problem. The summarized effect of numerous different factors
has to be expressed by cost in money terms at the present stage
of socialism. Consqquently the economy of construction
mechanization has to analyse with the assistance of technical
.economical analysis as a method of research - the effect
of changes in the composition of productive forces caused by
mechanization on the speed of production, productivity and costs
in the construction industry.
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Construction industry is the one that enjoyed the largest
scale and the most rapid progress in mechanization among all the
branches of our industry since 1945. Unfortunately, however,.the
opportunities provided by mechanization have not been exploited
successfully enough to the present day. The use of construction
machinery acquired at great sacrifices did not contribute adequately
the productivity, to a reasonably expectable level. Undoubtedly thi
was partly due to the fact that up to now the questions posed by
to the decrease of cost of production and similarly failed to raise
the inter-action betweeni,output'and mechanization In the construction
industry, as well as the problem of complex economic 'interpretation
of related factors and interrelations have been clarified only to
a email degree.
There is a desperate need for a systematized knowledge of
the most important economic principles and pertinent economic tools
of analysis which'are neces'ary in the evaluation of the economical
character of mechanization. Our mechanization policy consequently.
did not.always contribute to the economy at a maximum degree,'
besides the composition of our industry did not go through the
changes required by the progressive changes in the composition of
productive forces. Recently 'a great many spontaneous and often
destructive symptoms and opinions appeared about mechanization.
..It is indubitable that there exists an objective relation
between mechanization and the goals of production set forth.
The aim of this thesis is to present and summarize general laws
effecting the use of construction machinery and'to establish the
most important the.or.etical and in practice realizable and adopt
able-relatlonehips of the technical-economical process of
CI I EUTIAL
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mechanization, in order to render possible,. by means of already
existing or herewith obtained parameters certain conclusions rely.itive
to aome.or..the.guiding principles of the technical development of
the relation between construction mechanization and the building
.industry.
,2.0 The Performance of Construction Machines
Manual work is dominating yet at most of the construction
and consequently the capacity of production at present is a function
of the, number of laborers available, but at some of the leading
constructions and considering the perspective of progress, the effect
of mechanized operations in the process of production is becoming more
.and more. determining..
In. order to be able to evaluate this effect we have to know
which of the characteristics are the most significant aspects of.
aptness in the.production.
By the application of construction machinery a certain quantity
of products is produced during a given time interval. The quantity
of products produced divided by thetimeconsumed is equal to the
output of machines.
.The performance of the machines. is not constant in time but
it. varies in function of same and it's magnitude depends on the
time interval referred to. Consequently we will arrive to different
values of performance of a machine when referring to the time of
operation, to the.whole duratioh of a construction or to a calendar
During a given interval, periods of operation and periods of
pause can be distinguished. Referring'to the operating time
"top". The performance can e x reseed:.
HTMA'.
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 qop^ '`. p'
Where qop = quantity produced in the unit of time
Q : Total production
And referring to the Total time NTt"
qt
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C
4F
But the quantity produced is independent from the time referred to.
Therefore
qt qop top
Tt
denoted by "e".
Where
The machine performance usually varies during the time of
operation "gopl may take different values. One of the qo being
the maximum attainable performance under the given, technical
circumstances. Therefore it is customary to express the actual
performance in function of a prescribed performance where the
quotiant indicates the intensive utilization of capacity denoted
by N1N. .
qop = i
qo
.The product'ti.e)t is called machine utilization denoted by.
The machine utilization index "g" shows how' the actual
performance. in. a given time interval is related to the performance
that could be. achieved at full extensive and intensive utilization.
The preoeeding.paragraphs covered the method of standardization
of the notion of measures of
performance.
CC IFI E TIAL
The system of survey of
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performanoe,and.related collection of data however differs from this.
The main cause of the difference in comparison to above
mentioned is that the timereferred to is not the precisely definable
machine operating time but the very uncertain running time. On
the survey of machine performance the category of performance related
to' the running time can and has to be accepted so much the more that
it is the only measurable time in connection with machines and also
because the knowledge of running time is indispensable for other
.economical.purposes such asu tear and wear and fuel consumption.
..The relation of the performance achieved during the running
time gr?'and the performance norm can be given as follows:
qr iqo
In the construction industry the analyzed intervals of
production cannot be confined only to the running time of machines.
A knowledge of performance values of the whole duration of working
time; namely the average performance of shift hours or working
days is also essential. This measure will show the relation how
the machines fit into the process of production as a whole.
The fit of the relation can be indicated by the index of
extensive utilization. The actual indexes of extensive utilization,
can'be expressed by several interpretations. The most handy and
common of these is the practice of running hours and shift hours.
.Number of running hours ? Men
'
Number of shift hours
The average performance of.a machine during the shifts on the
site can be given as follows
qa a'e.igo
or introducing e.i = g
? qat
gqo
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 LLE
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Where g is the index of machine utilization related to the duration
of shifts.
is the most important general' utilization index namely the
chief index of the coordination of the plant, of sound use of,.
machines and indirectly of the eff ioiency of mechanization in aspect
of decrease of cost and increase of productivity. This index indicates
that to what extent the living labor employed in.the production made .
use of the available materialized labor emobodied in the means of
production. In this comprehension, however, usually not only the
utilization of single machines but that of a whole set of machines
has-to be calculated. This problem raises the question of the
summation of modern utilization indexes which can be done in two
ways: a) by weighed means or , b) by arithmetical means. As it
was pointed out above there is materialized labor embodied in the
machine and the quantity of this labor is realized in their value
(price). The'most important and common property of the machines of
all types and with all wording conditions is this value. For the sake
of economy of production it is necessary that we would allocate
economically not only the living but the materialized labor as well.
Therefore in summing up the utilization indexes the most important
factor is the amount of materialized labor represented by the given
index.
This weighed-utilization Index expresses In'these terms the %
of machine value assisting in the production - the so called active
machine' value would have been enough to accomplish the same
production-at 100% utilization.
It has to be noted that there is another weighing method used
in the industry for similar purposes. This method uses the term of
COffl1PEN lA j
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working power equivalent for the evaluation and weighing of machines
as well (see later). In practice this method can also be used since
machine value and.its'working power equivalent are in close relation-
ship (but theoretically it is not correct).
3.,0 The Factors.of the Cost of Construction Mechanization.
3.1 The Set Up Cost of Construction Machines.
One of the most significant properties in which oonstruotion
industry differs from manufacturing industry is that while in the
latter the products are moving from machine to machine during the
production, in the construction industry the building itself is' not
moving, but.'the tools (machines) have to change their places from
building to building. This moving, the repeated setups of machines
certainly oost.money and these are indispensable factors of machine
cost although, it is very. likely and a common mistake to.be forgotten.
The set up costs of the construction machines Includes the following
.elements:
1. Cost of loading and unloading
2. Coat of transportation
3. Cost of mounting and dismounting on the site.
The set up cost Is. considered not as absolute amount but as
specific coat per product unit for the purpose of machine cost
oaloulations. The set up cost of a machine oertainly burdens all
the products''that are produced on the site by the machine.
The. total cost of. set up (F) therefore burdens the total of
products produced on the site "Q" hence the specific cost(k) related
to the units of products is
f .??-- Forint/ product unit.
..Which meane'tiva.t the specific set up cost is.proportional with the
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inverse of the quantity of products produced on one site, i.e.
with-the inverse of the lot size.
..The lot size of construction can be increased when the
production of,prefabrieated elements is taken into consideration
instead of the buildings themselves. Naturally the lot size also
has an upper limit especially in the case of prefabrication. The
larger the prefabricating plant Is and the greater the area it serves
with products, the higher the transportation cost of the products
will be. Beyond a certain size of area served, or so to say a
certain-quantity of products, the total production cost will not be
decreased in spite of the decrease in specific set up cost, moreover
they'will be increased.
