JPRS ID: 8982 USSR REPORT AGRICULTURE

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` ECI I AL I ~ i I I RS

li DECEMBER i979 CFOUO i4179~ - i OF i
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JPRS L/8811
fi ~ December 1979
- E ast E u ro e Re ort -
p p
- E~ONOMIC AND INDUSTRIAI. AFFAIRS
" (FOUO 14/79)
,
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JPRS L/8811 =
11 December 1979
EAST EUROPE REPORT
ECONOMIC AND INDUSTRIAL AFFAIRS
- (FOUO 14/79)
CONTENTS PAGE
CZECHOSLOVAKIA
Energy Flow and Economic Growth Analyzed
- (Jan Klacek, Miroslav Stainer; POLITICKA EKONOMIE,
No 8~ 1979) 1 _
- �
- a - [III - EE - 64 FOUO]
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~ CZECHOSLOVAKIA
ENERGY FLOW AND ECONOMIC GROWTH ANALYZED
~ Prague POLITICKA EKONOMIE in Czech No 8, 1979 pp 801-817 -
_ [Article by Jan Klacek and Miroslav Stainer: "Required Energy Flow and
Economic Growth (A Macroeconomic Analysis and Projection)"]
[Text] From the standpoint of economic theory, the anal1sis of the role of
, energy in the reproduction process represents an unusually complex and until
recently a somewhat overlooked problem. In contrast to this, it is possible
to see how the practical questions of energy policy have assumed a downright
strategic importance for most countries. Insuring a continuous er.ergy flow
to the reproduction process of a developed economy, together with the popu-
lation trend and corresponding food vroduction, is regarded as the essential
- condition for long-term development on a worldwide scale.
As to energy, principal attention is focused on energy resources, their
dynamic development, structure, the development of their costs and prices.
Together with this research, an increasing number of studies deal with the
analysis of energy needs, their determinants, or potential savings and con-
ditions which would facilitate savings. In this ~ontext, the present =
article deals with one specific though obviously important topic.
_ W~ are trying to examine the possibility of modeling the required flow of
energy to the reproduction process under conditions of the Czechoslovak
economy. ~'he article consists of three parts. In the first part, we
state the theoretical premises for examining the role of ener~y in the
r~productioh process. In the second part, we analyze the interrelationship
- between energy consumption and. product output over time by comparing their -
, dynamics on the basis of statistical data of a macroeconomic character. On -
the basis of this analysis and initial theoretical ~onsiderations, a model
of the required energy flow is designed and its empirical estimate accom-
_ plished. It is applied to energy consumption in the production.,sphere of _
~ the CSSR as a whole and in industry in particular. The conclud'~ng part -
cantains conditional projections for a medium long-range period into the
future. _
1
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1. Theoretical Premises
- As indicated by Karl Marx and confirmed by economic developments in
developed industrial countries, the growth of productive forces is closely -
linked to far-reaching changes in the position of man in the production
process. In the process of the industrial revolution, man gradually frees
himself from physical (mechani~al) labor in the production process. The -
transition to activities involving "facilitating regulating and controlling
the material reacti~ns between self and Nature"1~ is, among other things,
made possible by the conscious utilization of knowledge relating to energy
conversions, their regulation and systematic control. ~ '
In this context K. riarx also introduces the term auxiliary materials2~ in -
the production proc~ess on which the required form of energy depends. For
the user the enerz�~ carrier constitutes a specific raw material which
gradually replaces directly expended human labor and, together with other
production factors, participates in the production process as the motive
power of large-scale manufacture. -
~ "...The machine, which is the starting point of the industrial revolution,
- replaces the worker, who handles a single tool, with a mechanism which
_ operates a number of identical or similar tools, and is driven by a single
motive force whatever the form of that force may be...3)
The role of energy, obtained from inanimate nature, in the reproduction
process is not, of course, exhausted by the replacement of physical human
labor in operating the means of production. The exploitation of this
energy creates the working and general living conditions for man's par-
ticipation in the reproduction process of the contemporary economy. ~
- As will be seen below, changes in the dynamics of energy use depend also
on the implementation of scientific-technical progress and on structural
changes, both in the production factors and the Froduct.
On a lower level of abstraction, although still on a highly aggregated ~
- level, we can illustrate the processes of drawing energy in the reproduction
- process of a planned economy in a diagram--see Schematic No. 1.
In the first place, there is the relationship between the necessary quantity
of energy--both as a total as well as structure by carriers and types of
energy--and the glanned economic development of individual national economic -
- users of energy.
From the schematic, it is clear that the necessary quantity of energy and -
its forms appear on two albeit interdependent levels, namely:
1. As the need for primary energy resources, by volume, and -
- 2. As energy needed for final use, by volume.
2
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The difEerence between these two levels corresponds to the sum of enerpy
losses and oper~:ting needs for energy in individual power generating
processes, that is in the process of treatment, transformation, transporta-
tion and transmissj.c:i of power resources and forms of energy. This dif-
- ference represents so-called consumption by the energy .,omplex itself which
is part of consumption for production and whose scope is determined by
technical and economic facLors. The minimizing of energy losses and opera-
~ ting needs in the power generating processes to a technically artd economicall..y _
justifiablQ level Ls one of the sources for increasing the final use of energy
. at the given consumprio.: rate of pr~taary energy resources.
