JPRS ID: 9900 USSR REPORT ECONOMIC AFFAIRS

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• Content Type: REPORTS

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JPRS L/9900
10 August 1981
, U~SR Re ort . ~
p
ECONQMIC AFFAIRS
(FO~JO 1 1 /81)
FB~$ FOREI~N BF~OADCAST INFORM,ATION SER.VICE
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_ JPRS L/9900
10 August 1981
~
~ USSR REPORT
ECONOMIC AFFAIRS
' (~'OUp 11/811
,
CONTENTS ~
PLANNZNG AND PLAN IMPLEI~NTATION
Pedorenko Points to Economists To Im~Qlement New Tasks
(N. Fedorenko; VOPROSY ERONpMIRI, Apr 81)~ 1
;
INVESTMENT,PRICES, BUDGET AND FINANCE
Investmen~ Efficiency Guidelines Discussed
(VOPROSY EKONOMIRI, Apr 81, PLANOVOYE RHOZYAYSTVO, May 81) 10
Capital Investment'Effectiveness Control, .
by P. Ananskikh
Capital InvEStment Procedures Reviewed,
by A. Vitin
INDUSTRIAL DEVELOPMENT AND PERFORMANCE
Flaws in Experimental Productior. Revealed
(G. Glagoleva; VOPROSY ERONOMIRI, Apr 81) 21
I INTRODUCTION OF NEW TECHNOLOGY
Introduction, Impact of New Technology Discussed
(VOPROSY EKONOMIKI, May 81) 30
Plannang, Incentives of New Technology,
by G. Tsaritsina
Socioeconomic Ramifications of New Technology,
by V. Fe1'zenbaum
I New Technology's Economic Effect,
by D. Starik
~ _ a_ [III - USSR - 3 FOUO]
i
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PLANNING AND..PLAN IMPLEMENTATION
.
FEDORENKO POINTS TO ECONOMISTS TO Il~LII~ENT NEW;TASKS
Moscow VOPROSY EKONOMIKI ia Russian No 4,. Apr 81 pp 17-25
~ /Stunmary of the report of Academician N. Fedorenko at the General Meeting of the
Economics Department of the USSR Academy of Sciences on 16 March 1981: "The Tasks.
' of Economic Science in Light of the Decisions of the 26th CPSU Congress"/
/Text/ Th~ 26th CPSU Congress specified the path.of our people for the nexti 5-year
period and for a longer period, set new responsible tasks for economics acholars,
as for all the Sovieti people, and summarized ~he results for the preceding period.
The activity of the scientific inatitutions of the Economics Department during the
lOth Five-Year Plan was ai~aed at the implementation of the decisions of the 25tih
party congress. The scientists of the Economics Deparfinent took a direct part in
the preparation of the decisions of the'party and the government on the improvement
of the economic mechanism and the streng~thening'of its influence on production ef-
ficiency and work quality. The work on all six;comprehensive programs of basic re-
' search: "The Economic Problems of Mature Socialism and the Laws of Its Development
Into Communism"; "The Elaboration of the Theory and Methods of the Planning and
~Management of the Socialist Economy"; "The Program of Research on Demography";
Regional Economics and the Distribution of the Productive Forces of the USSR";
"The Laws of the Development of the Wor�ld Socialist Economy, the Problems of Social-
ist Economic Integration and the Development of the Long-Term Economic Ties of the
USSR With the Socialist Countries"; "The Laws and Trends of the Development of the
Economy of the Capitalist and Developing Countries and the World Capitalist Economy;
Problems of the Foreign Economic Relations of the USSR With These Countries," was
continued.
During the preparation for tt~e 26th CPSU Cnngress the scientific institutions of
the department submitted to directive organs materials on the urgent problems of
the development of the Soviet and foreign economy. Such major problems of great
natioiaal. economic importance as the peculiariti~s of the present stage of mature
socialism; the conception of the long-term socio-economic development of the USSR;
the means of i~nproving the economic mechaniam and incre~ising productioa efficiency;
the urgent problems of the further development of the planaed management of the so-
cialist economy; the directions of the more efficient use of the investment cota-
~plex, manpower and natural resources, are examined in these materials. Ma~or
studiea on the problems of scienti�ic arid'technical progress, the structural and
organizational problems of machine bui.lding and the formation of a highly effi-
cient agro-industrial complex of the country, as we~.l as on the questions of the
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increase of the well-being of the people and the development of fihe socialist way
of life in the future were presented. Studies on the world economy and the sub-
stantiation of the foreign economic strategy of our state were prepared by special-
ists in international economics. The collectives of Che institutes of the depart-
ment took an active part in the national discussion of the draft of the Main Direc-
- tions of USSR Economic and Social Development for 1981-19$5 and the Period to 1990,
which was launched before the congress. A number of the suggestions additionally
made by them were reflected in the final wording of this document.
The scientists of the department took part in the preparation of suggestions for '
the statewide food program, to which the party is attaching particular importance.
"...Its goal," L. I. Brezhnev emphasized at the 26th CPSU Congress, "is to solve in ~
the shortest time possible the problem of the continuous supply of the population
with products."
The first version of the dummy copy of the work "Ekonomicheskiy stroy sotsializma"
- /The Economic System of Socialism/ (in 3 volumes) has been completed at the Insti-
tute of Economics of the USSR Academy of Sciences. In it a wide spectrum of prob-
lems of the economy of mature socialism is examined in three directions: the crea-
tion of the material and technical base of communism, the development of soc~alist
_ production relations into communist production relations; the probleme of socialist
reproduction; the methodological and theoretical problems of the use of the ecanom-
ic laws of socialism in the economic practice of the mature socialist society. The
scientists of the Central Institute of Economic Mathematics ~ointly with other or-
ganizations of the USSR Academy of Sciences, ministries and departments prepared
the Methods Instructions on the Procedure of Elaborating and Refining the Compre- �
hensive Program of Scientific and Technical Progress of the USSR for 20 Years, the
Main Procedural Principles on the Elaboration of National Economic Comprehensive
Goal Programs, the Method of Elaborating the Forecast of the Socio-Economic Conse- ~
quences of the Influence of Economic Activity on the Environment and a number of
materials on a multistage system of the optimization of long-range plans of nation-
al economic development and elaborated the Comprehensive Forecast of USSR National
Economic Development for 1990-2000. The main directions of the further improvemen~
of the planning of the development of large cities were p~epared by the collective
of the Institute of Socio-Economic Problems of the USSR Academy of Sciences.
Economics scholars of the Siberian Department of the ~JSSR Academy of Sciences speci-
fied the main directions of the economic and social development of Siberia, elab~-
rated proposals on the fulfillment of the regional programs and outlined the priority
tasks of the development of the economy of the regions of Siberia, including a sys-
tem of ineasures on the compre3~~nsive goal program of the economic development of
the zone of the Baykal-Amur Railway Line. The economists of the Institute of Eco-
nomic Research of the Far Eastern Scientific Center of the USSR Academy of Sciences
did much work on the compilation of a summary intersectorial balance of the Far
East with the experimental breakdown of the flows of regional and imported products.
The economists of the Ural'sk Scientific Center of the USSR Academy 4f Sciences
compiled a diagram of the construction of a system of models of the forecasting and
long-range planning of the socio-economic development of the r~agion with a high
concentration of heavy industry. Economics scholars o~ the Kola and Rarelian affil-
iates of the USSR Academy of Sciences elaborated the economic principles of the de-
velopment of the productive forces of the European North for the long-range future.
The series of studies on the elaboration of the scientific and methodological
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principles and the practical use of the methods of optimizing the development and
distribution of the sectors af production with the use of mathematical economics
models (the Central Institute of Economic Mathematics of the USSR Academq of Sci-
ences, the Institute of Economics and the Organization of Industrial Production of
the Siberian Department of the USSIt Academy of Sciences and others), the result~ of
which are finding more anc~ more extensive application in the national economy, has
been completed. The scientists of the economic institutes of the union republics
made a great contribution to the development of economic science during the past
5-year period.
The main studies of the Institute of Economics of the World Socialist System of the
USSR Academy of Sciences during the past 5-year period were aimed at the identifica-
tion of the qualitatively new fact~rs which govern the development of world social-
ism and its influence on the world revolutionary process. An analysis of the de-
velopment and improvement of all the main aspects of public life, as well as of the
changes in the economic mechanisms of the European socialist countries, the course
of the implementation of the comprehensive program of socialist economic integration
- and the prospects of the development of the economic cooperation of the CEMA coun-
tries over the ne.xt 20 years was given in a number of scientif ic reports. Impor-
tant results were obtained with respect to the study of the probtems of modern ,
China in conformity with the task of an uncompromising struggle against the theory
and practice of Maoism. The scientific institutions of the department continued
the research on the problems of the development of the world economy and interna-
tional relations and of the world revolutionary'process. Materials were prepared
on the theoretical generalization and analysis of new phenomena and processes in
international economic and political relations in the entire world economy, the
economy and policy of the Unixed States and other capitalist countries,the develop-
ing countries of Asia, Africa and Latin America, in the international co~anunist,
workers and national movement, in the ideological struggle, in the lessening of
international tension and'in the development of the economic cooperation of states
with different social systems. Practical recommendations, which are aimed at the
strengthening of the position of the USSR on the world arena and the increase of
the efficiency of the national economy of the country, were prepared.
Soviet economics scholars along with all the people will take part in the implementa-
tion of the llth Five-Year Plan. They also have to take part in the preparation of
a new edition of the C~SU Program, in which the important changes in the life of
_ Soviet society and in world social development and the main tasks of the building
of communism should receive a detailed scientific reflection. The latter circum-
stanc~ enhances substantially the role and importance of the studies of the prob-
lems of the economy of mature socialism and the laws of its development into commu-
nism and increases the demands on their quality. In the Accou~tability Report of
the CPSU Central Committee at the 26th party congress it was noted that although
- much work has been done in the area of the social sciences and it merits recogni-
tion, not everything here is cause for satisfaction. In particular, many problems,
which are awaiting their solution, have accumulated in the political economy of
socialism, more attention must be devoted to the social consequences of the acien-
tific and technical revolution. "The problems which life is raising," L. I. Brezh-
nev emphasized, "require the deve3.opment of the theory, economic acience and its
approximation of the needs of economic practice. The mobilizatton of the creative
potential of our entir~ society is needed. Centrally and locally, in all the links,
in all the units of the national economy the understanding of the arising problems
should increase, the available potentials should be better identified and used."