Again 'It has to be noted that the planning methods of specific
set up cost-used in the practice of our industry make. it difficult
to evaluate numerically or practically the simple relations mentioned
above.'.,?.In the budgets the machine set up cost is not listed among
the, machine cost but with the other set up costs of the construction
eondequently.the re.lation,of machine cost to the products is sub-
stituted by the indissoluble relation of the total set up cost to the
value of the construction.
Relating the machine set up costs and the value of the build-
ings this way is a ground for planning uneconomical meohanizations
especially because the lonely planned uncontrollable set up cost
easily can be changed, moreover Increasing them becomes an interest
having their increasing effect on the price of construction.
Under such circumstances there is no opportunity to execute
any conscious action in the practice of mechanization policy toward
the goals of diminishing machine set up cost. There Is another
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regrettable fact to be pointed out about this matter that under
the present and above described circumstances the actual or
proper magnitude of the specific machine set up cost is unknown
before those in charge moreover it's numerical value is not even
being studied.
3.2 The Reproduction Cost of Construction Machines.
The-instruments of labor used in the construction industry
are construction machines in increasing number. The instruments
of labor themselves,are also products of earlier labor materialized
in them. When producing a new product the living labor and the
materialized labor embodied in the instruments of labor are acting
together.
A special property of the instruments of labor Is the fact
that they will transfer the labor embodied in them gradually in a
given time to the products. Economically the instruments of labor
and so the construction machines differ from each other in two main
the machines are also determining factors. Therefore in the valuation
of machines and in,the analysis of the reproduction of their value both
categories of the values and their changes and interaction have to
be .expounded.
It Is known that the machines while in use are subject to material
and normal wear and tear, the material wear .and tear is in connection
but the fitness for production and the use value and it's changes of
things: in the amount of materialized labor (their, value) and In
the speed they transfer It to the products.
The value and the process of value transfer in the economical
sense reflects the passive role of instruments of labor only.
In:aspect of the active role not only value and value transfex
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 their separate discussion is needed.
with the . decrease of use value of machines whereas .moral wear and
tear or technical absolution is connected with their value and
necessitates their reproduction. In simple reproduction both use
value and value have to be reproduced.
But the. two kinds of reproduction costs are significantly
.different concerning their basis and for further classification
3.21 The Reproduction Cost of Use Value--Maintenance Cost.
The use value of machines is foremost a technical economical
qualitative category. Use value is the expression indicating that the
machine is fit to perform certain jobs.
Another fact to be taken into consideration is that use value
is not a constant property in time and while machines are being used
it will go through a gradual or an alternative change. The cause
of this change is the material wear and tear of the machines.
But the wear and tear of machines is not an irreversable
process.- Theoretically an
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also practically wear and tear can always
be repaired, parts can be replaced and this way the original'properties,
of. the machine., it's use value, can be restored.
When a machine part is worn out the process of transferring
its value to the product is completed. In the maintenance (renewal)
only this specific value has to be reproduced. By the process of the
production of'this,value however, it is not the original value of
the machine, but, it's use value is being reproduced. Consequently
machine mair}tenanoe can be regarded as the continuous process of
use value reproduction of the whole machine'through the replacement
of parts worn out.
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Naturally, the reproduction of.use value creates maintenance
cost.. Since the wear and tear of machines is a function of working
time, 'the maintenance costs are also function of same. The proper
technical view of the wear and tear process exposes a continuous
periodically repeated chain of the maintenance jobs of different
magnitudes which comes with the. almost constant appearance of the
maintenance cost related to the working time.
Unfortunately again this simple and clear understanding of
maintenance process is somewhat in contradiction with the present
practice - namely, because the present bookkeeping arbitrarily takes
the overhaul away from the row of maintenance jobs and handles it
not. as cost related to working time but as "renewal part" of the
annual depreciation. It Is evident that this practice is
unjustifiable and also harmful. Unjustifiable because one and the
greatest time dependent part of the maintenance costs does not depend
only on the initial value and a fixed % of it, called the renewal
fraction. Harmful because'for instance in a case of increased use of
the-machinery the reproduction of use value would not be covered.
If for simplicity working time is taken for the basis of
relation which is.a statistically well definable and plannable
quantity than in a comparative interval the maintenance cost portion
,.that-falls to'the unit of commodities produced by the machine can-be
expressed,in function of the output of the.machine and its
utilization. '
qForint/product unit
o
Where
u, maintenance' coat per working hour
qo' -
intensive utilization index
output norm of machine-per unit time. h r - ~~
fv,+.. of i n
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tit. 11ya1, "!-1i i~.
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One of them comes from the fact that the acquisition price of
a machine under socialist circumstances is not equal to the
reproduction cost of same in later years.
3.22 The Reproduction Cost of the Value of Machine Depreciation.
The value of construction machinery is expressed by the
necessary labor needed for their reproduction. In the process of
production this value is undergoing a two-fold change.
Since the productivity of manufacturing industry is increasing
lessening of value can be the measure for 'moral i.e.,
e.,s
technical absole4 a. There Is another way in which machinery loses
..:permanently the production cost and value.are lessening. This
it's value., This comes from the fact that machinery gradually trans-
fers it's value to the products.
In simple reproduction the value once already produced cannot
be lost but it is always reproduced and in the process of value
transfer, the transferred value is being accumulated through
depreciation. In simple reproduction it is not the original machine
value that has to be recovered but only the necessary labor needed.
for manufacturing it after "t" time elapsed.
Depreciation always appears as a distribution of machine value
in "t" time, usually in the form of annual rate of depreciation.
"t" - the time I.e. the lifetime of the machine naturally is
a very. important factor of this annual depreciation. The amount of
annual depreciation related to the'working hours or to the annual
magnitude of commodities represents a considerable part of the cost.
The shorter the lifetime is the higher Is the rate of reproduction
cost per unit product.
Since machine's lifetime is such an important Influencing factor,
it has to be calculated by proper methods. V
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From the standpoint of reproduction of use value the economic
limit of keeping.the machine in operating condition is given there
.where the acquisition cost of an identical new machine will not be
less than those. 'of the general repair cost of the old machine
(disregarding from operating costs).
Considering that the old machine would be replaced by a
similar but cheaper one and the time limit when this replacement is
economical to be made, then the equation for the old machine's
lifetime can be written up as follows:
A (1-p)t - 8.A a j.A
Where
A % acquisition oost?of the machine
p _ the annual rate of cost decrease in the manufacturing
industry
s = salvage value rate of old machine
48.A . salvage value which can be taken constant in time,
the ractioe of general repair costs and the original
acquisition cost.
Hence
iog , i-s p)
Figure No. 1 explains the relation..
From the viewpoint: of reproduction of the machine value the
transfer of value is economical to be c arr/'ed on i.e. it
should be completed by the time when the average cost of production
in a process by other available ,means becomes scrici'en t!y less' than
that of by using the given machine for the same purpose any further.
The machine cost.is in funotion..with the lifetime as follows:
UP6N{ rID
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 sum of the yeuA set up, operating and maintenance
cost
acquisition cost
Ko Ko/1-pl/
average cost at t = o
=a4' yearly cost decrease of related
construction industry.
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- G 4 A/t
Where
t = lifetime of machine (Hears)
K annual machine cost
But the average industrial cost of the yearly.produot is
continuously decreasing in time.
A machine with yearly operating cost (K) should be run In a
given production process until the difference in operating cost and
the average cost of the giv n process does not exceed the product
If A or
of the norm of.the index relative investment effeoienoVand the
acquisition cost of a new machine. In this case clearly
G O A/t - Ko (1-p.1 ) t = ACA (1-p) tJ
which expesi4ential equation can be solved for ti.
In the practice of our days the lifetime of machines is
prescribed by orders without further investigations. By this
order,:the prescribed lifetime of construction machines is 20
.years and the annual.depreoiation accordingly is A/20. .This
covers. the simple reproduction of machinery and this is the
foundation-for the reproduction coats of machine value.