Energy requiremen.t~ for final use in the national economy depend upon dif-
ferent factors in t?~~ production sphere and in the nonproductive sphere,
respectively. In tr~2 production sphere, the use of energy is an indispensable
conditian for carryin~ out individual technological pr.ocesses and is, there-
~ fore, l~nked to the cxEation of the total product or net pr~duct with close
_ ties to the inputs of ~;;ther production factors. ThE magnitude of this
requireinent is determiaed by: ~ � -
= a. The scope and stru~ture of social production;
b. The machine-man ratio in individual technological processes;
c. The level of managemEnt, organization, etc. of such processes and the -
resulting degree of ener~y ut3lization.
In *_he nonproductive sphere, the final use of energy appears in processes -
connected wa..th the rep?-o~,iuction of labor power (heating, operat~on of house-
hold appliances and so on}, and is therefore the factor which directly
affects the standard of l.iving. From the standpoint of creation and dis-
' tribution r~f net gxodiict, this use of energy is affected by the magnitude
_ of social and individua~. consumption. Its development usually depends or v
the general trend i~ ~h.e living standard--th~ volume of individual incomes
and expenditures, the ava~lable quantity of consumer goods (particularly
the so-called durables), ~hanges in the lifestyle, etc.
In contrast to the finaa_ use of energy, its need on the level of primary
ener~y resources i.s d~texmined by the requirement to secure the operation
~ and development of tr~ ener.gy complex. Most of the primary enE:gy resources _
are derived from the explnitation of domestic sources. The other, minor ;
- part of prima.ry ener~y resource~s is acquired through imports; it is thus
- linked to the foreign trade balance and to the expenditure of foreign
' exchange.
A similar situation exists in the subsequent phases of the technological -
- process of the energy complex. Virtually all primary energy unaer.goes the _
processes of tr.eatment and energy transformation. From this, one can draw
_ the simple conclusion th~t, under the given technical conditions of their
acquisition and treatment, the need for primary energy resources predeter-
mines, at the same time, ~he amount of those funds from the total social
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product (or national income) which must be earmarked for the operation -
and necessary development of the energy complex.
'1'he trilc [n~ lntc~ nccount of the ob jectlvic exietence of the di fferent nat'ure
in tlie r.elgtlon~hip be~ween the two above-menttoned l~vel~ ot~ need ~nd tl?c
- utilization of energ,y with respect to the remaining area of the national
Ecbnomy is of practi.cal significance in the analysis of the development of
the ene~gy complex. It is so precisely because this different nature -
- deterniines the basis for specifying the substantive contents of this analysis.
2. Relationship Between Energy Consumption and Production Volume--
, A Retrospective Analysis -
For purposes of a restrospective analysis and even more so for future projec-
tions on a national economic level, it is necessary to formulate certain
working hypotheses on the functional (or casuai) interdependences between
the energy f1.ow and macroeconomic variables. These hypotheses, enabling
verification by means of empirical data, bring a certain order to the
_ relationships under analysis.
Most analytically-oriented studies of power engineering link the energy 'flow
in the national economy more or less closely to the production volume during
- an appropriate time span.
It is therefore not surprising, if for the CSSR, we find a relatively
close intQrdependence between the volume of the total social product (Q)
or national income (Y) on the one hand and the total flow of utilized
- energy (E) in the production sphere on the other (see Diagrams No 1 and
No 2).4~ As the diagrams indicate, the long-term consumption of the total
energy flow increases less than proportionately in relation to the production
~ increase which implies the declining energy consumption of Czechoslovak
economic gzowth.
Furthermore, we shali examine the dependence of electric power consumption _
on the production volume. Electric power i.s the principal energy output at
_ the end of the process which starts with the mining of c.oal. This dependence _
is much closer than is the case witlt total energy (see Diagrams No 3 and No 4). -
In contrast to the dependence of total energy consumption on the praduction
vo~ume, the relationship between electric power consumption and production _
~ diff.ers in one respect. As is evident from the diagrams, individual otserva-
tions reveal a steeper interdependence tlian in the previous case. WiCh the
increase in production volume, there is only a very slight decline in elec-
tric power consumption both in the production sphere as a whole and in industry.
In view of the fact that the observed interdependences appear to be close--
_ both on the basis of ampirical data over a long period and in various dis-
~ aggregations by sectors5)--one can presume that the hypothesis of the :
dependence of energy consumption and par::icularly electric power on the _
product output volume is consistent with the actual observations.
5 -
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- ~ . . Diagram No 1 ~ ' ~
Dotted diagra~ sl~owing the dependence
- s of final use ~f energy in the production � '
' 15o sphere on the total social product
~ 1965 ' 100
� . . ~
' 1976 � � �
' � 1975
' �1473 ~197~ -
�1972
� . ~ 1~~ � 1q11 ' '
. 1966 1~j67 �1968'1969 150 . 200 : ,Q .
~ ,
_ , ~ . ~ Diagram No 2 -
~ Dotted diagram showing the dependence =
s of fina.Y-use of energy in the productior. ~ ~ -
aphere on the total national income
iso
- . 1965 = 100 . ~
~ �
.1~5 � 1976 -
' .1974 ~ '
.1973
~ l~~�1y91 � 1�92
lc~g 1469 ' -
� 100 1966 1q67 . 1 o Z~ ' Y
. , . . . .
~
_ 6
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. ~ - . .
' s~ ' ' - ~ . .
~o~ted diagram s howing the riepende;~ce Diagram . No 3 '
of electric power used in industry on . ~ -
; the total social product in industry ' ~ ~ _
' 1965 = 100 ~ . . . .