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A draft of the N,ain Directions of the Development of Economic Science in Light of
the Decislons of the 26th CPSU Congress has been drawn up in the department. During
the llth Five-Year Plan the woxk on all the comprehensive programs of economic re-
search, which were listed above, will be continued. In developing the theory it
is necessary to continuously relate it to practice, to real life; ~n this lies otte
of the main conditions of productive scientific work.
In the area of polit~cal economy the elaboration of theoretical questions of mature
socialism, its advantag~es and increased potentials, th~ means of their implementa-
tion in the practice pf buildimg com~unism, the general laws and peculiarities of
the building of mature socialism in the countries of the soc3.alist community has to
be continued in conformity with t~?E Main Directions of USSR Economic and Social De-
velopment for 1981-1985 and the Period to I990. The study of the methodological
problems of the political economy of socialism: the forms of the use o� the prin-
ciples of materialistic dialectics wtien elaborating theoretical and practical prob-
le;.is, the means of bringing the methads of the social and natural sciences closer
and their use in economic analysis; the mechanism of the effect and the mecha.nism
of the use of economic laws in economic practice, the motivating contradictions of
social production, the system of inte.rests in the mature soc~alist society, the
role of the sub~ective factor in the functioning and developmerit of the economy,
que~tions of the deveYopment and interaction of productive forces and socialist
production relations, is assuming the greatest importance. The study of such meth-
odological problems of the political economy of social3.sm as its interaction with
ather economic sciences, the assurance of the comprehensive nature of research;
the elaboration of the means and forms of the enhancement gf the ideological role
of the political economy of sc~cialism, is of great practical importance.
A study has to be made of the structure of and means of improving the material aad
technical base of mature socialism with allowance made for the latest achievements
- of scientific and technical progress, the laws of its development into the material
and technical base of communism; of the directions of the improvement on this basts
of socialist producti~n relations as an integral system, the meana of the dynamic
and balanced development of the economy as a unified national economic complex;
recommendations on the problems of the optimization of the corr~lation of the
growth rates of subdivisions I and II, the funds of accumulation and consumption
in the long-range future have to be elaborated. The problems of the socializatian
of socialist production: the directions of the increase and the forms of the con-
- centration and intensification of the specialization of production in their opti-
mum ratio; the development of the all-union division of labor and the all-union
cooperation nf labor, the politi.cal-economic princip.les of territorial production
and intersectorial complexes as atructural units of the unifried national economic
complex; the interrelationship of physical production and the sectors of the non-
production sphere; the set of relations of socialist property, the means and fac-
tors of the convergence of the kolkhoz-cooperative form with state (national)
property, the development of the forms of cooperation in the sphere of consumption,
private property, require further study. The elaboration of the theeretical ques-
tions of the system of needs in the mature socialist society, the means, their
quantitative expression, correlation, comparison, as well as of the mechanism of
purposeful change is necessary.
I would like to distinguish the four main conditions of the increase of the effec-
tiveness of economic science and its influence on economic life and on the increase
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of the efficiency of social production. These conditions are dictated by the present
economic situation in the country and stem directly from the decisions of the 26th�
party congress. The point is that, first, even rr:ore attention must be devoted;to
long-�range questions of economic and social development; second, the attentior~ to
the diverse problems of the improvement of distributive relations in society.must -
be increased; third, research must be turned toward the qualitative aspect of the `
economy, the development of resource-saving aspects of economic research; fourth,
the advanced know-how of improving the economic mechanism, which has been gained
both in onr country and abroad, must be studied and used extensively. The cl~ser
cooperation of scientific institutions with departments, ministriss a8d other eco- '
nomic organs is also necessary.
In conformity with the first condition the institutes of the department have to
continue the research on the substantiation of the prospects of the development of
the economy and on the solution of ma3or national economic problems of a long-
- range nature. Wha~ is meant is the s~:L~tantiat3on of long-range social needs and:
the socio-economic goals of long-term development. The development of the concep-
- tion of the socialist way of life in all its aspects--mate*'ial well-being and
spiritual development, the relations of distribution, the conditions of th~ in-
crease of lab~r efficiency, demographic policy and so on--is necessary for this.
The substantiation of the means of completing the changeover of our economy to the
�intensive path of development is required. The work on the compilation of the Com-
prehensive Program of Scier.tific and Technical Progress for 20 Years, the ~elabora-
tion of its socio-ecanomic aspects and the compilation of natiorial economic.goal
programs (the food, energy and other programs) has to be continaed. The substantia-
tion of the long-term directions of the further improve~nent of the system of the
planning, management and organization of the national economy,is necessary. Here
~ paxticular attention should be devoted to the deve~opment and introductian in plan-
I ning practice of more and more perfect systems of mathematical economics models,
I having in mind the further improvement of the automated system of pTatining esti-
i mates ef Gosplan and other automated systems of planning and management. When con-
ducting this research, the link with practice must b~e strengthened even more, the
~ close contacts with USSR Gosplan, the State Committee for 3cience aad Technology,
I the State Committee for Prices and other central deparmen~s must be maintained and
~ economic experiments must be participated in.
i
l In order to increase the attention toward the diverse problems of the improvement of
~ distributive relations i~ is necessary to intensify the theoretical analysis of the
~ content of the law of distribution according to labor under socialism, the system of
, values of socialist society and the general problem of the optimization of sdcio-
~ economic development. The principle of distribution according tc? labor should be
studied with allowance made for the historical experience of building socialisun in
( our country and other countries. What does according to labor mean? According to
; the amount of the expenditures of time and efforts of the worker, as some scien-
tists believe, or according to the economic evaluation of the results of labor, as
j others believe? There are also other points of view on this question. It is time
I to look into them properly. The more active elaboration of the entire set of prac-
I tical problems, which are connected with increasing the influence of dist~ibutive _
~ relations on the efficiency of social production, is required. It is a matter o~
( the system of wages and the income of the population, the payments from public con
; sumption funds, the distribution vf monetary assets among different categories of
the populatxon and so on. Apparently, the theoretical and practical elaboration of
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the proulem of improving the sqcialist social system as a system of genuine social ~
3ustice must be started. It is a questioa first of all of the optimum differentia-
tion nf iricome, consumption and personaZ accumulations. The scientists of a number
o~ socialist countries are advancing the principle of social ~ustice as the main
criterion of such a differentiation. This question has still not beea elaborated
theoretically or practically, but as a first approximation, in the opinion of some
scientists, the differentiation of income does not contradict the principles of so-
cial ~ustice, if, first, a c:.ose interrelationship between the amount of pay in
accordance with the results of labor and the labor contribution to the increase of
social utility is ensured. Second, the corresponding differences are a~proved by
_ society and meet its interests; here the amount of the sociallq approved differences
depends both on the achieved level of minimum consumption and on the level of con-
sumption which dominates in society. Third, society offers all its members equal
opportunities for increasing their level ofr skills and occupational maturitq and,
consequently, for receiving a greater income. There should also been added here
the question concernin~ the fact that the accumulation of durable goods and per-
sonal property in the familv and their transfer by inheritance can lead to the
emergence of inequality among people, which does not enaue �rom their personal.labor
con~ribution. A11 these, of course, are only the most general principles; the real
economic aspects of these problems require extensive and intensive research.
The turn of research toward the qualitati~ve aspect of the economy is dictated by
' the instructions of L. I. Br~zhnev concerning the fact that the economy should be
economical.
The further increase of the efficiency of all socia5. production and the growth of
labor productivity and the social and labor activeness of the Soviet people func-
tion as means of the steady increase of the material and cul.tural standard of liv-
ing of the people and of the creation of the best conditions for the all-round de-
velopment of the individual. The contribution of economic scholars to the realiza-
- tion of the indicated goal must be 3udged first of all by the extent to which they
increase and multiply these means.
During the llth Five-Year Plan the en~ national economic results should lead the
increase of labor and material expenditures, including capital investments. In
basic and applied research economists should increase their att~ntion toward the
corresponding aspects of economic and technical development. Here a comprehensive,
integrated approach is especially.important. In the past, for example, the sepa-
rate study of the questions of demographic policy, capital investment policy, tech-
nical policy and the economic mechanism of the stimulation of labor did not make it
possible to ensure a uniform approach to the problems of intensification. As a re-
~ sult a definite contradfction was noted between the labor-saving direction of tech-
nical progress and the capital investment policy, which was aimed essentially at
increasing the number of workplaces in industry. Suggestions on the stimulation of
the saving of manpower resources should be drawn up and be more thoroughlq substan-
tiated, including: a method of valuating and paying for manpower resources should
be developed, measures conducive to the combining of occupations should be elabo~
rated, and so forth. The existing procedures of determining the effectiveness of
capital investments take inadequately into account the needs for the intensifica-.
tion of the use of primary resources and are oriented to a_greater extent toward the
attraction of new resources than toward the improvement of the use of the available
resources, including secondary reaources. Moreover, the use of a uniform coeffi-
cient of effectiveness of eapital investments under the conditions, when prices
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are formed according to the cost principle, ob3ectively promotes the retention of
- the existing proportions of t11e distribution of capital iavestments, which are';not
always the optimum. This, however, does not imply the expediency of using a differ-
entiated coefficient. On the contrary, it is necessary to increase the attention
toward fundamental questions of the theory and practice of pricing.
The two existing conceptions of the price (the cost principle-and the prices of
balance), apparently, should be replaced bq a single conception, which takes into
account both the management of renewable resources and the coordination of public
demands. It seems that within the planned balance it is necessary to take into ac-
count more thoroughly both the socially necessary (socially ~ustified) expenditures
of labor and other resources and the possibility of ineeting the demands of the na=
tional economy. Th~ inclusion in the Main Directions of the Development of Econom-
ic Science for the five-year plan of the elaboration of the Method of Measuring the
Effectiveness of Economic Measures, which is called upon to create a tmiform methodo-
logical and procedural basis for the evaluatian of capital investments, new tech-
nology, organizational, economic and other man3gement da~~sions is dictated by this
and a number of other considerations.