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It is easy to understand that the application of same
lifetime for all types of machines cannot be correct and the. cost
elements showed on this basis cannot coincide with the real costa
of reproduction. Same deficiency furthermore prevents us from
getting.a true. picture of actual magnitude of machinery cost and the
factors influencing it. In considering r we=of these, arrange-
?ments for finding the method of establishing economically justi-
fiable norms of machine. lifetime should be made.
.-The two parts of reproduction costs, the one connected with
value and the other one connected with use value can be separated
only by methods.of.theoretioal investigations.' The records of
bookkeeping makes this discretion impossible. In the practice the
depreciation and maintenance costs are realized in their sum only,*.
and in. the cost analysis of mechanization they are usually mentioned
.as machine rental cost.-
These cost elements in the rental cost are represented
as annual or monthly fixed amounts.' The reproduction cost during
the operation of machines is taken into consideration as rental
cost. Consequently the rental cost should be the right amount to
cover the reproduction cost of the machinery.
For the investigation of these circumstances, the elements,
composition and.faetore.of the rent should be detailed.
The-rate of rent is determined for the whole set of machines
by an almost identical number and it is given per month as % of the
value and consequently the rent is represented as monthly cost at
..the constructions. But the reproduction of machinery is paid by, the
investors through the-unit prices of the building. The part
reimbursed in these unit prices naturally is proportional to
CONFIU T1AL
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U ?"$'1fZX4' ad'11tIII`1L
production 'volume and
machines a
e size of the
machinery as it burdens the .constr.uction industry.
suiuing` that ". we want: to continue' oovering.:the reproduction
oone'truction,lmachinery' with monthly : rents,
to
be
escribing this simultaneous, relation showe;
ate of~rent which
contains the
all y aspects y of'the `use of
equatlon f;':.
e monthly
reproduotiori' utilization ' ooverin
machines::
it cannot be' related-to the working .time of
::burdens the' contracting firm .and 'especially. not' to-:,
then' the. rate 'f rents
function:of.the %of ~rentedmaohines
utilisation of 'machinee,:;rented .,
deprec ation"% per year.
&sn# per. year '.
,.renewal:% per: year
epair' % per'year.
TThe function can.be described by a function with two variable
and" the diagram; ( Figure
2) the
correct values of the-rent are
calculated `considering' the present
situation as.a case when. "
100%
-
t o becomes clear that the ',magnitude of rent 'necessary. for
reproduction is : cerfar? function of factors,: which, the .fired-
oost;{r6imbursed.by investors cannot contain. The: equation shows
t whether we procure t
e .continuous` load of ;',the machinery were
the rent may, be';y kepton ,.the same level, or the; rental. rate --has
varied;aooording rto the ?'oooupanoy'; of construction industry.
r
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If keeping to it, in case of an unfavorable change in the
use oh machinery either the cost paid by the investors will not
cover the rent, the contracting firm pays (the contracting firm pays.
the difference) or the rent.will not cover the reproduction cost
(rental firm pays the difference) but anyway it is the construction
industry that loses.
In the practice there is a system developed that rent is paid
by the month and with it, by the shifts worked considering the
number of--shifts-worked a day. In the most common one shift
production, the specific rent cost can.be expressed as-follows:
Kb B-qo _ b Forint/unit g
Where
rentf shift
B
qo
3.3 The Wage Cost of Mechanization.
The operators of construction machines are paid according
to'the output of machine when it is running and they get hourly
wage for all .the time when the machine is out of use. Since the
extensive utilization of machines is verylow, the wage cost of
machines belongs rather to the latter category and it can be
regarded as fixed cost per shift. Hence the unit wage cost (m)
of the product can be expressed approximately as:
M..,= MO' ml Forint/unit
gqo g
Where mo is the wage of an operator per hour.
3.4 The Cost of Energy Consumption.
This cost element is a very small percentage of the machine
~11; T I VE
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 H 1
Forint/unit
Specific Reproduc /ton Cost (rent and repair)
Forint/unit
Where b = rent burdening one shift ('8 hours) per
production norm..
Specific operating and serving cost
Forint/unit
Where m'= wages cost per shift (8 hours) per production
norm.
4. Specific fuel-or energy cost
L s Forint/unit
b and mare constant for given machines and given circumstances
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cost'and it mostly proportional with the load of the machine, that
is, with the output. This fact permit to consider the energy or
fuel cost per unit of product as constant:
L = 'constant Forint/unit
4.0 The Cost Functions of Construction Mechanization.
It refers to all the cost elements discussed above, that their'
magnitudes are stipulated data that comes from orders and norms,
(As performance. norm, rent, wages, energy norm) and on the other
hand they are factors in function of construction organization as
factors. The elements of machine cost can be written up in following,
form - according to the order of their discussion in chapters
machine utilization and plant size. The total specific machine cost
is derived from the sum of these partly varying, partly constant
F.
1.. Specific set up cost:
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and having the same denominator they can be reached using
(b * ml) '= o. Thus the total unit cost of mechanization takes
the form:
K L ,~C c L
g
which is a simplified form of the cost function. In the equation
on the right side, the nominators of the first two members and the
third member are constants, while the amounts in the denominator of
.the first two members are functions of technical and organizational
orders and parameters.
The mathematical anology of this cost function is an. equation
with two.variables, describing a surface. (Figure 3).
This cost function is an equation that enables us to calculate
the changes In. machine costs covered by any element and to figure
which-parameter has what effect on the total machine cost. Accord-
ing. to the theorem of Of itr&te .in+0fttments, a small change. of machine
cost can be expressed as
AK = 1DK Vgg- . Ag
.9Q .
and-thereafter the proper substitutions:
AK =?Q112 ?
Q
The partial differential quotients of cost function in the so
called marginal cost-has an important role in the cost analysis.
It reacts to'the changes in all the parameters and it shown which
seotions'have certain parameters the most determining effect oncost.
The'differential changes of the parameters can be substituted
however, by % changes. The results of this substitution is the
cost flexibility which tells, how much % of change of machine cost
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~
will follow 1% change of plant size or machine utilization. The
value of flexibilities denoted by fQ and fg in the equations below
show the calculation method of flexibility in function of Q.
F/Q
and flexibility in function of g
f g %/%
K.
Table .1 shows the magnitude of relative cost. variation in the
neighborhood of reconstructed utilization indexes and plant size. s.
1% change'in plant size and machine utilization respectively as it
is clear in given case cause different changes in machine costs.
Beyond a certain plant size or machine utilization the changes
in the independent variables cause a gradually less and less change
in machine costs. But under the present circumstances in construction
:industry this sensitiveness of costs in function of the given two
.parameters is great, which means that a small positive change in
organization may result in a rather remarkable decrease of cost.
In connection with this fact there is another problem that
has to be solved: how can a certain decrease of cost be reached
with the least sacrifices required for changing the given parameters?'
It can be shown that a maximum decrease in machine costs In
function of "Q" and "g" parameters can be obtained if the proportion
of related parameter increases is the same as the proportion of
differential quotients (marginal costs) thus:
CQ
2
Fg
0
On Table I) values are given for different machines.
In every case it is shown that at present the possibilities for
decreasing machine.oost are by improvement of machine utilization.
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For practical proof and utilization of relations revealed in the
,cost function, the average unit cost-of the 6 most common machines
is'ealculated in Table I as it was reconstruotable from statistics
of 1953. In calculating the cost, the constants of cost function
were taken from norms, tariffs and auxiliary resources that is from
cost elements fixed for given machines or their use while the
dependent variables were taken from statistics. The data of Table
Ishow very illustratively what size of cost elements have formed
the average specific machine cost of the listed machines during the
time considered and also that what conclusions are allowed by the
relative cost flexibility quotient and the parameter. function of
maximum cost decrease regarding the given parameters. These
conclusions point out the fact convincingly that the cost analysis
applied is very useful and they also prescribe the principles to be
followed in mechanization policy.
