JPRS ID: 9431 USSR REPORT ECONOMIC AFFAIRS

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• Document Number (FOIA) /ESDN (CREST): CIA-RDP82-00850R000300060012-9
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• Document Creation Date: November 1, 2016
• Sequence Number: 12
• Content Type: REPORTS

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JPRS L/9431
_ 8 November 1980
- USSR Re ort
p
- ECOtv~MIC ~?FFAIRS "
CFOl10 17/80)
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JPRS L/9431
- 8 December 1980
USSR REPORT
ECONOMIC AFFAIRS
_ (FOUO 17/80)
CONTENT~
INVE;STN~1T, PRICES, BUDGET AND FINANCE
Unit Cost of Fixed Capital Ansl.yzed
( V . Fa.? ' t smat?; VOPROSY E~JNONiQff , Aug 80 ) . . . . . . . . . . . . . . . . . . . . . . . . 1
- INTRODUCTION OF NEW TECHNOLOGY
Methodology of Measurxng Cost oP Ne~t Technology Analyzed
(VOPROSY II{ONOMIiCI, Sep 80) 15
Efficiency, Unit Cost, ~r Yu. Tropin
Economic Effic3ency of Technology, 'by N. Miloslavskiy
- a - [III - USSR - 3 FOUO]
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INVE5TMENT, PRICES, BUDGET AND FINANCE -
UNIT COST OF FIXED CAPITAL ANALYZID .
Moscow VOPROSY IICONOMIKI in ltussian No 8, Aug 80 pp 121-132
[Article by V. Fal'tsman: "The Capacity Equivalent of Fixed Capital"J
[Text] In an article entitled "Ways of Improving the Effectiveness of Capital
Investment" Academician T. Rhachaturon points out the reasons for the growth of the
output-capital ratio and the capital-output ratio for output in the sectors of
the national economy: deterioration in the quality of raw materials and the
increasing cost of extraction, shifts in the siting of industry in new regions,
changes in the prices of equipment and machinery, increasing outlays for environ-
mental protection and so forth.l Solviag these questions is an important condition
for improving work efficiency and the quality of w~ork--tasks whose urgency was -
etressed at the CPSU Central Committee June (1980) plenum.
In our opinion, of special lntereat in this direction is analysis of the dynamics
involved in the capacity equivalent of fixed capital. The capacity equivalent is
character~zed by the equivalence of fixed capital invested at different periods of
time, from the viewpoint of production capacities. It can be measured with the
aid of an index that is calculated as the particular derived from dividing the
commnissioning of a production capacity, expressed in physical units, into the
_ fixed capital inverted, and it determines the pro~ected yield from fixed capital
expreased in physical terms for individual production facilities. The magnitude
of the capacity equivalent for the commissioning of capital is inversely propor-
tional to the unit cost of production capacities.
Statistics on the commissioning of capacities and fixed capital make it possible _
_ to establiah the capacity equivalent for ma.ny production facilities and to -
calculate indices for the dynamics of each such index and a mean index weighted
according to the value of invested capital. Since the physi~al measure for a
production capacity c.an be structurally inhomogeneous (for example, finished
rolled metal includes a large number of brands, shapes and dimensions), studies
of the dynamics of the capacity equivalent must be conducted for products that
are homogeneous in terms of their structure, or a special correction must be
- introduced that takes into account the effect of structure and the quality of
output.
Calculations made for 30 checkpoint items for capacities distinguished by a
relatively homogeneous structure and output quality have shown that the unit cost
of commissioned capacities increased during the Ninth Five-Year Plan by an average
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of at least 5-6 percent annua.lly while the value of invested capital increased by
about 7 percent, that is, almost all the increase in the investment of fixed
- capital went to offset the reduced capacity equivalent. As a result of che
increase in r_he average value of production capacities during the Ninth Five-Year
Plan, even though the total volume of capital investment throughout the entir~
national economy was met, for many sectors, targets for the commissioning of
production cap~.cities were not.2
If all additional annual growth of capital is spent on offsetting the reduction in
the capacity equivalent, the commisaioning of production capacities remains the
_ same year after year. Then, however, conditio:~s are created for reducing the
r~~tes of economic growth because there is an increase in the buildup of production
capacities and in the volume of output produced, which serves as the basis for
calculating growth rates.
Suppose that at the start of a period 80 units of productian capacities are
available. During the year anothQr seven units of capacities are commissioned.
For simplif3cation we exclude withdrawals of capacities and we also assume that
existing and commissioned capacities are at 100-percen*, utilization; production
growth rates are then 108.7 percent [100(80 + 7): 80). If in each subsequent
year the comtniasioning of production capacities remains unchanged at the same
level (seven units), then after three years growth rates wi?1 be 107.4 percent
[100 (80 + 21):(80 + 14)], that is, they will fall.
It c~n be seen from Table 1 Chat the drop in the capacity equivalent also continued
in the Tenth Five-Year Plan. For I2 of the 15 items on the list its magni.tude
decrer~sed in the neriod 1976-1977 relative to the level of the Ninth Five-Year
Plan, and the mear_ weighted index for chang~ in the capacity equivalent was 0.9,
Chat is, each year the capacity equivalent for the investment of fixed capital
fell about 5 percent. At the same time the annual investment of capital also
increased 5 percent.