At the 26th party congress the need for the imp~ar
vement of cost acco~.mting rela-
~ t3ons and the mutual economic interest and xesponsibility for the fulfillmen*_ of _
plan assignments and contractual obligations between suppliers and consumers, as
well as between clients and contractors was emphasized. The study of multiaspectual
themes so far has not undergone the necessary development at the institutions of
the Ecotiomics Department. It seems that in this lies one of the causes of the in-
adequate effectiveness of many recom~endations on the improvement of the economic
mechanism. It should be a matter, apparently, not only of increasing the effective-
ness of financial levers in coat accounting, but also"of developing the concept of
financial balance, which includes the determination of the optimum limfts of the
payment transactions of the country, the combination of the financial and credit
mechanisms and pricing, the elaboration of an effective budget and sectorial fi-
nancial policy and so on.
The existing possibilities of saving material resources and living labor are placing
the campaign against losses in the forefront of economic policy. As a rule, the
measures on t h e r e d u c t i o n o f l osses re quire additional capital investments and cur-
rent expendttures. The possibilities of allocating resources for measures on the
reduction of losses are limited. Therefore, the strict economic evaluation and com-
- parison of the corresponding measures according to the level of the effectiveness of
the expenditures on the saving of resources are necessary in order to establish the
sequence of these measures and to ensure the maximum impact from the allocated as-
sets. Since in principle the same resources are used for reducing waste and lossea
as for new construction and the expansion of production, the method of calculating
the expenditures and their effectiveness should be uniform for all t:~e types of
, consumption of resources. The improvement of plannirig and its standard base and of
the mechanism of stimulating pro3ucti~n, including the establishment of payment for
all types of resources and the cost accounting liability for their consumption, is
necessary for the campaign against losses of r~sources and for the increase of the
impact from their use. The identif ication of reserves is important, but it is not
an end in itself; scientifically ,~ou~,a recom4nendations on how to actually put such
reserves into effect are required. '
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The work on implementing the corresponding decisions of the party and the govern--
ment in planning and economic activity has to be continued for the further improve-
ment of the economic mechanism. The efforts here should be focused: first, on the
. development of a reliable system of economi~ measurers and plan indicators, which
orient producers toward maximizing the end national economic impact r~nd thus toward
achieving the gradual changeover to optimization principles of the management of
the economy; second, on the introduction of advanced forms and methods of the organ-
ization of production and wages, including the brigade and other Gollective forms,
in which payment is made according to the end results of the work; third, on in-
creasing the stimulation of the economic initiative of enterprises and associations
in the search for means of the best satisfaction of public demands with the tighten-
ing up of discipline and the increase of reaponsibility to consumers; fourth, on
the development of a modern technical information bas~, which easures the complete-
ness, timeliness, yalidity and accessibility of the information which is necessary
for making effective economic planning decisions. The country is being saturated
with computer technology, but the lack of a unified state system of computer centers
is leading to its inadequately efficient use and to the inadequacy of information
for the management of the national economy. The work on creating such a unified
system in cooperation with other interested organizations must be expedited.
- It is necessary also to step up the elaboration of the forms and methods of organiz-
ing the study, generalization and dissemination of the advanced know-how of economic
work. It is expedient, apparently, for the Buresu of the department to discuss ,
this question together with workers of the press, publishing houses and so on. At
the 26th CPSU Congress L. I. Brezhnev also set the task of studying the experience
which has been gained in the fraternal socialist countriea. While continuing the
stud3~ of the state and prospects of the economy of mature socialism and the elabora-
tion of the scientific principles of the economic strategq of the CPSU and of the
problema of economic policy, economics scholars should study more extensively the
exper~ence of solving similar problems in the other socialist countries for the pur-
pose.of utilizing everything efficient that has been developed by them. The Eco-
nomics Department should specially examine the question of the system of the study
of the concrete experience of economic work in the socialist countries in order to
prepare reconmaendations on the possible use of such experience in our economic prac-
tice. The precise consider~tion of all the peculiarities of the economy both of
the given country and of the USSR is necessary for this. Along with the Institute
- of Economics of the World Socialist System the staff inembers of other institutes,
who have a good knowledge of the state and organizaCion of the economic mechanism
in our country, who are capable of treating critically both the experience of other
countries and their own experience and of proposing epecific measures which ensure
the successful progress of our economy, should take an active part in such research.
Mutual work with comrades from the fraternal socialist countries will also help them
to better solve their own prablems, to odercome certain difficulties or others and
to develop positive experience.
During the new five-year plan important research ha$ to be conducted on the fur-
ther study of economics, politics and the development of international relations ~
and integration procssses in the world EocialisL and capitalist sqstems. The
studies of the problems of the development of the world socialist system and the
cooperation of the socialist countries have to be conducted in the following main
directions: the study and generalization of the positive experience of the social-
ist countries in solving the problems of economic development, the organization of
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~ruSu.:~ ivu ana wa~?dgew~iit, the implementation of social programs and the improve-
ment of the agrarian policy under the conditions of intensification; the elabora-
tion of the problems of socialist economic integration, the international special-
ization and cooperation of production, the extension of scientific and technical
- relations, the convergence of the structures of the economic mechanisms; the study
of the interacti.on of economics, politics and ideology at the present stage, tt~e
elaboration of the problems of improving the political organizaCion of socialist
society; the study of the specific nature of the socialist way of life; the study
- of the relations between the socialist countries for the purpose of drawing up
recom~endations on strengthening the socialist and democratic principles in the in-
ternational relations of a new type. An important place in the studies will be as-
signed to the analysis of the economic and political rel.ations of the states of the
opposing systems, the elaboration of a coordinated stand of the socialist countries
in foreign economic relations with the West, the criticism of bourgeois, reformist
and revisionist views on questions of the development and the interrelations of the
socialist countriea.
Important instructions on the further development of relations with countries which
- have gained independence, on the stPadfast implementation of the Leninist policy of
peaceful coexistence with the capitalist states are contained in the materia~s of
the 26th party congress. The task of researchers is to promote at each stage the
elaboration and implementation of the scientificall,y sound foreign policy of the
Soviet state, to forecast the prospects of the development of the main countries
and groups of countries and to give an ob~ective assessment of their material, man-
power and financial resources. The problems of the class struggle and of the pres-
ent stage of the revolutionary process in the developed capitalist states and the
developing countries and the questions of the growth of the international. coa~unist
and workers movement in the future wiZl also remain ~t the center of attention of
the institutes of the Economics Department. As L. I. Brezhnev stressed in the Ac-
countability Report of the CPSU Central Committee to the 26th party congress, the
international situation depends in many ways on the policy of the USSR and the
United States. In this connection the thorough, comprehensive study of the msin
country of modern capitalism--~the United States of America--in all aspects: foreign
policy, economic, ideological, military and social, as well as of Soviet-American
relations has to be continued during the llth Five-Year Plan. The analysis of the
problems of, the development of the scientific and technical revolution in the United
States, the European countries and Japan, including the study of the means of the
intensification or the economy, the solution of the food and protein problems and
the peculiarities of the development of the agro-industrial and food complexes,
remains one of the important directions of scientific research work. The elabora-
tion on this basis of practical recommendations, which can be used in our national
economy, is of great importance. Guided by the party program documents, the insti-
tutes of the department will step up the intensive study of the economic and socio-
political problems of the countries of Africa and Asia, which have gained their
independence, as well as of a number of states of Latin America, taking especially
into account the increased role of the latter on the world arena.
The realization of the tasks set for Soviet economic science by the 26th CPSU Con-
gress will require the further intensification of the diverse scientific organiza-
tional work at zhe institutes of the department, the mobilization of all the crea-
tive forces of economics scholarG for increasing the theoretical level and practical
- value of the results of their research. Economic science should have a stronger and
� stronger positive inFluence on the development of the national economy of the country.
COPYRIGHT: Izdatel'stvo "Pravda", "Voprosy ekonomiki", 1981
7807
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- INVESTMENT, PRICES, BUDGET AND FINANCE
INVESTMENT EFFICIENCY GUIDELINES DISCUSSID
Capital Investment Effectiveness Control
Moscow VOPROSY EKONOMIKI in Russian No 4, Apr 81 pp 131-135
[Article by P. Ananskikh of Simferopol': "Monitoring Actual Capital Investment
Effectiveness"]
[Text] The decz~ee of the CPSU Central Coxnmittee and the USSR Council of Ministers
on improving planning and the economic mechanism envisages an active involvement by
the enterprise labor collectives in working out the five-year and annual plans as
well as in supervising their fulfillment.
Many years of experience show the need for exerc~.sing systematic control over the
carrying out of directive decisions on capital construction. Academician T.
Khachaturov considers it a shortcoming that we do not analyze the actual efiective-
ness of capital investments and responsibility is not established for guilty parties
for violations in this area.i
As is known, a rise in capital investment effecti,veness depends laxgely upon short-
ening the construction time and opening up the pro~eets. The standard pr"ocedures
recommend that the calculations of capital investm~nt effectiveness take into con-
sideration the lag and duration of constructi,on. However, these provisions have not
been properly reflected in the sectorial instructions. Thu~, the time ~actor is
considered only in determining comparative effectiven~ss by the discounting method
using hypothetical adjusted data. At the same time the calculation procedure for
the complete lag, particularly the development lag; requires a more precise d~scrip-
tion, since various approaches can be seen precisely over this question. The con-
struction and development lags can be calculated both by more complicated, precise
methods and by a simplified method of dividing the con5truction and development
periods in halves. However, with the simple calculation of the full lag, difficul-
ties arise when one analyzes pro~ects where the construction periods are combined
with the development periods (for example, ma,jor new construction pro3ects).
In examining capital investment effectiveness for the nation as a whole, for repub-
lics, oblasts and production sectors, a decline or increase in the lag shows a rise
or decline in effectiveness. For this reason, the determining of the lag, like the
average period.s of construction and developing the pro3ects, is of great intexest.
At the same time, the amount of the lag is only an indirect characteristic ~or a
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_ change in ~ffectiveness, as~the lag not only does not link up "with the value form
of calcu~ating the absolute effectiveness indicators,"2 but in calculating the lag
contradictory results are obtained. .