. ~ ' . zs~6 _ . . . . �
~ . � i~s ~
� 1974
' 1So / �1973 ~
. ~ , � 1972
_ d971 ,
.1970 . .
_ .1969 ,
~ , � .
_ . � 196E � '
�1967 � � .
- . 1966 .
- ~ � . .
- ~ 150 Ypp Q
- a � ' Diagram No 4 .
Dotted di~grsm s`F~io~~ang ~TiE d~p~n~3en~e .
of electric power used in the productia~ .19~6
sphere on the tothl national income , �
- 1965 = 100 .19~ .
~ � 1974 ~
- ' �19~3
� 1972
~ 290 � . � ~ .
~ � 19T~. ~ � ,
. '1970 ' " ~
� � I
- � 196s
� , ~1968
- .1967
+ .
. ' 019~
_ . ~ . .
~ 100 150 20Q y
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At the same time one c:an.conclude that the form of dependence examined
indicates a decline in energy consump~ion with product increases, that is
to say, in this case ,a1so in terms of time. The decline in energy consump-
tion is obviously brought about both by the structural changes and imple-
mentation of energy-~;aving scientific-technical progress, including the
introduction of new energy-saving technologies wh ich results in the decline
= of specific energy c~nsump tion.
In aluminum production, for example, which requires a large amount~of
electric power, the consumption declined by approximately 15 percent in
1976 in comparison with 1972. Furthermore, consumption of electric power
per ton of rolled material declined by 4 percent during the 1969-1976
period.6) _
In addition, the very shif t in the material structure of final energy con-
sumption from coak to refined types of fuels and primarily to electric ~
power makes it possible to reduce losses in the conversion of energyj and
thus favorably affects energy requirements of the national economy.~
As to the effect of structural changes, however, developmen~ has by no
means b een straight. The development of branches and entire sectors
resulted in increased energy requirements in some instances (electric steEl,
agriculture, etc.).
The observed decline in overall energy requirements was, thus, achieved by '
structural changes--some of them reducing and others increasing energy
consumption--which, combined with the effects of scientific-technical
progress, do not always necessarily lead to the decrease of energy require- ~
ments . ~ ~
The depend~nce of energy consumption on production volume, on the structure
of the economy and.on the implementation of scientific-technical progress is
part of the technical balance relationships in the reproduction process. In ~
addition, one can observe additional interdependences which are not re].ated
to the technical balance.
The effect of factors falling in this latter category can.be followed in a
more detailed study of the dynamics of electric power consumption and pro- '
duction (see Diagram No 5). The diagram makes it clear, for example, that ~
in periods of high growth rates of industrial production (1950, 1960, 1966,
1970) the growth rates of electric power consumption are relatively low in
comparison with the rates of production increase. On the other hand, when
the dynamics of production declines (1953, 1963, 1971/1972), the dynamics
of elec ~ric power consumption usually decrease, but substantially less than
the dynamics of production. The result of observed dynamic changes are
short-term fluctuations in the elasticity of production in relation to energy
- consumed.
- A simi.lar movement was analyzed.in regard to the dynamics of production and
- employment.8) In the case of electric power, this apparently implies the
declining rate of its use and the changin~ degree of supply limitation, which ~
could help explain the dynamic changes observed. The situation is also `
affected by weather conditions and other accidental influences.9)
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~ Dia~ram No 5 -
s . Growth rates oP industrial production
i and electric pawer consumption
~ (~nnual aat~, 1952-1976) ~ _
- ' . _ - - - - electric po aer con -
sumption in industry
_ ' . r`~` . - � - total social product -
i~~ ~ , ' ~ , in industry _
~ . ~ ~
~ ~ , ~.r�~ , �
~ ! ? ~ ; .
.
i. i � i I.
~ r . V ~ , , i ` .
. ~ < ` ; " � � ~ .
~ ~
- j ~ ~ ~ ~ ~ f ~
s . ? , . t , i ~ ~
~ . .
~ ~ , ~ .i � .
. �~i ~ . . . ~ ~ ~ . ~
. ~ ~i ~ ~ ~
. . ; ~ ~~i
~ . / .
. . ~ ~
� . / .
- . . ~ . .
. ~
, 1~ ,
0 1g55 I960 ~ 1q65 � 2970 t(rokl 1975 -
3. Model of Required Energy Flow
As the short-term influences obviously divert and remove, in both direc-
tions, the examined dependences from the technical balance.relations, we
first formulate a theoretical model for a long period, when it is justified
to disregard the short-term influences. In its first variant, the theo-
retical mod'el should therefore refle~t exclusively the technical balance
relations or, to put it differently, the trend dependences in the reproduc-
tion process. The factors in the short-term changes will be, in the
- examined relation, taken into account, when the model is specified in
details. -
Let us take~~as the point of departure the production function for the -
- potential product"QX" which is the function of labor input "L';basic assets
input "K," energy (and/or materials) input "E" and influences of scientific-
technical progress "R."
QX = f ~L~K~E~R) ~1)
The potential product is defined as the maximum product attainable with
available resources or--which is equivalent--the product volume manufactured
_ with the.full and stable utilization of resources over a long period of time.
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The production function (1) appeared in literature until recently only
= exceptionally in the sense that it also included the energy flow as one
oE the inputs.