6.0 The Economical Limits of Mechanization.
Since by introducing the cost function the mechanization costs
are,. easily plannable and controllable at any level the question
arises: what will be the related limits of machine utilization and
plant size at a level demanded for. There are two actual forms In
which this question appears..
The first one is the more simple and general. Known or
prescribed is the maximum specific machine cost of the mechanized
technological process using a given machine. With the knowledge
of the structure of cost function the solution of the problem is
actually finding the corresponding par of q, and g by which the
specific cost "K" Is less or equal to a prescribed "K" cost.
This problem
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effects the operative application of machine
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cost function provides a straight-forward way to solve any of these
problems.
Applying the above mentioned considerations a method is
provided for planning the magnitude of mechanization cost moreover
the operative planning can be carried out by keeping to
certain limits the parameters. There stands the question though
what consideration should be used for calculating the maximum specific
machine costs for a given machine? Up to now there was no upper
limit drawn or even calculated for machine coats and this lack also
hindered the decrease of cost since any single machine cost could
appear without control or c mparison.
Supposing that they is an upper limit to machine costs that
cost calculation so far that a prescribed coat limit the minimum
machine utilization to be prescribed is a function of machine type
and plant size. .
Different and more complex is the-problem when for fulfilling
a task a consideration of alternatives is the goal.. In this case
.the question is finding the limit below and above respectively when
different alternations are the most economical. The known form'of
would not be worthwhile cros^d a knowledge of it for orders and
setting up norms is inevitable. For the, examination of this
problem further analysis of cost and especially of machine cost is
necessary..,
Generally mechanization.should result In ,a decrease of living
and materialized labor Input comparing mechanized production to
(manual) previous techniques. Mechanization can fulfill this
task when applied properly by saying more living labor the amount
of materialized labor used up in the product during the process of
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value transfer.-.This means that the total of living and
materialized. labor per,"pr:oduct unit has to show g. decreasing
tendency. Which'fact is the guarantee for the increase of gross
productivity.
It 'is important to e noted, that the productiveness of a
firm is essentially different from the one discussed above because
it later will show an increase only by he decrease of living labor.
This effect in many cases caused a wrong view at the principles of
yesterday. Since mechanization as a rule always decreases the labor
demand-of production but it does not mean necessarily an increase
in gross productivity especially not when machine utilization is low.
The relation. can more easily be seen through if we talk about
the costs of living.and materialized labor and demand that the cost
of living labor should decrease,to a greater extent than the cost of
materialized labor increases as a result of-mechanization. Which
.approximately means that mechanization will increase productivity on
.the national level if and only if it has a decreasing effect on cost..
In any other case mechanization will only decrease living labor cost
while the total labor'needed in the country at least in a given section
will increase.
What we really want from mechanization is a decrease of cost
comparing to the techniques applied previously. If we establish what
we mean on previous techniques and accepting it, we calculate that
the cost level that existed up to now, then we require order from the
mechanization: that the machine cost should not, exceed the. cost
.calculated this-way. In the case of particular construction
Lndustry:rit seems to be the most advantageous way to take manual work
as a basis for the comparison.
1'L T
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This way we have chosen a method that in applying any machine
the maximum of its specific cost, is expressed by the cost of'an
equivalent manual work.
Assuming the role of mechanization in socialism generally it
cannot. be said that in every case when mechanization does not need a
decrease of cost comparing to the cost of manual labor, mechanization
should be..o,mitted. The present organization of construction industry
.and the demand for labor power typical in socialism, obliges. us to apply
machinery at a great extent. 'Naturally this has an economical limit
too. As on company. level the mechanization of higher cost always
causes loss'so on national level may appear the case when mechanization
is not economical e ven though it means a saving in gross labor power.
The calculation of this maximum cost limit is as follows:
The starting point of this consideration is that the application
of machines relieves labor power, which then can be used in another
field of national economy for production of value and by that increases
the total production while on the field mechanized related wage coati
will be saved. In this understanding the machine costs can even
exceed the wage cost of manual work up the point where they reach
the new product value of equivalent manual labor because this is the
limit up to which the mechanization is economical for the national
. economy by saving labor power.
'For.the purpose of these calculations the relation to be
established were between wages,,cost of manual labor and the new
labor product value of the manual labor has to be laid down.
1. In the construction industry besides net wages there
is 29% so"called social burden which includes taxes proportional
to wages -.board and social services; and 59% so called census-
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proportional extra cost, which consists of allowance or travelling
cost, cleaning, in many eases education, protective outfit, winter
complement, etc. These cost elements represent a total of 88% of
the wages, from this the factor is 1.88.
2. The production employees have to produce the production value
for the inproductive employees - so their wages too. Presuming that
the wages of inproductive employees is 25% of the total - as an
industrial average - the factor related to basic ,lwages is 1.25.
The productive employee has to produce the difference between
consumption basis and national product, i.e. according to the
70% of consumption basis repscribed by the government program of 1954,
1/02 of It - which means a factor of 1.43. Since the application of
machines always relieves productive employees - multiplying the
mentioned 3 factors it comes to the conclusion that 1.88 x 1.25 x
1.43 a Forint 3.35 labor product value falls to 1 Forint netviages
cost of a productive employee in construction industry. This number
which is a very interesting data of the national economy from the
point of mechanization expresses that the saving of manual labor
time provides Forint 2.35 national production plus product beyond
every one Forint actual wages saved.
It is known that application of machines'while increasing
the productivity on the other hand may also increase the cost. This
increase of cost Is permitted only if balancing this there is a
suitable amount of labor power relieved. This means that the appli-
.cation of machines may cause an extra money cost, the so.called
substitution cost in some cases in practice but this substitution,
cost certainly cannot be of just any magnitude. The limit for
substitution cost is at the-level where the costs of mechanization
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 labor.
consume but do not exceed the product value of substituted manual
The maximum of substitution cost is 2.35 . 290 a 6.80
presuming that the average wages in' construction industry is 2.90
Forint which means that the extra cost of mechanization permittable
is 6.80 per substituted one working hour. Up to this limit we can
still-talk of economy of construction industry in national terms.
Cost above this limit.means lose on the level of company and national.
economy ae.well.
The notice of substitution cost (opportunity cost) In the
national economy has for long been wanted for development of the
economy of mechanization.
The fact that figures of machine cost were hard to obtain
and a certain under gvaluution of the program of cost decrease led
to mechanizations applied immoderately with the motivation that the
goal of mechanization in construction industry is first of all
decreasing the demand of labor and that such effect of machines can
only be. profitable for the national economy. The introduction of
substitution cost points o
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machine application does not necessarily agree with the interest
of national economy and that the economy of mechanization has to be
'calculated...~or at least it's upper limit had to be drawn in the
future.
Table I contains' besides the reconstructed values, those
minimums of g which indicate the economical limits for the firm and
for the national economy.
6.0 Relations Between Mechanization and Productivity.
Mechanization, by changing the composition of productive forces
that the erroneous understanding of
'R 4j 0 1 j 1i L',
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I.BHU1U17NIIRL .
and with that the proportions of the two most important production
factors - labor power and instruments of production as it was pointed
out earlier,, has a double effect:. increases productivity and
decreases cost. These two effects do not answer the changes in the
measure of mechanization with the same susceptibility and definiteness.
'Expressing the total input in the form of living labor (Me)
and materialized labor (Mn) it can be proved that the productivity
of living labor ( fi) in the form of
t _ T
Me
increases more rapidly with the decrease of Me than-the productivity
of the' total labor "' .
T
Me Mn
which is. reciprocal to total costs.
Consequently when a decrease of Me is obtained by mechaniza-
tion, it's effect will necessarily appear at a greater degree in the
increase 'of productivity than in the decrease of cost..