An assessment of actual effectiveness has speciPic Peatures caused by t~e diversity
and.complexity of the investment processes. The designers, in determining the time
of obtaining the end effect, often do not consider the real conditions for the con-
struction and development of the pro,jects. In practice the construction times are
- drawn out, the pro,jects are completed piecemeal, and for this reason a.number oY
pro3ects, regardless of the significant cons~ruction times, begin producing a re-
turn from the very �irst years of development. Others, on the contrary, during the
first yeaxs of construction 17s~ the capital investments slowly and subsequentl:y the
development rate rises sharply. The methods of assessing actual capital investment
effectiveness should most co~sider the real conditions of the investment processes
and for this reason the basic task~is monitoring the actual capital investmen~ ef-
fectiveness. ,
In our view, in monitoring actual capital investment effectiveness, the Pollowing
indicators can be employed:
1. The average repayment time (T~ is determined from the formula:
T1+T~(Ea-1) L LxK K
Ta = E _ ~ = D = Da ~l~
0
2. The overall efficiency coefficient (Eo) or the number of turnovers of capital
investments (the number of repaymeats times) can be calculated from the formula:
Eo = D:K. ~2)
3. The average weighted time (lag) for repayment is determined from the formula:
t= M~ K(NID-NffC}_ K x
Eo D D
D1G1+D2G2+...+DnGn K1G1+K2G2+...+KnGng
X D _ K . _ (3)'
~
T1--the time for the initial one-time repayment; Tn -the subsequent (after Tl) repay-
ment time, that is, the ardinary repayment time; L--the number of y.ears in the ana-
lyzed period from the start oP carrying out the capital investments; K and D--the
overall a.mount of capital investments and the effect; Da--the average annual effect
over the entire period L; M--the complete lag, the average time betweea the making
_ of the capital investments and the obtaining of an effect; NID and NII{--the average
weighted estimates of the time Por obtaining the overall affect a.nd making the in-
vestments; G~ and G~ -the subsequent years of making the investments and obtaining
the effect; D1, D2...D~ and K1, K2...Kn--the a.nnual efYects and the capital invest-
ments over the years o~ the analyzed period.
~ ,
~
~
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In practice, it is more convenient to use the expressipn Ta = LxK:D of formula (1).
In monitoring actual effectiveness, the main indicator is the average repayment time.
The overall effectiveness coefficient and the average weighted repayment time (the
lag) serve as auxiliary characteristics. The first or Eo (like Ta) indicates the
e~fectiveness level (but not the time expenditures and the ratio of these expendi-
tures to the resources and the return). The average weighted repayment time (the
lag), in contrast to the average time (T~ , reflects the rate of making the expendi-
tures and obtaining the effect.
The repayment time (Tn) is the limit toward which the average repayment time (Ta)
should move. A maximum reduction in the difference between Ta and Tn due to the
shortening of the construction and development times of the pro~ects is the most
important task in the rational utilization of capital investments.
In substituting Tn in the first expression of formula (1) in the place of T1 for
ideal instances (including also the "perpetual" operation of the pro~ects), we ob-
tain:
Tn+TnEo-Tn
Ta = E = Tn�
0
The average weighted time estimates for obtaining an overall effect and for making
the investments (NID and MK) in formula (3) can be determined by the simpler method
of a direct calculation and interpolation by figuring the time required for making
one-half of the investments and the time for obtaining one-half of the overall ef-
fect. For a simplified comparison of the average weighted repayment time t with Ta,
the first must be doubled.
In the subsequent version of the procedures to determine actual capital �investment
effectiveness of the USSR TsSU [Centrs.l Statistical Administration] (1971), in cal-
culating the main indicator called the initial recovery time (this is more correct)
and later the repayment time, the full construction time is taken instead of the
average time. However the basic portion of the pro~ect construction times is ex-
cluded from the effectiveness indicator and this can lead to er.roneous results.
Even if the construction times are nat excluded from the recovery~:~time, all the same
this indicator is inoperable. For determining it it is essential that the total ef- ~
fect equaling the investments be formed at the new construction pro~ect. In this
instance analysis and supervising of actual effectiveness lose their significance.
They are primarily essential in the first stages and periods of the investment
process.
Analysis and control of actual effectiveness should be restricted to the period of
the steady reaching of design indicators by the new pro3ect. However there are
pro~ects such as orchards and mines which repeatedly repay their expenditures during
the development period. If the procedure of the USSR TsSU is applied to them, then
effectiveness can be determined solely for the initial stage of development while
the subsequent period is lost from control. In the above-mentioned procedure the
amount of the indicator having a lag nature is approximately 2-fold less than the
recovery period. But this indicator is not suitable for a direct assessment of ac-
tual effectiveness. The time of the one-time repayment is calculated from formula
(3). For this, the calculation uses the amount of the effect equal to the capital
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investments. According to formulas (1) and (3), it is possible to assess effective-
ness from the first year of developing the pro~ects, including the time of the one-
time repayment.
Table 1 gives an assessment of the following versions: Version 1--the actual data
for the construction and operation of a bioiler poultry farm on the Rossiya Kholkhoz
in Sakskiy Rayon of Krymskaya Oblast., Versions 2 and 3--data of the ord~nary and im-
proved designs for the plant. Let us assume that all three versions are independent
enterprises. The question arises of how to assess the capital investment results
considering that in the first version the return is from the first yeax of construc-
tion, in the second after the completion of construction and in the third from the
second year of construction. Al1 the versions, in our opinion, must be assessed for
the entire period of construction and operation.
Table 1
Capital Investment Effectiveness (effect: in 1000 rubles)
Ordinal Yeaxs
Key* Total
- lst 2d 3d 4th 5th 6th
Version 1 .
Ky 46 322 253 205 160 986
grt 368 621 826 986
Dy 26 68 226 267 271 496 1.35~+
Drt I 94 320 587 858 1354
~rn 1.8 5.1+ 2.7 3.1 3.6 2.0 �
Eo 0.57 0.26 0.52 0.71 0.87 1.37
Ta 1.8 7.0 5.8 5.6 5.8 1+.4
Version 2
gy 1+00 590 - 990
Dy 200 ~+00 400 400 1400
T 5.0 2.5 2.5 2�5
_ En 0.20 0.61 0.01 1.41
� 15 6.6 5.0 4.3
Ta
- Version 3
xy 590 400 900
DY 20p 400 400 400 400 1800
Tn 5�~ 2.5 2.5 2.5 2.5
- Eo 0.20 o.6i o.oi i.41 i.82
Ta l0 4.9 4.0 3.5 3.3
'~Ky--Annual capital investments; Krt--Annual capital investments in a running
total; Dy--Annual effect; Drt--Annual effect in running total; Tn--Repayment time;
Eo--Overall effectiveness coefficient; Ta -Average repayment time.
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According to Ta the effectiveness of the first version is somewhat less than the
second and significantly lower than the third version. However, the advantage of
- the first version is in the eaxly obtaining of a return and this is reflected in
the indicator of the average weight repayment ~ime.
Let us determine the average weighted estimates for the time of obtaining the over-
all effect and making the investments (NID and MK) by interpolation. Thus, accord-
ing to the actual data, one-half of all the expenditures or 493,000 rubles was made
in 3 years, including 368,000 in 2 years and 125,000 in the ha,Zf of the third year.
Hence MK equals 2.5 years [2+(493-368):253~�
One-half of the total profit of 677,000 rubles had been received by the fifth year,
including 90,000 rubles in the fifth year and for which 0.3 year had been spent.
In this instance NID equaled 4.3 years (4+0.3); t= 1.32 Ye~' ~~~�3-2�5):1�37~�
The shortening of the time gap between expenditures and the return in the first
version sharply increases actual effectiveness which for t is even hi.gher than in
the third version (see Table 2).
Table 2
Indicators 3n Yeaxs
Versions ~ ~ Eo t ~t Ta
1 4. 3 2. 5 1. 8 1. 37 1. 32 2. 64
2 4.2 1.2 3.0 1.41 2.13 k.26 4.3
3 3.8 0.8 3.0 1.82 1.65 3.30 3.3
A high level of actual capital investment effectiveness is achieved by accelerating
the repayment rate of the expenditures. ~'his is also shown by the effectiveness of
the third version where it has been increased not by shortening construction but
rather by accelerated development. ~
Consequently, the employed indicator confirms the advisability of building enter-
prises in separate stages, shops, sections or units for accelerating the turnover
of capital investments. Thus, the broiler poultry farm of the Crimean Druzhba
Naxodov Kholkhoz costing 17.2 million rubles was built in 4 yeaxs instead of the
planned 2. However, due to the early development it had produced 18.3 million
_ rubles of profit by the time construction was completed. Actual effectiveness ex-
ceeded the designed by 75 percent.
7.'he value of analysis and control lies in their directness, in determining the
bottlenecks and in disclosing the main factors restraining the achieving of de-
sign indicators. Control should encompass not only the development sta,~e but also
the st,age of planning and construction per se. For introducing control everywhere,
as the acquired experience shows, it is essential to have a special instructional
and procedural manual which would reduce the methods for assessing the results in
all stages of the investment process to a unified whole.
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The designs, in addition to the repayment time which is divorced from the calendar
periods of construction and development, must reflect the dynamics of the indi-
cators for individual parts of new construction from the first yeaxs of developanent
considering the starting-up expenses and the increased expenditures on development.
With a change in the cons~ruction and operating conditions, the design indicator9
should be promptly ad,justed.
Unfortunately, at present the workers of the economic planning services at the en-
_ terprises often have r.o notion of the indicators and report data on the concentra-
tion and effectiveness of capital investments. For this reason at present instead
of analyzing actual effectiveness the controllers axe concerned with seeking out
~ collecting and providing primary processing of the initial data.
, FOOTNOTES
1. See Acadexnician T. Khachaturov, "Ways of Increasing Capital Investment Effec-
tiveness," VOPROSY EKONOMIKI, No 7, 1979, p 130.
2. "Faktor Vremeni v Planovoy Ekonomike" [The Time Factor in a Planned Econo~y],
Izdatel'stvo Ekonomika, 1978, p 143.
COPYRIGHT: Izdatel'stvo "Pravda", "Vogrosy ekonomiki", 1981
Capital Investment Procedures Reviewed
Moscow PLANOVOYE KHOZYAYSTVO in Russian No 5, 1`~.y 81 pp 109-112
[Article by A. Vitin, Senior Science Associate at the Scientific Rese~.rch Economics
Institute under the USSR Gosplan: "Capital Investment Effectiveness: New Features
in the Method. of Determining It"~
[Text] The press has published the third edition of the Standaxd Procedure for
Determining the Economic Effectiveness of Capital Investmentsl previously published
in 1960 and 1969.