Since rhe productian function, as originally developed, was intended to
, clarify the determinants of added vdlue )of net production), the energy
input or more generally the input of raw materials, industrial materials,
semi-finished products--in other words, the overall intermediate product--
- was not regarded as the input explaining the level of the maximum product. -
It was argued that the components of the intermediaCe product constituted .
_ an output of the production process in its initial phases and that this
- output was in turn affected by "traditional" factors--input of labor and
basic asse_s, and the effects of scientific-technical progress. In other
words, K, L and R on the aggregate level conclusively determine not only ~
- QX, but also energy flow E.
Recently, however, many authorsl~~ no longer accept this seemingiy convincing -
argumentation. There are several reasons for that. In the first place, the
al~.ove mentioned ar~ument only applies to the input of energy and, more
generally, to the input of the intermediate product of domestic origin.
This argument fails, however, in the case of smaller economically developed
= countries which import a subsrantial part of their energy or energy resources.
In an open economy, it is, therefore, justified to regard imported energy and
energy resources as a separate input into the production process.
This view is undoubtedly encouraged also by the increasing scarcity of
classical energy resources which causes, though exceptionally as of_ now,
~ ~ the energy flow to become the limiting factor in the growth of the product ~
= or, to restate it in different words, that otner sources of growtr~ cannot
be fully utilized until the necessary energy flow is assured.ll)
Finally, energy and the intermediate product used are not simply consumed -
in the production process, but affect the characteristics and quality ~f
the product in a varying de~ree depending upon the resources used. From
this standpoint, th~ quantity of national income even depends upon the
intermediate product used.
~ The production function in the formula (1) for the level of the potential
product describes the supply aspect of the economy. From our standpoint, -
iz is expedient to deduce a relationship which would determine the quantity
of the required energy flow. We obtain it by solving formula (1) for the
variable E.
E = fl ~QX~ L~K~R) ~2)
This equation can be called the function for the required energy flow which
~ is indispensable for achieving the level of the potential product. From
the econometric standpoint, equation (2) is based on the assumption that the
variables on the right side of the equation are given or determined in some
~ 10
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other way. In other words, the energy flow is not regarded as the limiting
factor, but is, on the other hand, endogenous~.y determined by the other
macroeconomic quantitieso
The conception of the energy flow as a limiting factor in the growth of
the product would tend to bring us back to equation (1) with the following
modification:
QX = min f' (L, K, E, K) (~3) ~
= In case of an acute energy shortage, given limited possibilities of substi-
tution between E on the one hand and L, K on the other, function (3) could
be specified as
QX = f (E, I~) (4)
in which RE represents the effects of energy-saving scientific-technical
progress.
The interdependences (1) and (2) or (3) and (4) can be called the laws of
- technical balance. They~assert themselves over a long period of time
_ because they depend also on the long-term growth of productive forces.
A More Detailed Specification of the Mod~l -
The long-term growth of productive forces or the laws of technical balance
naturally do not exhaust all factors determining the required energy flow
in the reproduction process. This is clear already from equation (Z) in
which the potential product "QX" is among the determinants of the required
energy fi~w. The actually achieved level of product "Q" usually differs
from this potential level during the short-term and medium-term period.12~
The car:.~.s of this difference simultaneously affect the actual energy flow
_ ~n the reproduction process. In the objective reality of the short-term,
- t~~ actual energy flow is, thus, determined not by the potential level of
the product, but by the level actually achieved. The deteztninants of the
currently achieved 1eve1 of production and, thus, also of the required
energy flow, are more complex ~n character than mere technical balance
factors. Accordingly, we could distinguish between the technologicalZy- -
required energy flow and the actually-required energy flow.
- Short-term or medium-term determinants which work together with the already `
- mentioned laws of technical balance can be divided into two basic groups.l3)
The first group contains accidental influences. Accidental influences in-
clude changes in the weather, trends in losses in the national economy,
sudden and unforeseeable changes in foreign trade conditions and other
factors which are exogenous in character.
The second group represents factors which are gnoseological in character,
linked to the already achieved level of central planning and management of
the reprodr~ction process, to the choice and implementation of economic poiicy.
This group also includes the system of management and planning for the na- -
tional economy, although t~?is system is rather long-term in nature.
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From the second group of factors it is necessary to mention changes in the -
use of the national income. These short-term and sometimes rather pronounced
changes can rPSUlt in fluctuations in the dynamics of investment, inventories, ~
individual consumption and deposits on savings accounts.14~ ~In the case of
the CSSR economy, the dynamics of the foreign trade balance in particular
has a specifid role.
� Short-term changes in these valves create complex, dynamie, adjusting pro-
cesses in the economy and may, in turn also cause short-term changes and
fluctuations in the dynamics of the creation of national income. Independent
of these changes in the structure and dynamics in the use of the national
income, which usually arise as ear?.y as when annual national economic plans '
" are put together, pressures may also be exerted by changes in the dynamics ~
and structure of consumer demand (and savings deposits) originating in the _
decision-making processes of the consumer. These changes by themselves may
produce short-term moveuients in the national income, although their scope
will usually be narrower than in the previous case.