This fact makes it possible, moreover, necessary that we
involve the analysis of productivity of mechanization into the
technical economical analysis of mechanization. There are two main
fields to be studied:
.1.' At what extent, in, what function and how will the
productivity of laborers that is the productivity of working process
develop with the application of machines?
.2.' How is the productivity index of the whole firm or
industry related to mechanization?
It is known-that the machine operator is supplied with machine
as'inetrument of production and his productivity is a function of the
CONflor.
IV Till,
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.equipment..' It is an adjacent idea that the development of
productivity in the comparison and valub.tion of different machines
should be expressed in function of machines available to use. For
labor is proportional with c/v index of Marx's reproduction scheme.
In.the' analysis of productivity of laborers working with
this purpose an, index of machine supply has to be derived. This
Index is called degree of, mechanization, denoted by E and it's
dimension Is
machine value - a = Forint/men
number. of laborers using it ?L
The degree of mechanization lies on a very deep economical:;basin.
'It's magnitude at a given and constant composition of instruments of.
.certain machines in the function of degree of mechanization, important
fundamental.laws are found. The form of t = f ( ) function shows
that the change of degree. of mechanization the machine value per
person - effects the productivity of laborers. That Is why t = f
( ~. ).function has it's important economical interpretation.
-.Figure No. 4 for instance shows.that t = f (E ) function
of different concrete mixers used in construction Industry. On the
ulosc~'Ssq are the machine values the machine operator disposes of and
the ordt ak indicate the 100% production per working hour. This
empirical relation-shows-that by increasing the machine size per
operator, the productivity increases first slowly then faster
..then slower again.
The increase of degree of mechanization naturally is the
most effective and profitable where the increased productivity
Per machine value per person Is the greatest that is where
-At
AL
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dt/dt function, i.e., its values have to be-interpreted
distinctly. It has the same:marginal productivity. As long as
the marginal productivity is growing, the machine values added
to increase of the degree of mechanization, effect the productivity
positively. From the point of productivity the criterion of most
economical mechanization is at the maximum of dt/df. curve.
Beyond this point the added machine values will still increase the
L1
productivity at a declining degree. For example" the casg of concrete
mixers ohosen~the degree of mechanization was increased by taking
machines,of 'biogberand higher capacity. Figure 4 shows that from
the point of productivity Or 18,000 Forint value, 4.5/k capacity
(250 .. 275 L) mixer meets the optimum.
It is interesting.that the practice applying intuitively the
,'law, of marginal productivity considered this machine type as the
most useful and it is the most common.
The application of machines effects the productivity of the
whole production process by changing the average composition of
production.' This effect Is very.important because it appears within
the range of data registered statistically, that is, it Is based
onunanimously plannable and controllable relations. In spite of
this up to now there was no scientifically based statistical method
known in the literature or in the practice that would have revealed
the objective relations between the, quality and quantity of
mechanization and productivity.
Our analysis is introduced by the following establishments.
The techniques of construction Industry at its present stage is a.
rather mixed'manual-mechanical productive process. The operations
within this process are vertically articulated and a peculiar
property of this verticality Is that the technological process is
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serial with hauling and transportation operations. In the
mechanization of construction industry the heavier and labor
demanding operationsimostly auxiliary labor, are mechanized first.
Most of our construction industry machinery is made f}'of[ substitution
of auxiliary works. Consequently in the production process of
substantially unchanged technology the mechanized operations being
vertically connected with manual labor, the speed of production Is
still determined by latter.
Under such circumstances the manual works can be divided Into
two groups from the point of mechanization, a) labor that can be
substituted by machines (mostly auxiliary workers)., b) labor
,unsubstitutable by machines. The productivity of production process
will be increased according to the extent of substitution of labor
by machines.
The, substitutable labor however, can be substituted oply to
a certain extent dictated by the given techniques, that is until
the proportion of substitutable and unsubstitutable labor character.-
,.istio to given techniques Is reached.
In order to make it possible to increase productivity perman-
ently and without limit, It is essential to change the technique
of construction that lima s the productivity increasing effect of
mechanization through the constant proportion of substitutable and
unsubstitutable labors. The task then is to improve techniques,
apply modern organization ideas, prefabrication and modern machinery.
The next step is to analyse the mathematical interpretation
of,this relation. If ido = number of laborers working in the
mechanized productive process that cannot be substituted on given
stage and Ms the number of substitutable laborers
the final product (use value) of.given.time Interval.
a N
~g
r 11
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then the productivity."'b"l
t T Forint/person
me k Ms
Suppose the quantity of substitutable labor partly or in total will
be substituted by machinery. For this supposition we also need to
know,,'that how many persons labor can be.substituted by a machine and
for that the category of working power equivalent is introduced.
Working power equivalent is an index showing on the basis of a
comparison,. that how many laborers could have done the same job work-
ing.the same hours that the machine has completed in certain time.
With the introduction of working power equivalent a unanimous relation
is found between the machines and labor quantity or number of
laborers substituted.
The relation between working power equivalent of the machines
and value of same individually and generally, leads to an Important
conclusion. For the expression of this relation a new parameter of
the machines has to be introduced - the so-called specific working
power equivalent "n", which is the quotient of working power
equivalent and machine value, referring either to a single machine
or to a group of machines,
n '- N person/1000 Forint
and-it tells how many laborers can be,substituted by 1000 Forint worth
of machines.
Twenty construction machines were involved in the analysis of
this relation.
A table has been completed (Table II) for the analysis of the
relation and the equation of the curve, characteristic to the
relation also has been established which can be simplified to a
.simple.proportionelity.with a little.negligence and in our further
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 scussionn
used.
UU Fori
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`utiliiation
Lis} very ;useful
,final result provides a basis for the
scriptioIh7 of. the effect
v
The:relation means that In construction mechanizationf
t' machine.value will relieve 1 laborer.(presuming 100$
Y ;simple
of. mechanization on productivity- by means.,
considerations, and . relations.
It. has to be..noted that the
relation ,.above cannot be generalized and the
o `sthe
results derived refer
mac:hine types that were involved in the analysis. ' For,.`
l
instance a`very
different number is characteristic to heavy loading
machines and excavators but this difference does not influence the,
correote, of, our thought because at,: a given calculation actual
Lta'of related machines are being taken.
..Thejexpressions.of productivity, - caused by substituting
artlyor
considering the'' number of laborers employed with It's, operation'
'
l
earlier,laccepted"parameter ,for,. the degree of machine supply`
An
e
the degree,rof mechanization which:is? also an index ofoomposition o
productive forces.
The j egree Of. mechanization In:, this
case is' a quotento
machine value and the "number` of laborers operating it' can`
written-, ae followss ~y fi t
nd,drawing,thile equation and~~
in whole Ms number of laborers is
T
?1'Mc (Ms ni)
But it is ' known..that machine value in itself says 'little abou
e degree`of mechanization and for this it cannot be used.witheut
00, For nt/pereon
previous to.ge.ther
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Dh,. Ai
t =a ' -'. E. product/person.
That is how we arrived to the relation. between mechanization and
.productivity.
The change of productivity is proportional to the change of
degree of mechanization. The slope of the curve is a function of
T/G multiplier - the amount.of products actually produced.
In the following paragraphs the main conditions of our
.conclusions are discussed and the moditication of the relations,
after the release of the abstractions are analysed.
1. Supposing that the increase of mechanization is accompanied
by a total compliance of the productive forces. That is the
substitutable number of laborers determined by the stage of techniques
is being relieved by machines 1 cBs productivity quantitatively and
qualitatively as well is fit to the productivity of substituted number,
so that the machine work will complete the work of the unsubstituted
laborers Just as the previous number of substituted laborers. When
applying this principle we find that there is an optimal proportion
of machines and operators for every type of machine which provides
the most efficient condition,of the productivity increase. There
is an optimum of degree of mechanization providing this proportion -
supposing 100% utilization. Optimum because an increase of mechani-
zation above the degree determined by compliance with the given
techniques, usually will not increase the productivity but lessen
the utilization index of machinery only.