The new edition of the standard procedure is based on a number of fundamental pro-
visions contained in its previous editions. These include: a description of the
purpose of calculations for overall and comparative capital investment effective-
ness, the basic indicators of overall effectiveness, the use of ad3usted expendi-
- tures in comparing capital investment versions, consideration of the ti.me factor
and the lag, related capital investments and so forth.
At the same time, the structure and content of the new standard procedure ref'lect
the development of the theory and practice of determining capital investment effec-
tiveness and the appearance of new axeas of its measurement.
According to the recommendations of the new procedure to be used on all management
levels, the criterion for the economic effectiveness of capital investments is to
be the increase in newly created value. However, the forms for the expression of
this criterion (the indicators of the effect) differ from the increase in national
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income for the country as a whole to the increase in net product (normed) for an
association and enterprise. At the same time, the use of an increase'in surplus
product expressed by an indicator for the increase in profit as the criterion of
the effect is tied to introducing cost accounting and the use of own assets and be.nk
credits. Thus, the measuring of capital investment effectiveness reflects the tasks
of planning and developing the economic raechanism corresponding to the decree of the
CPSU Czntral Committee and the USSR Council of Ministers on improving the e~onomic
mechanism.
- It is essential to emphasize that the last edition of the procedure incorporates
fundamentally new sections ~rhich reflect the pa~rticulax features of determining the
uses of capital investments (e~ansion, reconstruction and technical reequipping of
existing enterprises, the nonproduction sphere and the distribution sphere, environ-y
mental conservation, scientific research an~d design work) as well as a measuring of
the actual capital investment effectiveness as a whole. The presence of such sec-
tions has been caused both by the importance of the corresponding uses of invest-
ments in their present structure as well as by the degree of the present elaboration
of the corresponding methods for assessing the planned, designed and actual expendi-
tures. The timeliness of differentiating the methods for assessing efYectiveness
considering the capital investment structure can be confirmed by the following. The
proportional amount of expenditures on reconstruction, expansion and technical re-
equipping of operating enterprises in the total volump of state capital invrestments
into production-end pro~ects in ~979 was 70 percent, while the share oY capital in-
vestments into housing construction as the most important sector of the nonproduc-
tion sphere over the last 5 years was 85.2 billion rubles, or 13.2 percent of the
total investment volume into the national economy. The average annual investments
into measures relating to environmental conservation and the rational use of natural
resources in 1976-1979 exceeded the analogous indicator for 1973-1975 by 17 percent.
It is obvious that consideration of the differences in the methods for evaluating the
effectiveness of these elements of national economic capital investments which dif-
fer i.n terms of their socioeconomic purpose and quantita~tive characteristics is a
substantial factor in improving the plan~~ing and technical-economic calculations.
An important fea.ture of the analyzed method is the presence of recommendations which
describe both the normative as well as the probability aspects of determining capi-
tal investment effectiveness (preference is given to the normative approach). The
latter is expressed in the fact that, in contrast to the previous procedure, there
is a large number of fixed numerical norms. Among them axe: the norm for the lag
~ of the capital investments and the effect as a whole for the national economy (2-3
years), norms differentiated for the economic sectors for overall effectiveness in
terms of the increase in national income, and the sectorial deviations from the com-
par ative effectiveness norm which has been made uniform for the national econo~qy
(0.12).
At the sa.me time it is pointed out that in calculating capital investment effective-
ness over the long run, consideration must be given to the probability nature of
the investment process. In comparing the capital investment versions in the indi-
vidual sectors (for exa.mple, in agriculture) with long-range planning and forecast-
ing as well as in the sphere of reseaxch and development, when the initial informa-
tion is of a probability nature, it is recommended that the minimum of the mathemat-
ical expectation for the values of the calculated expenditures be used as the efPec-
tiveness criterion.
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,
Along with the above-given fundamental features, the designated procedure is char-
acterize3 by a number of ma~or innovations in the general provisions and in the
~,ssessment of overall and comparative capital investment effectiveness.
The general provisions point out that the goal of the new standaxd procedure ig to
set methods fcr calculating and establishing the economic effectiveness of capital
investments aimed at disclosing reserves Yor intensifying production and for in-:
creasing its efficiency and work quality. This is seen in the more detailed de-
script~on, than in the previous procedure, of the role'of the calculations for the
economic effectiveness of capital investments in working ot.t the econom~:c and social
development plans of various periods, the interdisciplinary programs and tYie indi-
vidual technical and economic problems relating to~the development a.nd placement of
the national economic sectors.
Determining the economic effectiveness of capital investments during designing in-
volves investment planning calcuiations. This presupposes the calcul.ating oP the
effectiveness of the versions to be adopted for compiling the capital construction
plans and assessing their fulfillment. Ways-have,been:outlined for achieving the
fuller comparability of expenditures and the effect, including for calculations and
feasibility studies on investment effectiveness in the llth Five-Year Plan. It has
been established that a portion of the effect caused by the measures not related to
the capital investments (organizational or value) should b~ considered in the effec-
t'iveness calculations. There has also been an ad~ustment in the elements of the
volume of capital investments to be used for calculating effectiveness. In particu-
lar, the need has been pointed out of considering expenditures into fixed capital of
both production and nonproduction purposes. The capital investment elements have
been shown broken down for their technological structure. The particulax features
of calcu].ating capital investment effectiven.ess for a given pro~ect have been shown
when it is included in the integrated economic development of an Union republic, -
economic region, territorial-production complex or industrial center. Paxticulax
features have been drawn up for calculating effectiveness in the sectors of the ex- :
tracting industry as well as in sectors where there is a substantial withdrawal of
current fixed capital.
For the purposes of a thorough analysis and establishing of economic effectiveness
for capital investments and disclosing the reserves for increasing this, the savings
of material expenditures (including metal, fuel and energy) have been specially set
apart among the indicators which describe the individual aspects of the obtained ef-
fect, in addition to labor productivity, the return on ~.nvestment, proportional
capital investments and product costs. This is caused by the importance of the fac-
tor of the material and energy intensiveness of production in establishing invest-
ment effectiveness.
In the section on determining overall effectiveness, in addition to those mentioned
in the former procedure, the goals of calculating this are correlated with the plan-
ning of the volumes of normed net product for the sectors, enterprises ~,nd associa-
tions as well as with determining the results of the cost accounting activities of
the enterprises, associations and ministries. The fundamentally new provisions de-
scribe the methods of calculating and appZying the norms of overall capital invest-
ment effectiveness. As a norm for overall effectiveness for the national economy,
its sectors and subsectors as well as for the Union republics and regions of the
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nation, it is,,z~~ecommc~nded that one use the ratio which should be achieved in the
pl.anned period between the effect in the form of the increase in national income,
net product or normed net product and the capital investments. For the selY-
Pinancing associations, enterprises, their parts and individual pro~ects of capital
construction, where normed ne~; product is not calculated, they should use the analv-
gous ratio of the profit or savings in costs to the c~.pital investments into these
pro~ects. The principle has been given for determining these norms in terms of the .
production complexes, construction programs and individual technical and economic
problems.
The method is aimed at broadening the use of the indicator of capital investment ef-
fectiveness figured in terms of the increase o� (normed) net product. The use of
this indicator is envisaged cn the level of the subsectors, the individual types of
production, the ministries (departments), the economic associations and enterprises
as well as tlze comprehensive material production development programs. The axea of
- use of the index of capital investmerit profitability includes the self-financing sub-
sectors, the associations and enterprises.
For long-te,.�m comprehensive programs, the procedure recommends a special effective-
ness indicator, the l~ypothetical repayment period for the capital investments. This
is established by comparing the effect determined in a running total with the volume
of capital investments. The hypothetical repayment period corresponds to the period
during whic h the capital investment volume becomes equal to the total effect. The
pre~ence of the special indicator has been caused 'by the particular features of the
distribution of the effect from implementing these programs over time.
In contrast to the former one, the new standard procedure recommends~considering the
time factor not only in comparing the capital investment vaxiations~but also ia~ de-
termining their overall effectiveness. In this instance, consideration of the given
factor, in addition to the lag, consists in calculating losses from the "freezing".
of nonfunctioning capital investments (losses over the entire construction and de-.
velopment period should be accounted for proceeding from the appropriate sectoriai
- norm of overall effectiveness while the losses for the above-norm construction period
should be set proceeding from the ad~ustment norm used in calculating comparative ~
effectiveness. '
In compaxison with the previous procedure, the composition of factors influencing
the dynamics of overall capital investment effectiveness has been somewhat widened.
In accord with the paxticular features of the present economic development stage and
the tasks involved in implementing Decree No 695, these Pactors now include a chaszge
in product quality (durability, reliability and so forth) leading to a change in the
capital and current expenditures for satisf~ring the demand for the given product.
In the section on comparative capital investment effectiveness, the choice of the
best variation with limited investments, including ad~justed expenditures, should be
made proceeding from the effectiveness (repayment) of the additional investments
(the difference in capital investments between the compaxed versions). The features
of compaxability of the versions have been clarified and, in particular, the social
effects (including the demands on environmental conservation) have been added to
them.
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a:
A description is given of the economic content of tlie norm for comparative effec-
tiveness as a minim~am reduction in costs per unit of additional investments (their
difference according to the versions). is pointe~i out that the given noi~ should
not be identified with the overall aPfectiveness r~orm.
Clarification has also been made j:n the areas of applying the different methods Por
considering the time factor in con~ipaxing capit~l investment versions. Thus, with
- the completion of the pro3ects in the same yeax, it is reco~ended tha.t one use the
already known a~ethod with the ad~ustment factor_snd its norm. If the pro~ect will
be completed faster accordir_g to one of the versions, it is essential to consider ~
the one-shot effect from accelerating such completion expressed by the additional
rise in net product or profit both in the given and related sectors.
A fundamentally new provision has beeri ad.opted for compara.ng capital. investment ver-
sions with the comprehensive nature of one of them. The necessity of such a compari-
son arises in establishing the effectiveness of the comprehensive`use of raw prod-
uc~ts, creating water management facilities and so forth. In such instances, accord=
ing to the new procedure, it is essential to compaxe the versions having a comgrehen-
sive na~cure with the alternatives which solve the set problems on an isolated basis.