Apart from these effects, secondary inter-sector chain reactions are pro-
duced on the aggregate level which cause fluctuations in the use of capaci-
ties in individual sectors and branches of the national economy.l5)
_ The advar.tage of a centrally planned economy is the objective possibility
of reducing, as the fact-finding process improves, the magnitude of~the ~
deviations between achieved natir~nal income and potential product. The
fundamental prerequisites thus exist for significantly reducing the dif-
ference between actual economic development and the dynamically balanced :
trajectory. Between the prerequisites~for a substantial reduction of these
disproportions and the practical implementation of these prerequisites,
there may be a considerable difference caused by objective and sub~ective
reasons. Analysis of economic develnpment in the CSSR and in other social-
ist countries confirm this conclusion.l6)
For these reasons, the first, as well.as the second, group'of factors must
be taken into account in a mare detailed specification of the model. From
the first group, that is from among accidental influences, it is in first ~
_ place the effect of the weather whi_ch, as empirical analysis has demon-
strated, is of great importance with re~pect to the quantity.of the required
energy flow. This part of the required energy flow does not represent a _
direct input into the production process, but creates general conditions
for the actual production process (heating, lighting, ventilation, etc.).
From the second group, we attempt to model the factors in the short-term
movement of the national income by means of delays spread over a period of
' time. Futhermore, the existing system of management and planning forms ,
the institutional framework within which the enterprise sphere participates
in the drafting and implementation of the national economic plan. Besides
other factors and to the extent to which it provides the various economic
entities with a motivational structure for the stimulation of more
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- ecoi~omical use of resources, the system of management and planning in a
way also affects the quantity of the required energy flow a:zd the resulting
= energy requirements of economic dev~:lopment of the CSSR.
M ir~bal~irice between tti~~ energy sources and needs, particul~rly with regard
to electric power, arose in the second half of the 1960's and has been
recurring ever since. Such a situation, if it is of a long-term nature,
logically leads to the design of a model in the form ~f the production func- -
" tion within the energy complex rather than to a model of the L~quired energy .
flow for the national economy. An estimate of the equation depi~ted as
relation (4) was, therefore carried out experimentally. An artificial
variable representing supply limitation was introduced into the type (2)
equation.
A specific question is the effect of the level and structure of energy
prices on the quantity of th~~ required energy flow. In the first place,
we have in mind the potential effect of price changes on the economical
use of energy, where considerable reserves undoubtedly exist. In the -
second place, we must consider potential structural changes brought about ~
by the rational replacement of one form of energy with another, cheaper -
form.
To put it differently, we are considering both changes in the general price
_ level and the differentiation of relative energy prices. Qn the theoreti-
cal level, this is an analogy of price elasticity of demand or cross price
elasticity. There are reasons for incorporating the presumption of non-
zero price elasticity in the theoretical model. This presumption is closely
related to the target function of the enterprise, to the system of retire-
ment benefits' and wage regulation on the part of the enterprise sphere,
as well as to the rational behavior of the consumer. From the long-term
standpoint, it would then be necessary to examine the nature of the price
- system in zelation to production costs.
1=
Al1 of these important questions must, of course, be judg~d against the ~
- background of the finding that changes in the price level of energy and
in the structure of energy prices were only sporadic and rare in the period
of postwar economic development and particularly in the period for which
statistical data are available. -
Model for an Empirical Estimate
The design of the model for an empirical estimate is based on equation (2)
which we expand to include the effect of the variables mentioned earlier.
It includes, primarily, the short-term change in the current production -
level as compared with the potential level which is modelled by the delays -
spread over a certain period. Simple models of these delays use a delayed
value of variable Et_1. We replace potential product QX directly with
current level Q. Furthermore, we consider ttie effect of weather changes T
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and the variable of the supply limitatior_ of the anergy flow--artificial
variable D(0,1). Accidental variable "u" should reflect ot?ier accidental
influences. The price level of energy is designated as pE.
It is necessary to specify the technology of the production process in ~
equation (2). We will presume that basic assets once installed will be
operated by a definite, unchanged number of workers during their entire
service life--that is that no new fixed assets will be retroactively added
to replace human labor. Mutual substitution among these two factors exists
only in regard to the future, when new additional fixed assets are being
_ selected. The presumption of ex post facto fixed proportions allows us
to simplify equation (2) by omitting va.riable K. The basic assets thus
represent a relatively nonessential factor, while human labor represents
' Che "bottleheck" of the reproduction process--a limiting factor of growth.
The magnitude of labor inp u t ~ thus determines the degree of utilization =
of the basic asset supply and, thus, also maximum product QX. Labor input
will also indirectly determine the quantity of the required energy flo~v which ~
is necessary for the operation of machines.l~~ This casuality, of course, -
applies to stationary conditions--that is provided that the�level of knowl-
edge and its utilization remain unchanged. Under dynamic conditions, of
course, energy-saving, neutral or more energy-costing scientific-technical
progress may assert itself which will change these relationships. For
simplicity's sake, we shall confine ourselves to the instance of exogenous
_ scientific-technical progress which has not yet materialized but about which'
we assume that it is energy-saving and which we shall approximate by applying
time trend "t".
We then obtain the following function: -
Et - f~Qt' Et-1' Lt~ Tt~ Dt~ PEt~ ut) (5)
Equation (5) contains all fundamental determinants of the required energy
flow on the aggregate level. Their structure is now substantially more -
comprehensive than in the form of equation (2).
In the first approximation, function (5) can be specified in logarithmic-
linear form. The logarithmic-linear form of function (5) enables us to use
regre~sive analysis to estimate the parameters and this form is in agreement
with the results of the empirical analysis of time series for Czechoslovaicia
and with some international comparisons.