It can be assumed that through the increase in the share of imported equipnent
and the rapid rises in the prices for it, during the Tenth Five Year Plan the
fall in the capacity equivalent for invested capital will take place more rap~dly
- than during the Tenth Five-Year Plan. Moreover, in the current five-year plan,
planned rates for annual growth of capital investments has been reduced to 5
percent against the 6-7 percent of the preceding five-year plan. Jnder these
conditions, average annual rates for the fall in the capacity equivalent will
reach 6-7 percent and wi11 e~cceed growth rates for capital investments aY?d fixed
; capital.
As ~ resul.t of the price costs for production capacities outstrippir~g the growth
- rate for the investment o� fixed capital, an absolute drop is taking place in
t:1e commissioning of production capacities. In order to show the effect of the
relati~nship bet~aeen fixed capital investment and price increases for capacities
on the rate of economic growth, let us assume, as in the earlier example, that
at the start of a period, capacities are ava3lable for the production of 80
units of output. Let us say that in the third year the rates at which capacity
costs are increasing exceed growth rates for the invest.ment of fixed capital
while in previous years they coincided. As a result of this there is an absolute
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Table 1� Dynamics of Capacity Equivalent for Investment of Fixed Capital
Capacity equivalent
Productiari capacities Unit of ineasurement Index
used for capacity
equivalent
1971-1975 1976-1977
' Power st~tions Thousands of kW 6.18 5.35 0.87
millions of rubles
Electricity networks,
35 kW and higher kilometera 39.73 44.18 1.11
millions of rubles
- Coal extraction millions of tons
~ millions of rubles 0.025 0.016 0.64
Iron ore extr~ction thousands of tons
~ millions of rubles 48.91 68.4 1.4
Steel pipes Do. 2.98 2.53 0.85
Mineral fertilizers thousands of stand.
units
millions of rubles 5.94 5.82 0.98
Soda aAh thousands of tons
millions of rubles 3.89 1.96 0.50
- Chemical fibers Do. 0.31 0.21 0.68
Synthetic resins
and plastics Do. 1.58 1.34 0.85
Pulp and paper
induatry Do. 1.36 0.66 0.48
Cement Do. 19.07 12.03 0.64
Tractors units
raillions of rubles 44.0 73.0 1.49
Metal-cutting lathes Do. 38.0 19.0 0.50
Mea[ tons per shift
milZions of rubles 3.02 2.43 0.80
Whole-milk products Do. 12.08 9.75 0.81
Tota1 - - - 0.90
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- drop in capacities commissioned, and as a result, a further drop :tn the rate of
output growth:
_ Year 1 Ysar 2 Year 3
- Unit cosC of commissioned cap~city
(conventional units) 20 21.2 23.1
Growth rate (percent) 1Q6 106 109
- Fixed capital investment 140 148.8 154.3
- (conve:~tional units)
Crowcli rnte (percent) 106 106 104
Corrani5sioning o� capaci~i~s 7 7 7
(conventional units)
Output (conv~nCional tinits) 87 94 100.7
Growth rates (percent) 108.7 108.0 107.1
The statistics for the cou~.ssioning of capacities indicate that ~he average annual
volumes for the commiss2oning of capacities during three qears of the Tenth F~~ae-Year
Plan were for manq itema lower than during the preceding five-qear period (see
2able 2). An absolute fall in the commissioning of capacities is being observed in
the following: coal ~snd iron ore extraction; production of cast iron, rolled
met~l, mineral fertilizers, soda ash, chemical fibers and threads, transfor~ers,
metal-cutting lathes, paper, cement, precast ferroconcrete; the setting u~, of
looms and the production of leather footwear, meat, whole-milk products and roany
other products. In the aggregate, this drop has taken place for 38 of the 54 most
importAnt product it~ms, while during the Ninth Five-Year Plan a trend toward an
~beolute increase in co~nissioned capacitie~ predominated.3 It is characteristic
that falling rates for tne growth of capacities commissioned are also observed
for auch kinds of o~itput that aie distinguished by a relative homogeneiCy
' gtructurally and qualitatively (for example, electric power and cast iron), as it
is al.so for output whose rating and volume is measured in conventional units
- (mineral fertilizers) and in units of power ~transformers).
Thus, at the present atage a aituation has developed in which the fall in the
_ capacity equivalent for investecl capital is occurring so rapidly that it cannot
be made up by the growth in the volumes of capital investment~, as a result of
which a process of fal~ing commiasioning of capacities has been initiated.
Even given stabilization of the average annual commissioning of capacities at a
constant level, production growth rates will gradually fa11. And the absolute fall
in capacities commissioned promotes a more rapid drop in production growth rat~s.
_ As a result (givan the condition of no change in the yield from existing fixed
capital and capacities), after two or three years the preconditions come about
for a drop in economic ~rowth rates and additional constraints on the sources of
capital investment growth, and then for a new drop in capacities. Since production
c~pacities and fixed capital are formed by construction and machine building,
potential sources for incr~easing the capacity equivalent are found primarily in
these sectors.
Calci~lations made on the basis of listings cf production areas and fixed capital
- for 1960 and 1972 show that the cost of one square meter of production area
increased at an annual rate of 5-6 percent, that is, at almost the same rate by
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