For example, in establishing the effectiveness of water management installations
which include land reclamation, Y~ydraulic engineering, water transport, fisheries
and so forth, it is essential to compare the economic indicators for the elements of
the installations with the corresponding sectorial versions: with the obtaining of
additional agricultural product due to other method.s of intensiPying`faxming or ex-
panding the planted axea, with the construction of therma.l or nuclear power plants,
with the carrying out of the additibnal amount of shipments by water transport or by
other means of transport, with the development of pond fisheries and so forth under
the conditions where ~he wa.ter management installation is absent.2 Here, in the in-
terests of economic accountability, the purpose is to distribute the.expenditures on
the comprehens~.ve measures between the individual sectors, associations and enter-
prises involved in the pro~ect proportionately to the effect received by them.
The new procedure also reflecta the previo~:sly not considered features of determin-
ing comparative capital investment effectiveness in the sectors the production of
which is based on the use of natural resources. For the corresponding calculations
they reco~end using the marginal, maximally acceptable expenditures set as a norm
for the next five-yeax plan in the established procedure. According to the Procedu-
ral Bases for an Economic Evaluation of Mineral Deposits, the norms for the maxginal
expenditures are set proceeding from the ad~usted expenditures Por the economical],y
least effective capital investment pro3ects from among those providing an increase
in production during the long-range plan. The absence of consideration of the mar-
ginal expenditures in the compaxative effectiveness calculations would ob~ectively
contribute to a depletion of the most economic resources, including oil and natural
gas. In addition, the use of the marginal expenditures principle makes it possible
to correctly reflect the economic advantages of the investment versions for pro~ects
which are under d`ifferent natural conditions.
~ Certain provisions of the section on comparative effectiveness provide an additional
orientation on the principles of calculating economic effectiveness~for the introduc-
tion of new technology. The given provisions con~ern claxifications Por the concept
of the base comparison version and the~intersectorial aspect of determining ePfec-
tiveness. It is pointed out that under the specific conditions in the comparison
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thc :uidicator:~ of the mo~t widely found methods of solving the given problem are
to be used as the initial onES and in the case of introducing new equipment, the
indicators of the equipment to be replaced. The economic effect from the capital
investments to creating new t;~pes oP machinery, equipment, mechanisms and other im-
plements of production as well as to improving existing ones must be determined as
the algebraic total of the effects for the producer and the consumer of the new
equipment. It is reco~nended that the consumer's effect be determinf:d by correlat-
ing his investments with the occurring decline in the costs of the product and w~ork
considering the change in labor intensiveness, material intensiveness, capital in-
tensiveness, the construction time and ~o forth.
Thus, the new procedure is an extensive compendium of recommendations providing the
necessary tools for the actual ePfectiveness calculations. Considering the provi-
sions of this procedure, the latter must be carried out on the basis of the instruc-
tions which axe extant or are plarined for elaboration or revision to determa.ne the
effectiveness of individual capital investment uses (for the reconstruction and ex-
pansion of existing enterprises, in the locating of production, for nonproduction
construction, measures for environmental conservation and so forth) as well as new
~ sectorial instructions.
The new standard procedure.is, undoubtedly, a valuable manual for determining the
economic effectiveness of capital investments. The above-designated innovations
- ma.ke it possible to significantly widen the axea of calculations and analysis.of
their overall and comparative effectiveness considering the new factors of econanic
and social development, the realization of technical progress and the posing of vari-
ous planning and design problems.
FOO~NOTES
l. See: EKONOMICHESKAYA GAZETA, No 2-3, 1981. The given edition of the procedure
- was prepared by Academician T. S. Khachaturov, Doctor of Economic Sciences
V. P. Krasovskiy, Candidate of Technical Sciences M. M. Lo3?ter under the overall
leadership of Academician T. S. Khachaturov. In preparing the procedure, con-
sideration was given to the comments of the USSR Stroybank and the Scientific
Reseaxch Economics Institute under the USSR Gosplan as well as the materials
from a discussion at a session o~ the Scientific Council on the Economic Effec-
- . tiveness of Fixed Capital, Capital Investments and New Technology held on 28 May
1980 in attendance by specialists from the scientific research institutes, the
ministries and departments. The procedure was appr.oved as a temporary one by
the USSR Gosplan and the USSR Gosstroy.
' 2. In such a comparison, it is important to have a supplementary calculation of the
impact related to carrying out the pro~ect of the ecolo~ical and social factors:
damage from the flooding of lands, the necessity of resettling residents, new
recreational opportunities and so forth.
.~COPYRIGHT: Izdatel'stvo "Ekonomika", "Planovoye khozyaystvo", 1981
10272
Cso: 1820/191
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FLAWS IN EXPERIMENTAL PRODUCTION REVEALED ~
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; Moscow VOPROSY EKONOMIKI in Ruseiaa~No 4,'Apr 81 pp,~69 76: ,;w
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[Article~,by G. Glagoleva: "Mgtiaging;Expeiimental Producti3on"];. ' ~
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, [Text] In the Accouataliility Report;of the CPSU Central:Committe.e to the 26t1i,Part}~
- Congress~, L. I. Brezhuev pointed out"that=the:.introduc,tioa of~:scieritific discoveries
and inventions at present is a crucial, most acute area and ttiat it;fs esaeaCial tb
bring both economically and.~rganizationally th'e scienti.fic research and des~gn woxk
- .
closer to product`ioa: The accelerated introduction,;of s"cientific aad �teGh~~i.cal
achievements into production; to''; a significant deg~ee is r'elated to. 'the develapnuant -
and further improvemetat of, experimeati~l prod~ction.. ` In recent years a gfeat deal
has been done to broaden the e.~perimental ;facilities; of .the scieatific.:resesrch~~in~=
~ ~
stitutes,:'desigd bureaus,'industrial'enterprises.and.associations. > ~
_ ,
. , . : _ , . ; ,
~ :
The Decree` of the ~CPSU Centr~]. Co~ittee� ~and tfie USSR ,Couiicil of Ministers "Ori Im- ; `
proving Planning and Strengthening~the Effect of~the ~conomic Mechanism~on Incre~~3ng
Production Efficiency.:~ and� Work Quality," .in providitig a new impetus:~ to lioth sci~n r�
_
:
~ tific and practical economic work ttiiougliout the national economy,~,has told favor '
' ably on the development of experimeintal production:~ In carryiag out thie dec~ee, ? ~
:
_ .
:the USSR Gosplan fias approved"~the St~andard Procedural Instructions on Coavertiag
Experimental Enterprises.to the New System of..Planniag and Ecoaomic Incentive:~(Con-
. , >
. , ,
sidering Their Research and Production Na~ure)':. Also~of:'great intportance for:-these
enterprises was the introduction of new eyaluation and.fund-forming;indicators which
f, ` , .
increased their interest in the~development arid high quality manufacturing of;new
equipment.
However the experimental facilities~of the scientific research,and>desfgn,organiza-
tions need further strengthenirig. In the Accountability Report at the,26th CPSU
,
Congress, L. I: ' Brezhnev. com~aented, that~ more attention must be given;, to the needs ;of
science, "to provide the scientific 'iastitutions with equipnient~and instrumerits siid ;
broaden experimental production." From this s~em the tasks of steadily imp~roving
~ the economic mechanism of experimental.production. Among these tasks we would.put= ,
p, ng_experimental production and_which
- the elaboration of a normative method for- lanui
would include'the creation of a consolidated:,normative base for prelimiaary estiinate
~nd volume production caleulations and dfffereat~ated rates for calendar planaing;`';
improving the system of production accouating'and�the accumulation of'statistical '
data for creating`the norms; improving~the�system;of techaical-economic and upera-'.
'tional calendar:planning for experimental'production; the broad use of computers;
~r~ , , _ . _
improving material incentives for the employees~ , .
~
,
~ 21. ;
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In solving the problem of managiug experimental production on a normative basis, it
must be considered that this type of production possesses a number of economic par-
ticular features. Intrinsic to experimental production is a duality of goals ste~
~iing from its position as the connecting link between sc~ience and industrial produc-
tion. On the one hand, the goal of this production is to complete the research
process per se and embody its results in a material form, and on the other to create
the prerequisites for series or mass production (the developmerit of production
methods, disclosing the degree of design feasibility, the achieving of the planned
technical and economic parameters, determining the expected economic effect and so
forth). And hence the duality of the results of experimental production.
The diff iculties in working out a normative planning method are also caused by the
need of considering such specific features as the uniqueness of the experimental
work, the insignificant scale of product output, the frequent changing of models,
their originality, the instability of production methods, the sharp fluctuations .
in labor intensiveness, the incorporating of changes in product design and the broad
choice of manufacturing procedures, tools and materials. The ambiguity inherent to
scientific research'.in the stage of experimental work is declining but wi11 not dis-
appear. It is not always possible to accurately determine the total expenditures,
the results and dates ~or carrying ou*_ experimental work as this is related to its
research nature.
Considering the given particular features it is probably advisable, in addit~.on to
consolidated norms having an experimental statistical .~ature, in planning and organ-
izing experimental production, to use economic norms with lower and upper limits.
Among the economic norms for experimental production related to the planning and or-
ganization of experimental facilities, their material incentive and financing, in
our opinion, we would put the following: the volume of experimental.productiom and
capital investments into the experimental facilities; labor expenditures (the per-
sonnel structure and the labor intensiveness of a unit of experimental work); the
cost outlays (expenditures per worker, per unit of experimental work and the effec-
tiveness of expenditures on experimental production); the duration of creating and
developing new iaodels of equipment and production methods; material expenditures,
the capital- and equipment-to-labor ratios for experimental production. In a separ-
ate group one must put the norms for material incentives of experimental production
and which have been worked out and are in use at a number of ministries. For exam-
ple, the USSR Ministry of Coal Industry, the Ministry of Power Machine Buildiag and
the Ministry of Tractor and Agricultural Machiane Ruilding employ a normative method
of wage planning at experimental eaterpriaes.l
A differentiated approach depending upon the level of management should be employed
in working out the proposed economic norms. Some of them such as the capit~~ in-
vestment norms for experimental production or the labor and cost expenditures caa be ~
worked out on a sectorial level. Other norms (material expenditures,:or labor in-
tensiveness of a unit of experimental work) should be formed on the level o� the
experimental enterprise and in individual instances for a specific ob3ect of new
technology. Moreover, it is important to set intersectorial ratios for the volume
of experimental woric. This is necessitated by the planning of capital investments

~ for the development of experimental production, supplying the production with the
corresponding material and technical resources, determining the scale of work to re-
new the product and so~forth. ~
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For creating a stable base in planning aad financing woxk on new equipment in accord
with the decree on improving the economic nlechaniam~ the volumes of;e.xpenditures~.on
scientific reseaxch, designing and engineering a~ce set in perceatages of the sector
ial product. The use of sectorial norms for planning the scale oi work on new tech
nology provides a reliable prospect for the development of reseaich and experit~tt~~i
work.