An Empir~c31 Estimate of the Model -
The theoretical model was estimated in a large number of variants, analysis
and description of which would be very long.18) First, attemg~s were made
to isolate the effect of individual variables on the explained variable E
and then more comprehensive designs of the model were estimated. -
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Below are the estimated eqiations for the production sphere and industry
of Czechoslova~kia. As the basis, the annual time series for the 1960-1976
and 1962-1976 periods were used. The energy flow was approximated by use
(consumption) of electric power E1, measured in units TF, the product by
the total social product or gross production in constant prices.l9)
Estimates of equations pertaining to the required electric power flow in =
the CS6R production sphere (based on the 1960-1976 annual time series)
ln Blt = 1,1558 1,62161n Qt - 0,00165 t=
- (0,1970) (0,00058) . , )
R= = 0,98 F= 406 D. - W. = 0,48.
_ ln El~ = 3,2505 1,32411n Q~ - 0,00095 t2 - 0,1091 D "
(0,1558) (0,00047) (0,0273) ~ ~ )
R~ = 0,99 F= 567 D. - W. = 1,19
M An estimat~e of the production function with the electric power flow as
explaining the variable in CSSR industry (based on the 1962-1976 annual
time series)
- In Qt = 4,157,9 0,7409 ]n Elt -f- 0,00149t2
. (0,0546) (0,00017) ( 8 )
Rz = 1~,99 F= 2163 D.-W. = 1,14
Significance of symbols: El consumption (use) of electric power
Q-- total social product (gross industrial
production
D artificial variable (0,1)
t time trend
ln natural lagarithm -
These regressive equations represent relatively "successful" estimates in
the first phase of research. They were selected according to two criteria. ~
In the first place, the condition was the statistical significance of regres-
sive coefficients, and in the second place their theoretically acce~table
sign and numerical value.
The equations remain are confined to the fundamental technically-balanced
design of the model Z~) [regressive equations (6) and (8) possibly to the _
formula extended to include the supply limitation--equation (7)].
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Generally speaking, the results achieved can be regarded as the first
_ experimental estimate of a model of functional relationships betwee21~he
required energy flow and some macroeconomic variables in the CSSR.
According to these empirical estimates, it is possible to judge to what
exten~ the premises adopted in the design of the mod2!_ on the basis of the
statistical data's analysis coincide with~reality or Lo what extent they
simplify the observed reality. It follows from the nature of the model
that these dependences are likely to be similar.
In the first place, one can conclude from the results that the modelled
dependence of the.electric power flow in industry and primarily in the pro-
duction sphere as a whole on the dynamics of production offers estimates of
respective elasticities at values sigr.ificantly higher than one. Further- '
more, the estimates of model parameters indicate the scope of energy-saving
scientific-technical progress in the past. Al1 instances invo?ve approxi-
mation by means of the quadratic time trend whose parameters turn out to be
statistically very significant. According to this hypothesis, the effects
of energy-saving scientific-technical progress accelerate in time so that
they are relatively maximized in the last years of the time series. The
growth rate of electric power savings due to these effects accelerates by
0.2-0.3 points annually. -
The estimates of parameters of energy-saving scientific-technical progress,
however, require an explanation. Relative energy savings can actually be
achieved also by the changes in the sector, branch and product structure, _
including the structure of primary energy resources. The aggregate model
cannot cover these changes. One can, however, presume that the parameter
in the variable of time trend~covers, in addition to the effects of scien-
tific-technical progress, also this type of relative energy savings. It is,
therefore, more appropriate to interpret this parameter in a broader sense
in line with the significance described above. -
Finally, equation (7) has provided a statistically significant estimate of ~
the parameter of~supply limitation of electric power with the expected
- ~ign. All three equations, however, show low values for the D-W test so
that we cannot reject a hypotheses about the presence of residual auto- _
correlation. '
The equations are restricted to the basic technically-balanced design of
the model or to the form extended to include the supply limitation. In
the course of experimental verification of the model, attempts were made ;
to model ~nd empirically estimate the garameters of all variables listed
- in function (5). The estimates of individual parameters were more or less
- succe~~ful. The same, however, cannot be said of the estimate of a more
comprehensive model as a whole. Here, for the most part, acceptable values
of parameters of variables whicl-L enlarge the narrow technically balanced
scope of the mod~el only by making the original parameters statistically
insignificant, were ~btained. In some instances, the estimates of a more
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comprehensive model were statistically insignificant as a whole. As to
the individual variables, it has still not been possitle to successfully
reflect the important influence of weather changes. For this reason, the
summary af results is limited to the equations correspon,-~ing to the basic
form of the model. -
e
From this, one cannot, of course, deduce that the arguments in favor of a
more comprehensive model of the reQuired energy flow are no longer valid.
We can infer in this respect only, that the selected specifications of the ,
model and their estimates of parameters of additional variables did not
_ produce acceptable regressive equations. Their adaquate reflection in the
model for an empirical estimate, thus, remain open for future research.
Any subsequent projections of the required electric power flow must also be -
approached in this sense.
Everything that has been said so far makes clear the hypothetical and experi-
mentaZ nature of analogous projections on an aggregate level. It is only _
strengthened by the factors of dynamic nature. The projections described
, below can, therefore, be regarded as only tentative in significance.
Medium-Term Projection of Required Electric Power Flow
Projections or forecasts of this type can be approached in two different
ways. The first approach is based on expert judgments, the second on the
- application of a specific model. For the model approach, we use the
regressive equation estimates for purposes of projection. Specifically,
we will u~e equation (7) for the production sphere. The application of
this equation for purposes of projection permits two different procedures
in regard to energy-saving scientific-technical progress.