2.. Our conclusions up to now were'made presuming a 100% utilize
tion. It is well known that this condition in practice can very
rarely be provided. The question is what is the effect of the fact
that the machine values applied.do not perform 100% output but only
EE__Q
4,~ LlI 4 is -:E'; -s ue
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a "g" portion of it which is the utilization index? Naturally
the decrease of utilization will cause a proportional decrease of
productivity or what is the same, the actual working power
equivalent, i.e., the number of substituted laborers. If "G"
machine value substitutes "nG" number, at 100% utilization, then
at ,a % utilization it will relieve only g.n.G laborers. From
.the point of:productivity it can be interpreted as if a machine
value multiplied. by "g" would only be applied in the production.
This value differing from nominal machine. value is called active
machine value.
3. The methods of increase of mechanization also have to be
machines of greater and greater value. In this case emphasizing that
the condition of productive power compliance is provided by the specific
analyzed: -Two extreme cases of it are the following:
In the first case - the increase is done by applying universal
working power equivalent will determine the form of t . f ( ) curve.
And the specific working power equivalent at least at the beginning
increases with the growth of machine and plant size.
In the other case the number of machines is increased. The
more machine. is applied how ver the less the condition of compliance
can be kept and the lowe the average utilization will be and in
function of normal degree of mechanization the t - f ( ,) curve
will be. declining. (Figure 6)e
An important final task is to contour some of the principles
that come from the revealed relations. First of all it has to be
pointed out that as the average utilization index of construction
machines show the'productive forces most efficient compliance from
the point of-productivity is not provided. A general symptom is the
CONFIDE' R
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6'S TIM
lack of harmony between substitutable and unsubstitutable operatons.
-Speaking in technical terms the capacity of manual operators related
vertically to mechanized operaliolis does not reach the capacity
...provided V.y the machines by far. Under 'such circumstances, since
the unfavorable utilization conditions common in the industry,
refers to all theiew machines to be applied, the machine values brought
into the production at great sacrifices, will be activated only in
1 4 =.1 6 ?Cfraotions.and for this in cases of greater mechanization
the degree of active mechanization will reniui4ilow and the
productivity increase will be very slow. It has to be concluded
that the adjacent operations of productions, rnanmal operations are
fit to a much lower degree of mechanization insuring total compliance.
The organization and technique of construction industry did
not follow the speed of machine acquisition and supply. In order
.to provide the ground for more active mechanization, it is not the
mechanization. but the possibility for mechanization that has to be-
increased. An increase of degree of mech(ines?cannot be a goal
for itself, and it does not necessarily mean the increase of
productivity at'all.
Under present circumstances the increase of productivity by
.means of mechanization is almost exclusively a matter of providing
the possibilities of mechanization;.that is a 'matter of improving
the organization and technical development of the technology of
construction'industry.
For the sake of above mentioned an organization of construction
that stands on the ground of optimum compliance of productive forces
has to.be pplied. When carrying out the operations that were
planne.d.'on this basis, no allowance should.be made because of lack
of laborers; that would be against the number providing the
'v' N
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IDEP1
conditions ot~ compliance. Generally it cannot be permitted that
for saving a little living labor - a great deal of materialized
labor would e sacrificed. The means of fight against lack of
labor power a not forced mechanization, but the decrease of
number of.ei ultaneous constructions. That is how the national
.economy obta
zation provi
not-by havin
na more products. because the high degree of mechani-
es the higher productivity of all. the laborers and
-built much at a low rate of productivity.
It is.time that the practice of our construction organization'
will solve t~e problem of the total compliance of productive forces
according to
of this.work
the minimum
techniques', t
the nominal machine supply possibilities and the results
has to be shown in forms of orders that would contain
umber of laborers to work with every machine and
t will make a high utilization possible.
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1.cost-flex. f
U~ig~ gc~a.ii 9 area 10 -
... kit... era
oweBrunn Con a ".-Contr.' Morten' Exca , ;rn
rane Crane veyor Mixer Mixer vator Remarks
4 5 6 8 g.: 10
, 60. 21,2 '16,80 20,-r.-
', 20,-
47,202, 46- 0, 572'-0 -524 --0 -468-
30240:90
90
5,13
6 36 '
1" 73
2; 82
3, 04
02.54
f
F/Q.
2,14
2,61
0,61
1212
1,80
1,30
1,09
1,50
0,.70
1,40
2,30
0,50
8,35
12,30
3,64
5,60
9,46..
2,48'.
12/7
14, 84
200-56
6,14
10,02-
.15.,16
3,52_ K=
0,35 -0,31.-0,28 -0,28 --'-0,20 -0,15
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by .plant size
.A to or. m3/81te)-:
pec.: setup cost
.(Ft/to;)?.t/3)- f
12.'.. Avg. fixed mach. cost
(Ft/tom3)
13- :Fuel s coe.t (Ft/to, m3 )
14 Avg..oper.,cost'(Ft/to,m3). c/go
.-.15:;- Speo.mach.cost (Ft/to,m3)-. - K
:Inters.
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2
17 -Rel.cost flex.for g %/%
a a a AM- % of g
19 Marginal cost of Q
a 9
{%09154 rca w.. ..
TABLE II -CONTINUED
3
fg
-0,57-0,60 -0,59
-0,55
f g'
-2,,22-2-084 -3150
-2, 2,75
-F/@,2
0#564174 Z-02
-153-
-c/g2
-32-17-58.9--20,6
-27, 9
21 Param.of max.cost decrease tg
22 Work.time/prod.unit with
machine (hr/m3) me
23 Work.time/prod.unit in
manual process (hr/ 3/ m'
24 Cost of man.labor (Ft//ms,_to) f e
25 Subst. cost (Ft/hr) h_
26 Econ.margin for firm (%)
2? a . a. a nat.
economy (%)
Fm
gm
57,- 33,- 4,- 1,86
0,10 0,20 0,05 0,214
3.S75 22-- 1030 10,90 5,80 3,77 5,80
1,05 8.20 1,92 2,37
8 9 10
-0,62 -0,70
-0, 30 10,33 19. /20, . / "
-19,50-0,03
_500- _4#72
2,64 170-- 20./19./
0" 272 0,1 operators 1. po
.1,36 1,15. 1/N.
3,95 3,62 2,90 x 23
g-Re
me-m
50,-- ? 48,- 81,- ? 50,
10, 50 43250 10#50 18,8060,-- 20#--
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'll LF 'lAL
RE4(ARKS. TO TABLE I :
1. Th'.machine cost of all (except excavators). was higher
.than the cos that the normal laborer needed for completing same
job would'.ha a been - referring to the utilization and operating
.conditions of 1953. But this comparison does not take the speed
of work into ~: consideration.
2. The "c".value at the cranes is remarkably increased
by the fact th.t the norm of operattoas is well below that of the
machine ' capacity.
3. On the cases of Brunn crane and the mortal mixer the
coat is'1.4 2.6 times as much as the cost of manual work of the
same output. The cost function constants are so high that even a
loss not only on firm but on national economy level as well. The
substitutio .cost of 1 hour is above 6.80 in both cranes.
5 The proportional increase of machine utilization decreases
100% utilization would mean less for the firm.
4. The application of Brunn crane and mortar mixer is complete
the machine
For ' ins tano
machine cos
th case of concrete mixers were- between 20L2l%
6. T the cases of tower crane, Brunn crane,. excavators
and conveyo, it is enough to'improve the utilization
utilization.
quick deore se of machine oost.(.eld).
whieg in ad es of mixers, the plant size has to be increased for
7.' The data.'of rows 26 and 27 are correct only at the
average plant sizes of 1953,
'W Ym,j gf~L~~~a
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cost 2-4 times as much as the increase of plant size.