The system of planning norms can include consolidated norms for the expenditur~s.o.f
resources on a unit of sesearch (a standard part, assembly, instrument and so forth)
and norms for equipment utilizati6n considering the experimental and-preparatory =
, ;
work per se. A number of sectorial scientific research institutes have already
worked out and are employing methods for norming experimental work in.terms,of the
labor intensiveness for the pro3ects., equipment load factors and so fortli. Sowever, ~
there must also be a solution to the questions of setting norms for the"volume of;~ ~~f
experimental productiona determining capacity, equipping:and.technical leve`ls of.,ex
.
perimental facilities of the sector scientific research institutes'and design~
bureaus . .
For determining the required volume of experimental production in relation to the`~
size~of the corresponding scientific-technical arganization, in our view, it is es- ;
sential tu compare not the results but rather the expenditures, the valume of wo~k in
the estimated cost or the number of employees. As the norm for the volume of experi-
"mental production it is possible to use the volume of"experimeatal'work (in the:.esti,
mated cost) per 100 rubles of expenditures on research and development or the number
of workers in experimental production per l00 persons of listed personnel at~the >
scientific-technical organization.
The analysis carried out by us on a basis of the proposed norms for comparing.expen.
ditures at a number of scientific research institutES belonging to differeut minis
tries made it possible to disclose the tollowing ratios between the work volumes and
the number of employees in experimental ~roduction and the scientific research 3nsti
tutes:
Volume of experimental Number of employees in
work (of plant) per experimental production
100 rubles of research (of plant) per l00 per-
Sectors and development (of sons of listed personuel
institute), in rubles I of institute (persons)
Agricultural machine building 46 59
Light industr,y 105 66
Medical industry 49 25
The ratio between the number of worker.s at the experimental production facilities of
~ scientific institutions and the scienti�ic workers for the industrial aectors, in
our view, reflects not so much the sectorial specific features as it shows the'in-
sufficient supply of certain sectors with experimental facilities. The proposed in-
I dicators which characterize the relative scale of experimental produc,tion can also
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be used for intersectorial comparisons. Here it ia also essential to consider that
the ratio in the number of employees at a specific scientif ic research institute
and in its experimental production often depends upon the system used in carrying
out research and development. ~
Such norms should be worked out also for the subsequent (production) unit. In truth,
th~ir elaboration is possible solely on the basis of sufficiently large statistical
files when individual differences are smoothed out in the ratios between experimenta~
and basic production activities.3 For the consolidated estimates on a sectorial
scale it is essential to set ratios between the value of the fixed capital, the num-
ber of industrial-production personnel in experimental and basic production and the
volume of experimental work and commodity (sellable) product.
The elaboration of a norm on the basis of the ratio between the volume of experi-
mental work (in cost terms) and counnodity product will help disclose the sector's
demand for experimental work at the given stage cif scientific and technical develop-
ment. Such a norm ~(indicator of experiment-intensiveness) should be used as a con-
solidated norm for the availability of experimental production for one or another
sector.``
For introducing this indicator, well organized accounting of experimental work is
essential. Here much work has yet to be done. At one time, for reducing statisti-
cal reporting, information on work performed by experimental plants operating on an
independent balance sheet and subordinate to the given organization or institute was
- removed from form 5-N of the quarterly (production expenditures) report by a scien-
tific organization. Such a reduction is scarcely justifiable. In our view, it is
- essential not only to introduce accounting on the cost of experimental work carried
out for the corresponding scientific-technical organization, but also supplement the
annual form 2NT (NPK) with indicators on the cost of experimental work, having put
these in a separate line.
The use of an indicator for experiment-i.ntensiveness as a norm will make it possible
t~ disclose the optimum proportions between experimental production, on the one hand,
and the scientific and production elements of the "science--production" system, on
the other. This is important for carrying out measures to accelerate the implementa-
tion of scientific-technical achievements. At present around one-half of the scien- '
tif ic institutions in the nation have experimental facilities. For the machine
building ministries, the proportional amount of scientific research institutes pos-
sessing experiraental facilities has risen from 64 percent in 1973 up to 70 percent
in 1979. This cannot be considered sufficient. Only 47 percent of the design organ-
izations operating on an independent balance sheet possess experimental facilities.
The availability of them for industrial enterprises varies within limits of from 40
to 60 percent. A consequence of this, in particuiar, was the fact that 20 percent
of the total number of pro~ects proposed for introduction was not introduced because
it was impossible to carry out a prompt experimental check.
Undoubtedly the development of experimental facilities at each industrial enterprise
is econamically ill-advised since major measures involving new technology can be
carried out basically by large enterprises and associations with a significant re-
search subdivision and experimental facilities. For this reason the way to develop-
ing experimental production is by integrating science and production and by setting
up scientific-industrial complexes and interdepartmental testing facilities which
_ operate under contracts.
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OR OF'FICIAL [1SE ONI.Y '
There must also be a solution to the question of determining the capacity of experi-
mental plants. The capacity of experimental production cannot be determined by the
volume of gross product output since the purpose of this prod~ction is production
testing of new technical solutions. There are a number of inethodological approaches
to setting the capacity of experimental production. Thus, by analogy with series
production, experimental production maybe viewed as ~n independent industrial enter-
prise. Determining the capacity of experimental production in this instance is re-
lated to the number of employees in experimental production and product output per
production worker. In a number of the sectorial scientific research institutes, the
capacity of experimental production is set proceeding from the planned number of
basic workers and the full use of working time. The gi.ven approach, in our opinion,
does not consider the specific nature of experimental production.
In a number of instances it has been proposed that the capacity of experimental pro-
duction be figured depending upon the scale of the scientific-technical organization
or subdivision of an industrial enterprise the research results of which are under-
going testing in the corresponding experimental production. In this instance the
calculating of capacity comes down to establishing proportionality between the
scientific-technical part and experimental production. The capacity of experimental
production is characterized by a range of indicators for finding the nature and
closeness of the tie between the indicators of the scientific-technical organization
(subdivision) and the indicators of experimental production. For employing the pro-
posed range of indicators, a concept has been introduced of the level of the avail-
ability of experimental facilities for the scientific and technical organization
in comparison with certain standard (or sectorial average) values of the indi.cators.
As a whole, such a method is more acceptable. However it provides an opportunity to
find not the amount of production capacity but rather its advisable amount.
Proceeding from the specific features of experimental production and its place in
the "science--production" system as an intermediate link, two approaches, in our
view, are possible for determining its capacity, and these are based on the rela-
tionship of experi.mental production with the preceding and subsequent links. The
f irst is related to establishing the need of a scientific-technical organization for
experimental production. The second proceeds from the rate of providing modern
equipment for the given sector and the need to maintain a high scientific and tech-
nical level.s:
The construction of new and the expansion of existing experimental production at
enterprises requires additional capital investments. At present not enough money
is being allocated for these purposes by a majority of sectors. Thus, less than
1 percent of the total state centralized and noncentralized capital investments has
been allocated to 41 ministries (departments) for creating experimental. facilities.6
The calculations indicate that at least 2-3 percent of the planned annual volume of
capital investments into the sector are needed as a minimum for creating experimen-
tal facilities. One source for these purposes could be the redistribution of funds
invested in the "science--production" sphere. Obviously the interdisciplinary in-
stitutes and scientif ic-production associations should have greater rights to use
the noncentralized sources for the development of experimental facilities.
It is also essential to solve the question of the dates and material support for the
~onstruction of experimental facilities. Obviously in the capital construction
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plans the setting up of experimental production and units must be made into a sep-
arate line, and in the five-year plan, there must be provision for the independent
section "Construction of Experimental Production and Units" with the coxresponding
quotas for the ministries and departments. Thi,s will make it possible to acceler-
ate the development of experimental production as a basis for technical progresa.
A rise in the effectiveness of experimental production depends not only upon the ,
' strengthening and broadening of its ~aterial facilities. Also of important signifi-
cance is a reduction in the time spent on carrying out experimental work the average
length ~f which is still great. Thus, for the Ministry of Heavy and Transport
Nlachine Building and the Ministry o.f Power Machine Building this averages 3.7 years,
3.5 years for the Ministry of Machine Building for Animal Husbandry and Fodder Pro-
duction, 3.0 years for the Ministry of Tractor and Agricultural Machine Building,
2.8 years for the Ministry of Chemistry and Petroleum Machine Building and 2.9 yEars
for the Ministry of Automotive Industry and the Ministry of Machine Building for
Light and Food Industry and Household Appliances. The development of more than 8,000
types of new equipment in industry in 1976-1978, according to our estimates, took an
average of 2.7 years. Here 17 percent of the total number of models.was manufactured
within a year, 38 percent in 2 years, 23 percent in 3 years and 22 percent in 4 and
more years. A::cording to our rough estimate, a 20 percent reduction in the time of
experimental work would be the equivalent of saving approximately 300 million rubles
a year in capital investments on experimental production.
The average time from the start of developing new types of product to their series
- production is still coming down slowly as is affirmed by data on the development of
experimental models of new equipment in production. Of all the experimental models
proposed in 1976-1978 by the scientific research and design organizations and enter=
prises, 73 percent were accepted for series production. Here an average of only ~9
percent of the manufactured models was put into production during the year of their
development, 32 percent within 2 years and 16 percent in 3 and more years. In 1965-
1970, these data, respectively, were: 16 percent, 26 percent and 23 percent.
- Around 17 percent of the developed models do not reach series production at all,
since in the production preparation process it turns out that they require addition-
al designing and experimental testing. Obvi~usly we must accelerate the elaboration
of effective standards for creating and developing new equipment, and these should
be production (the developing of production capacity) and economic (the reaching of
the designed t~chnical and economic indicators).
An important area in the intensive development of experimental production would be
the freeing of experimental production from turning out series-made products and
from work of a nonresearch nature. Such a practice, unfortunately, is still very
widespread. For example, a number of scientific research institutes and design
bureaus of the Ministry of Electrical Equipment Industry manufacture and supply in-
dustrial products. The plans of certain institutes and design bureaus under an asso-
ciation include the production and delivery of individual models and small batches
of products. This leads not only to the loading down of experimental production with
work not intrinsic to it but also distorts reporting on the volume of scientific re-
search and experimental designing.