The first variant is based on the same premise as the retrospective model
which mearis that energy-saving scientific-technical progress ~over a period
_ of time and its effects can be approximated by the quadratic time trend
even into the future. This approach is, among other things, also supported
by the results of the analysis of losses in the production, transmission
and use of electric power and by the international comparison of electric
power consumption in the CSSR. 22)
- The reserves in the form of high specific (per unit) consumption of electric
power, as well as in excessive energy requirements of the economic structure
- offer a certain justification indicating that these savings could, under
certain conditions, further acc~lerate over time. It is, of course, diffi-
cult to determine the point at which the possibilities of the most obvious
and the most easily attainable energy-saving changes will be exhausted. .
_ There is no doubt, however, that the Czechoslovak economy will approach
this point for objective reasons in the 1930's.
The continuation of accelerating energy-saving scientific-technical pro-
gress can, then, encounter a number of obstacles and will be both
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~
= technically and economically less easy, anyway. At the least, this would '
require sizeable investments in research and development, and a consistent -
application of the results in practice in the form of broadly conceived
rationalization pr~grams in energy consumption. This, in turn, would call
fo-r a reappraisal of investment activity which, instead of building new
production capacities with high energy requirements, should be purposefully
oriented toward the rationalization of energy consumption. Even though the
' first approach in a sense extrapolates the pace of scientific-technical _
progress--on the basis of the development of industry in the past--also into
the medium-term time horizon of the future, it is an obviously optimi~tic
presumption in this case. The probZems which we encounter here can be
- formulatzd more generally as the conflict between the past and trz future =
or between a relatively suc~essful retrospective model and its always only . -
~ limited applicability to the future. '
_ Eouation (7), after an adjustment for growth rates, has the following form _
� in this instance:
~E1 = 1,3241 Q- 0,0019 t ~ 9~
The growth rate of the required energy flow deper~is upon the selected growth
rate for production an.u on the accelerating pace of the energy-saving
scientific-technical progress (as anticipat~d). '
Table 1 shows the dependence of ~E1/E1 on the selected OQ/Q and on the time
trend which approximates the effects of. scientific-technical progress.
_ 'Table 1 Interdependence between ~E1/E1,~Q/Q and t(according to equation (9))
~Q t . I
1 4 7
Q
0,05 0,064 0,059. 0,053
- 0,045 0,058 0,052 0,046
0,04 0,051 0,045 ~ 0,039
0,035 0,044 0.039 0,033
0,03 0,038 0,032 0,026
If, for example, we project a 4 percent rate of product growth, then the -
growth rate of the required energy flow will be approximately 5 percent in
the first year of the projection, but only 3.9 percent toward the end of
the period projected. As to the isolated dependence of ~E1/E1 on ~Q/Q,
equation (9) says that a lone percent increase xn ~Q/Q increases, ~E]./E1 _
by 1.3 percentage points23), other things beiug equal. Deceleration of
production has a quantitatively equal effect in the opposite direction.
In other words, the very selection of the product growth rate affects the ~
growth rate of ~E1/E1 more than proportionally.
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The projeetion points to a decrease in the rate of ~E1/E1 in ,:ime and, in
the last mentioned variant, ~E1/E1 decreases below the ~Q/Q level by the
end of the period. It is impossible to assert that these developmental
_ trends would be without parallel in the past. At any rate, however, both
lc+ng-term development in the CSSR and international comp3risons shows that
the ~onsumption of ~lectric power increeases ahead of product increase.24~
These data show the substantial influence of the acceleration of scientific-
technical progress considered in the model and in this sense the projection
can be regarded as "optimistic". _
Furthermor.e, it is necessary to point out that our projection is based on
the extrapolation of past trends in the production sphere only. We have
- already mentioned the role Qf scientific-technical progress. These sim-
plifying assumptions, however, could in a given instance lead to the under- -
estimation of the dynamics of the required electric power flow, rather than
vice versa. .
According to expert estimates, a number of intended structural changes in
the 1980's will obviously result in the increase in the standard consumption
of electric power. In the first place, production of electric steels
ferroalloys, thin and medium sheets will be substantially increased.2~~
= A further increase in standard consumption can be anticipated in connection
with the priority development of the chemical industry and of the entire
nonproductive sphere. Furthermore, it is likely that the limited supply of
liquid fuels and of labor will necessitate technological changes which will
result in their replacement by electric power.26~ Although other structural .
_ changes will undoubtedly result in relative energy savings, the summary
effect, as it seems, will be a noticeable slowdown in the decline of energy
requirements, as to electric power, in comparison with trends in the past.
For'these reasons, we also carried out a projection for the variant of
economic development in which energy savings do not accelerate in time.
The second approach to the estimate of the trend in energy savings is,
therefore, based on the assumption of a constant, rather than an accelerating,
effect of scientific-technical progress (in a broad definition). The quan-
tification is based on equation (9) which is, of course, modified for the
constant effect of scientific-technical progress upon the growth rate of
the required energy flow.
We chose two modifications. The first (A) anticipates the average rate of
energy savings due to scientific-technical progress, structural changes,
etc., as it materialized according to equation (9) during the entire 1960-
1976 period. According to variant "A," the rate of energy savings amounts
to 1.7 percent annually. Variant "B" is based on the recent 1970-1976 -
period only and energy savings amount to 2.7 percent annually. (In this
case, it is, of course, necessary to take 3nto account the unusually favor-
able course of winter temperatures during the entire period after 1969). We
again obtain a dependence between the aggregate increase in the product and
the increase in the required electric power flow.