1% increase in utilization meant 2.75% decrease of
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42
IIRMITIAL
CONNECTIONS BETWEEN THE VALUE AND WORKING POWER MUIVALENT
OF MACHINES IN CONSTRUCTION INDUSTRY
Working Specific
Machine Power Working
Value G Equiv..N. Power
(1000 Forint) (Person) Equivalent(n)
Convey
or 6-10 m
12
6
0.5
2
'
Convey
or 15-20 in
50
28
0.56
3
.
Cement
s pump
15
8
0.53
4
Vibezv
sieve
24
11
0.46
5
Concr
to vibrator
10
0.30
6
Elena
or
55
27
0.49
Concr
to mixer 150 L
17
8
0.47
81
N
N 275 L
22
14,
0.63
9
N
375 L
36
17
0.47
10
11
500 L
31,
21
0.68
11
Mortar
mixer 150 L
17
4
0.24
12
N
N 200 L
35
6
.
0.17
13
N
" 325 L
26
9
39
0
14
Mortar
pump 3m3/hr.
23
9
.
0.39
15
n
N 6m3/hr.
28
18
0.62
16
Brunn
crane
49
28
0.57
17.
Deck C
rane.
19
10
0.52
18
Clan
hovel
25
18
0.72
19
Port
crane
54
15
0.28
20
.Tower
crane
.300
140
0..47
;T -a4e
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 tON1ET1AL
CONFIDENTIAL
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 II III _
----------------------
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s 4 `i0ea 17/p,,lo0i J
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1. THE GOALS OF MECHANIZATION
There were many goals of mechanization known in the construction
industry mostly as slogans. This situation came from the fact that
goals and accomplishments were never compared objectively.
The most frequently emphasized goal of mechanization was that
mechanization relieves workers from heavy manual work. This idea
posed the communist government which acquired the machines as
benefactors of workers., that led to abuse of equipments and money
whenever the mechanization did not serve also more realistic purposes.
A.general mistake which arose from this aspect was that workers and
engineers were inclined to think in terms of certain single labor
consuming ope ations trying to replace them by a particular machine
instead of trying to replace the whole technological process by a
.more'advanced and mechanized one.
The pol tical economical goal of mechanization was the increase
of productiviy. It was generally understood that higher productivity
is better than lower, no matter by what means it was accomplished,
and consequently, became one of the most important indicators of the
successfulnes of firms and industry. This was however, a very
misleading f iure. Disregarding from the common misbelief that every
gain in produ tivity.has to be attributed to some sort of mechaniza-
tion which was'natur.ally not true, the category of product-value was
a completely insufficient measure. The Forint-value of construction
expressed not only the quantity. but also the quality of products,
making every omparison incoherent. In addition it reflected also
every ..increase in wages and material cost which clearly had nothing
to do with productivity. The problem of lack of a unique measure
for product value in construction, hence the correct measure of
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productivity is one of the most serious shortcomings in the economics
of the industry up'to present days. The only way of calculating
productivity. terms is that one used in the dissertation, when
product-value is.expressable'by quantities as m3 or ton.. These
quantities cannot be related, however,. to end-products, but only
to certain p sis of construction works.
Another general goal set ahead of mechanization was the accel-
eration-of t e speed of production. This goal could be achieved
naturally ony.when the mechanization represented itself a well defined
technological process, independent from others, like in the case
of earth moving and road building machines and prefabrication in'
general. Whenever mechanized processes were connected in series
with traditional manual production - as it was in. all other cases -
the latter determined the speed of productions and machines became
idle. It':w s frequently told that the expansion of mechanization
is needed first of all in order to serve the interest of the expand-
ing.prefabr cation. Namely the prefabrication was forced by all
means. The'hobating powver was not only the technological advantage
of prefabrication - the products were almost exclusively reinforced
.concrete el ments - but mainly the acute shortage in timber. This
fact resulted in.%credible extremities, for instance the investments
and'continu us use of crania capable to hoist prefabricated elements
weighing '40'
tons up to 50 meters high. The increased element,cixe,
since the consequence of Mefabrioation became enough justification
to invest heavy duty cranes, no matter'how their capacity could be
exploited Ir time. Thus not the mechanization Itself, but actually
the advancenent.In technology did effect the speed of'production.
A pra~tioal goal of mechanization known by the contractors
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 was the general presumption that using machines,they can substitute
1. workmen. It was actually an effort identical with the political
economical goal of mechanization but had entirely different roots.
acute working power shortage in all sections of national
economy. and contractors never had enough workmen needed to fulfill their
compulsory plrans.on time. They thought intensive mechanization may
solve their labor problem and demanded machines in great number. As
it is shown n the dissertation (chapter 6.0) this demand was based
on a?.misbeli f because the moderate number of substitutable workers
at the given, generally traditional construction technology, never
could inflate the number of workers in the other.oonnected processes
either the speed or the productivity of the whole process
could have shown conceivable gain. In contrary the attitude of contractors
desoribed.ab ve was.respons.ible in first place for the uneconomical
over mechani ation observable throughout the industry and appearing
in the low machine utilization indexes and high cost..
It was never stated that mechanization should or could decrease
,cost. Cost sually did not play a role in considerations concerning
mechanization. As it is mentioned in the chapters 3.1 - 3.6 'of the
.dissertation the actual cost of mechanization was practically not
controllable
2. THE ACTUAL RESULTS OF MECHANIZATION
A., Abut 40% of earth moving jobs.was only done by machines.
The main reason was besides the lack of excavators the fact that the.
size distribution of excavators did not match the size distribution
of ''working s~i.tebc There were,no small excavators, under 0.5 m3
capacity and
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y.-( " g4 #MA-il I1AL.
multipurpose loading machines available and therefore,
all the smaller and finishing jobs,.a large quantity in it's sum,
were done by
manual work.
CTIA
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s o
over a'eonsi
e than 90% of concrete mixing was mechanized. More-
erable amount of this was produced by central, semi-
automatic -mi~ling plants.. The reason of investing the latter was
the possibility of using selected gavel hence saving some cement,
that is coal in which there was always a short supply. Conaidera-
ti,nta. 1 4 lrn f i .. 1-1 ....2 .#._ it _ A,_~~ , -- -
ness of investments. 'A matter of fact, never any of the 10 or
20 central mixing plants were used with full capacity. In the
lack of loading equipment. the transportation and feeding jobs at
the numerous (about 800) single concrete mixers were done by manual
.instruments. Two or three concrete pumps were used in the whole
.industry for demonstrating purposes. There were experiments with
floating cement transportation and containerization.
C. More than 200 mortar mixers were invested and used,
usually in connection with mortar pumps of pneumatic or piston
type. The mechanization of mortar production in this extent was
fairly well solved, better for instance than in Poland or In
Czechoslovakia. Only the sand transportation and loading rem&inedt
technologically unsolved.
D. Hundreds of elevators and cranes, including about 40
tower cranes were used mostly for vertical transportation in the
industry. Wi h a very few exceptions, none of them was mobile in
the, sense as. t is used in U.B. but they were either fixed on one
single place (elevators, deck cranes) or on rail (Brunn, tower
crane). It oin be said that. the amount of cranes could satisfy
the demands f r vertical transportation but there was the feeling
of the, need.f'r more tower cranes although their type (U.S.S.R.
patent) was r garded obsolete. The reason: tower cranes could do
loading and c rtain horizonta.~~transportation too,, for which no
7 .4`1?6 re C
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 _Li
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Tj!
machine exis ed. As it is known, vertical transportation is only
a part.and rather small part of all the transportation needs around
a building a d therefore all the constructions without tower crane,
that is the majority of them, were evidently very poorly mechanized,
Even the tow ,r cranes had the disadvantage of fixed rail and radius,
thus many of the loading and transportation duties remained beyond
reach. There was a general shortcoming in mobile cranes and multi-
purpose loading machines mainly because they were not produced at
that time within the soviet block.
E.. The mechanization had undoubtedly a considerable indirect
effect on thf construction industry by expanding the possibilities
of prefa brie tion.. Application of large size panels (up to 2 tons)
made of cone
ete or brick, gained place continuously. In industrial
buildings co~plete frame structures were prefabricated, and lifted
in their position by special cranes. Using traditional materials
like-heavy c ncrete and brick, and in the lack of new building
materials,.h wever, the possibilities of mechanization. were
exhausted at this point. (See dissertation chapter 6.0).
3. THE CONCLUSIONS OF THE 1955 STUDY
The 195
of the circus
This fact iti
every machin4
spontaneous,.
of analysis f
Other
mechanized pi
than the cor:
study was the first thorough scientific, investigation
stances.of mechanization in construction industry.
elf includes a general conclusion: until this time
investment activity was done necessarily in a
irresponsible way, in the lack of correct data, method,
nd possibility of predictions.'
eneral conclusion of the study was the fact that
71ocesses turned out to be more expensive everywhere
esponding manual processes. The mechanization
ILI
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not decr ase.but in the contrary helped to increase the unit
cost of constructions.
Finally it was postulated and later proved that further
increase of the degree of mechanization quantitatively and without.
favorable change of technology, yields sharply diminishing return
in productivity*
More detailed major conclusions are as follows:
a. Set up cost of machines, although operatively neglected,
represented oo'high portion of machine-cost. This fact can be
contributedo two complementary factors. There were no mobile
machines, and the size (lot size) of eonstructionswas unfavorably
dispersed. Lachine investments were mostly made evidently with
the incorrect presumption of. large-scale jobs only.
e system of handling reproduction cost in the construction
industry as well as everywhere in communist states was found to be
in sharp con
tradiction with the Marxist interpretation of the value
theory (Chapters 3.21, 3.22). In addition the actual methods of
writing off
reproductio
c. T
important p
ness of org
Aal average
mechanized
.high machin
the:general
number of w
shortage in
did not provide.sufficient conditions for simple
e machine utilization index turned out to be the most
rameter in mechanization. It measures both the effective-
nization and the level of cost. The incredible low industr-
reflect a lar a gap between the capacity of,connected
nd.manual processes and are responsible mainly for the
cost.(Chapter 4.0). The basic source of trouble was
disproportionality between the number of machines and
rkmen applied in consecutive operations, due to the
labor supply and negligence in organization. The
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introduction
coat-effect
ratios in ma
emphasized i
d. It
of parameter
the use of m
was a' signif
3
-7- FIFE TIAL
of the concept of flexibility in pointing out the
f utilization index, and the call for standardized
-m.!i.ehine systems were the most Important propositions
the dissertation.
was necessary to set up cost levels by limit values
especially that of the utilization index, above which
chine could not be regarded justified economically. It
cant conclusion that the wage cost of compared manual works
was not proposed to be accepted as single limit, but also substitution
cost, a.term~similar to opportunity cost had to be introduced to
enlarge the aargines of economically sound mechanizations.
e'. ThIe introduction of the concept of degree of mechanization
and expressing the productivity in function of same - a .relation
which strangely enough was undiscovered in the whole soviet
dominated e.c
onomic literature until this, time - provided the most
valuable conclusions, a new look, immediately accepted in practice
as well as n methodology in Hungary. It turned the attention
'generally towards the qualit&tive'factors in technical development's
and partly. feared the way of the application of econometric methods
in investment planning.
4. OBSERVATIONS OR CONCLUSIONS OMITTED FROM THE 1955 STUDY FOR
POLITICAL OR OTHER REASONS
The M155 study was very critical and no observations were
omitted as ar.'as the facts were concerned because the author was
personally Independent from the industry. Some conclusions, however,
derived dur ng the analysis were not mentioned in the study because
.0 . f politics . and ideological reasons.
O TMM T!A
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There
policy, whic
of economic
wages, artif
and maintena
and created
as political reason not to attack the Hungarian price
was found to be completely inadequate for the analysis
ffects as well as for long run planning. Too lRw
vial raw material prices, too high cost of acquisition,
ce of machinery made every economic comparison illusonio
conflict between the interest of firms and national
economy. The firms were only interested in fulfilling the monthly
or quarter y~arly production plans and reimburse their total cost.
No,productiV ty terms and uoe level of unit cost was among their
incentives. Even the economic thinking and the possibilities of
analysis were discouraged by party directives concerning plans,
saving of.la,or, timber, coal, import materials etc. Prices
themselves were and could not be regarded as fixed basis for
economic considerations and without this no investment policy could
be'.worked out. Actually this was the cause why the author had to
introduce the concept of'opportunity cost into his economic
comparisons.
Ideological restrictions were imposed on the author by the fact
that Marxist
neither marg
of marginal
Markiam. ?I
and product
favorable ,c
terms like
Since no re
author deve
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economics does not know cost and production functions
inal cost or productivity, regarding latter as a part
utility theory, a. completely unacceptable thing for
a study, however, where not only the facts about cost
vity but also the analysis of mechanism by which
ange can be accomplished` was the subject of-investigations)
lexibility and marginal productivity had to be used.
erence was advisable to make. to capitalist economics, the.
oped and used these terms as purely logistic mathematical
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`'011i'{~ glut..V
models and thus successfully "smuggled" a complete set of relatively
new.terminologies into the Marxist literature.
5. NEW OBSEIVATIONS OR CONCLUSIONS DEVELOPED SINCE 1955 RELATIVE
To. THE 1955 STUDY
The methodology and results of the 1955. study were accepted
appreciated among exedutives of the industry and'a research
group was formed in the next year to analyse the statistical data
of the whole construction industry in the past five, years by
.eoonometrto methods.
First time series were calculated and correlation analysis
was,made within a large variety of interrelated factors. One of
.thele calculations showed a strong correlation between time series
of the total
time series
number of brick layers employeed in the industry and the
of the weighed average machine utilization index. This
result verified the theory included in Chapter 6.0 of the dissertation
and the statements made under 3.c of this report. A further proof
was found a*d showed the'tehhnologioal limitations upon mechanization
by discovering that the machine utilization index was decliningihile
the degree of mechanization was increasing during the five year period.
In other wo
less extent.
..diminishing
ds, the increased number of machines was being used in
This fact also included the verification of the
return in productivity as function of mechanization since
ilization index represent declining active machine value
tively less substitution for workmen.
declining u
that is.rel
?.As. fa
research gro
of the corm
as the exact figures of productivity is concerned, the
up could not solve the problem of statistical documentation
at measure of production but had to rely upon the data
of Forint values. It was found that productivity was increasing
,a L
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Iris
_10-
during--the 5
year period by about 30%. To find how much of this could
.be att,ibute to mechanization and how much was caused by the increase
of the intensity of manual work, a Cobb-Douglas type production
function model was used,
T = A?< B(1 _a( )
T = .Forint value of production per year.
A Number of productive workers in consecutive
years.
Active machine value applied in production
(yearly)
= Elasticity of labor
The ca
contributed
correlation
group has be
In ap
and transpor
Elasticity. of mechanization (capital)
culations showed that of 0.75 i.e. mechanization
my 25% in the increase of productivity. A multiple
nalysis resulted about the same figure. Work of the
n discontinued at this point.
rallel program the cost of mechanized mortar mixing
ation was analysed because these processes were found to
be too expenive.by the author. (Pee Table I and remarks). The
detailedstud11 sustained the results of the dissertation and proposed
to stop .further Investments in this field.
'as the author
vows in the theoretical field of machine
investment policy and related econometric methods no further refine-
ment was made neither was necessary in the construction industry.
There was.holwever a certain refinement in data by introducing more
realistic p ioe policy in 1968, and thus the outlook for better
economic pl nning will. be definitely better in.the future.
q kt, ; M ~-. Q 1 ~~
G7 Pf ~ P ~
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