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. ' ~
Table 2 Interdependence between ~E1/E1 and ~Q/Q (log--linear trend in ' -
energy savings) average annual growth rates ~
~
-
I OQIQ O,OS 0,045 0,04 0,035 0,03
~B1JEl A. 0,049 � 0,043 0,036 0,029 0,023
_ e~El~EI B. 0,039 0,033 0,026 0,019 0,013 ,
Variants A and B furnish average values for ~E1/E1, all of which are lower ,
(in the given interval of values ~Q/Q) than the average quantities of
~Q/Q (see Table 1). A critical value is the 5.5 percent growth rate of '
_ the product. At values which are higher than this limit, ~E1/E1 already is
higher than ~Q/Q.27) :
Experience with both approaches to the projection of the required energy
tlow shows that any projection critically depends on the following factors,
which are technically balancing in character: '
a. the choice of the aggregate product growth rate; ~
~
b. the implementation of energy-saving, neutral.or energy, costly
scientifie-technical progress, including all factors which determine it;
c. the development of the structural profile of the economy with reference
to energy requirements.
Since this.pro~ection is of probable nature, all values for the energy
flow in the interval of reliability and only are the decisive quantities ~
not only individual values. Specific, empirically observed values are,
. of course, burdened also by other factors than thr~se of technical balance. ~
These factors of short-tern? change create complex ad~usting processes ~
without whose identification it is very difficult to discover the law~ of ;
technical balance. ~This study does not exhaust the analysis of these .
influences and it should be used as a point of departure for future research. ~
_ I
FOOTNOTES
l. See Karl Marx "Capital", Vol 1, Prague, State Publishing House for
Political Literature, 1954, p 196, American edition p 197.
2. Ibid. Czech edition p 201, American edition p 202.
3. Ibid, Czech edition p 401-402, American edition p 410. In another , ~
passage it is stated: "...a rebirth of artisan production on the
basis of machines is but a transition to the factory system, which,
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as a rule, also makes its appearance so soon as human muscle is
- replaced, for the purpose of driving the machines, by mechanical
mative power, such as steam or water" - Czech edition p 489, American
- editi:on p 503.
_ 4. Dot diagrams are taken over from the worl~ of M. Stainer (1978).
5. In the disaggregation by sectors of the national economy which were
also ~xamined, the noted dependence exists in all sectors except
transportation. Transportation is the only sector in which energy
- consumption permanently and absolutely declined despite a production
- increase. See M. Stainer (1978).
6. See "The CSSR Statistical Yearbook".
7. See M. Cibula (1979).
8. See J. Klacek - M. Toms (1976).
9. The 12esearch Institute for the Economics of Fuel and Power in Prague
dealt with the estimate of the effect of excessively high temperature
during the 1973-1974 winter period on fuels and energy consumptian.
- The average temperature during the heating season was 4.04 degrees
Celsius, while the long-tea-m average was 2.3 degrees Celsius. The
_ authors arrived at an estimated savings at 2-3 million tmp [tons of
standard fuel] which amounts to approximately 2-3 percent of the annual
consumption of primary energy resources. See A. Suk and associates
- (1977).
= 10. See for exampZe E. Domar (1961), B. N. Michalevskyi-J.P. Solovyev
(1966), M. Toms (1969), L.R. Klein (1977).
11. In the same way, certain other raw materials could be regarded as
factors limiting growth.
12. See for example B.N. Michalevskyi (1972), A.I. Antchishkin (1973),
J. Klacek-M.Toms (1976).
13. A similar breakdown was used by N.F. Shatilov (1974).
- 14. See J. Goldmann and associates (1978), K. Rozsypal (1968), J. Reznicek
and associates (1974).
- 15. See N.F. Shatilov (1974).
16. See for example J. Reznicek and associates (1974), V. Welfe (1974).
17. Approximately 80 percent of energy consumed in the production sphere
of Czechoslovakia are used to drive machinery and equipment.
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f
18. See M. Stainer's dissertation for the 3egree of Candidate of Sciences
(1978).
.
19. Daza in parentheses below the regressive coeffi.cients are their t
standard errors. }
20. Includes current production level and actual electric power flow.
21. So far as we know, the previous attempts at modeling and empirically
verifying the models in this area were confined to models in~which
- the energy flow is the exclusive function of the time trend transformed ~ ~
in one way or another.
,
22. For a more detailed comparison, see A. Cervenkova, H. Waisova (1975),
t~i. Cibula (1979) . .
23. The numerically close values for long-term elasticity of energy in -
relation to production were obtained also in the modelling of short- '
term movements of the product by means of delays spread over a certain
period. See M.~ Stainer (1978).
24. See A. Cervenkova-H. Waisova (1975). The consumption of electric power
in the nonproductive sphere, which our pro~ection does not cover, may -
be a correcting factor.
25. See A. Suk and associatec~ (1977), K. Houdek and associates (1978). -
26. See K. Houdek and associates (1978). �
27. The value of 3.9 percent for ~El/E1 at ~Q/Q = 0.05 variant A-- 1
. corresponds to the forecast rate for DE1/E1 which was arrived at though
with a different procedure also by the workers at the Institute for
Research of Economics of Fuels and Power Engineering in Prague: See
A. Suk and associates (1977). -
BIBLIOGRAPHY
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10501
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2~+ �
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