The specific nature of experimental production is still not fully considered in
planning and in accounting for the results of its activities. For this reason it
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is advisable to institute a planning proceduxe for the load factor on experimental
capacity. Thi.s would exclude th~ loading up o~ it with the producing of sexially- ~
manufactured commodity product5. In instances of production necessity, a rational
ratio should be observed between experimental and small-series products but not to
the detriment of experimental. Moreover, the r~port indicators of the scientif ic
research institutes, the enterprises and associations should not depend upon the eco-
nomic indicators of experimental production. ~
- A great deal is already being done in this area. According to the decree on improv-
ing the economic mechanism, the cost of industrial-type work related to development
and the introduction of new equipment and carried out from money in the unified fund
for the development of science and technology should be accounted for in the total
product volume with the figuring of a normed profit for the appropriate product
groups. The manufacturing of the experimental models and units in terms of the pro=
duction conditions is equated with the output of series products. This would in-
; ~rease the incentive of the associations and enterprises to accelerate the develop-
ment of experimental products.
The standard procedural instructions on converting the experimental enterprises to
the new system of planning and economic incentive~ introduce new evaluation and fund-
forming indicators for the experimental enterprises in instances when the proportion-
al amount of experimental production compris,~s at least 50 percent of the total prod-
uct output volume. In particular, the established indicators are not the volume of
- experimental work in cost terms and the total of the incentive funds. The results
of economic activities at experimental enterprises are assessed in terms of the ful-
fillment of the plan �or experimental work in physical terms and the volume of sold
product for experimental work in accord with the schedule orders and the concluded
contracts. The amount of the incentive funds is made dependent upon the growth rate
of the sales volume for experimental products and the fulfilling of the plan for
product range at the designated time in accord with the schedule orders and concluded
contracts.
The basic provisions of the ne.w planning and economic incentive system have been
- tested out in a number of industrial sectors (at the experimental enterprises of the
Ministry of Heavy and Transport Machine Building, the Ministry of Chemical Industry
and the Ministry of Tractor and Agricultural Machine Building). The cc~n~ersion to
the new system has provided certain positive results: the fulfillment of the sub-
ject plans of the institutes and the plant plans for new equipment was mare "closely
coordinated and material incentives for the workers in experimental production were
improved. The use of the indicator of the volume of experimental product in the
actual planning of aperations at the experimental enterprises made it possible to
raise the proportional amount of experimental work in the total volt:me of work and
to systematize the activities of these enterprises in accord with their basic pur-
pose.
However, the principles of the new planning and economic incentive system as yet are
' not being fully implemented. Internal profit remains the source for forming incen-
tive f unds. This, in t'he first place, encourages the use of capacity in experimen=
tal production for groducing se~ries products in order to ensure a larger amount of
profit. Secondly, the orientation of experimental production on profit encourages
only a rise in the product volume and does not contribute to the realization of
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scientific and technical goals. All of this leads to a situation wheze the quality
indicators for the operation o� experimental enterpxises axe not taken into account,
and in particular the technical and economic level and the economic ef~ectiveness
of the experimental product as well as the rate of its renewal. Tn assessing the
activities of experimental production, an important place should be held by the in-
dicators of the technical and economic level of the product and processes to be
turned over to series production and the economic effect from their introduction.
_ For developing the cost accounting mechanism for managing experimental production,
it is advisable, in our opinion, to use the economic effect obtained from the pro-
duction and use of new equipment (developed in the given experimental production)
as a fund-forming indicator and the basic source of incentive funds. This is caused
- by the fact that the basic result of activities in experimental production is not a
commodity in the form of a material product but rather information needed for the
development of a new product or article. The incentive funds should be formed from:
deductions from the profit (savings) formed at the enterprises in the sector as a
consequence of reducing product costs; the additional profit obtained from the sur-
charges on wholesale prices for new (modernized)��product types corresponding in
their parameters and indicators to the best domestic and foreign models or surpass-
ing them. The realization of these principles in forming the designated funds will
ensure an interest in the end results of activities for experimental production.
The profit of the experimental enterprises (like profitability) can only be a calcu-
lated indicator, since under the conditions of the price formation procedures.exist-
- ing at the experimental enterprises, this often is a result of overstating the esti-
mate costings in comparison with actual outlays.
- Since the economic effect obtained at the industrial enterprises should become the
basic source for forming the economic incentive funds at the exp ~men~al�enter- ,
prises, the question of the proportional participat9on of experim~ent~al~~'production in
the created effect assumes particular significance. We feel that this cou~d be
based on the share of expenditures of experimental'production in;.the total amount
of preproduction expenditures considering the degree of creative ~participation. A
scale of coeff icients for creative participation can be worked out by dividing the
entire range of p ossible variations (from the complete absence of a cre~tive contri-
bution to a fundamental bnodernization of the innovation being devel.oped on the level
of an invention) into several stages, for example, five. The money for encouraging
the workers in experimental production can be included in the cost of the experimen-
tal work carried out as an advance in those instances when the time for developing
~ and introducing a new produr ~ or new production Frocesses exceeds Z years.
An improvement in the cost accounting methods for experimental production will help ;
to accelerate the rate of scientific and technical progress and to raise the effec-
tiveness of social production. .

~ FOOTNOTES
l. The wage fund at these enterprises is planned on the basis of economic norms set
in relation to the volwne of commodity product. Here ehe action of the economic
norcns is extended solely to the wages of the industrial-production personnel.
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2. According to our calculations, in the chesaical industry for every 100 scientific
workers there are approximately 200 workexs ~n expeximental product~on, 130 in
the petrochemical, 70 in nonferrous metallux$y, 90,in ferrous metallurgy and
around SO in petroleum. ~
3. Although the volume of experimental work certainly does not have a direat tie to'
- the scale of the future series production, in our view, definite relationships
do ex~st between experimental and production activities. They depend upoa the
scale of basic production, the nature of the product to be produced and the rate
of its replacement.
4. As the analysis carrie~i out by us has shown, the volume of experimental product
in relation to gross product fluctuates for a number of the scientific-production
associations [NPO]r The survey data show sigaificant differences in the availa-
bility of experimental facilities at a number of the NPO.
5. The calculation of the formula and its explanation were given by us previously
(see EKO, No 3, 1973, p 28).
6. See V. A. Pokrovskiy, "Povysheniye Effektivnosti Nauchnykh Issledovaniy i
Razrabotok (Voprosy Teorii)" [Raising the Effectiveness of Scientif ic Research
~ and Development (Questions of Theory)], Izdatel'stvo Ekonomika, 1978, p 151.
7. The standard procedural instructions are extended to experimental enterprises
previously converted to the new planning and economic incentive conditions.
_ However far from all experimental enterprises under the scientific research in-
stitutes were converted to the new management conditions. Certain ministries
which have experimental plants under the scientific research institutes operat-
ing under the new planning and economic incentive system (as series plants) have
been in~no''hur~5��to change this system in accord w3th the specific nature of
~ r � � ,
.~.lr i� ~ ,,r~
expe~rimental~ prbd~ction.
� _ ~
8. The voluuie of experimental product includes: the value of arti"cles,+work and ~
services under the orders ~f scientific-technical organizations in carrying Qut
sub3ect plans; the cost of manufacturing experimental-industrial and the first
industrial batches of new types of products to be used for working out and organ-
' izing the output of new articles or for the industrial use of new production
~ processes; the cost of orders for the technical and production support of scien-
~ tific research and experimental design.
9. Up to now there has been no unified normative roc, re for distributing the
~ P
j effect between the individual participants in the p`~ocess of creating new equip-
ment, including~experimental production. In the economic literature there has
~ been a number of inethodological approaches to determining the proportional par-
; ticipation in the overall savings (gee, for example, S. I. Golosovskiy, "Ekono�-
i micheskaya Effektivnost' Issledovaniy i Razrabotok" [Economic Effectiveness of
' Research and Development], Izdatel'stvo lrbskovskiy Rabochiy, 1973; A. A.
~ Rumyantsev, "Ekonomicheskaya Effektivnost' Nauchnykh Issledovaniy (Metodologiya
~ Izmereniya)" [Economic Effectiveness of Scientific Research (Methodology of
+ Measurement)], Izdatel'stvo Ekonomika, 1~.7.4; L. L. Veger and Yu. D. Matevosov,
; "Ekonomicheskiy Effekt Nauchnykh Issledovaniy" [The Economic Effect of Scientific
-j Research], Yerevan, 1974).
~ COPYRIGEIT: Izdatel'stvo "Pravda", "Voprosy ekonomiki", ]981
, 10272 29
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INTRODUCTIOII OF NEW TECHNOLOGY
~
,
INTRODUCTION, IMPACT OF NEW TECHNOLOGY DISCUSSID
Planning, Incentives of New Technology
Moscow VOPROSY EKONOMIKI in Russian No 5, May 81 pp 16-22
[Article by G. Tsaritsina: "Planning and Incentives for Developing Production of
- New Technology"]
[Text] The materials of the 26th CPSU Congress point to the need of accelerating
scientific and technical progress, significantly increasing the the scale oP develop-
ing and introducing into production new highly efficient equipment which ensure~ a
rise in labor productivity, reducing material and energy intensiveness and improving~
product quality. L. I. Brezhnev in the Accountability Report of the CPSU Central
Committee said: "It is essential to eliminate everything that makes the process of
introducing the new difficult, slow or painful. Production should be vitally in-
terested in the more rapid and better development of the fruits of thought and the
fruits of labor of scientists and designers. The solving of this problem, oP course,
is not a simple matter and necessitates the breaking of obsolete habits and indi-
cators."
In accelerating scientific and technical progress, an important role is played by
the period of developing the production of new equipment at enterprises; in con-
trast to the period of series production, this has its specific features. While
the new equipment is ,just being introduced into prod.uction, it does not bring the
enterprise profit but requires great expenditures. This gives rise to economic dif-
ficulties. For this reason the development process often is accompanied by a tem-
porary deterioration in the cost accounting indicators for enterprise operations.
~�Ioreoyer, the process of starting up the production of a new product entails elements
of risk and uncertainty.
The part~cular features and difficulties of the period oF development for the pro-
duction of new equipment should be considered in planning and incentive practices.
As was pointed out by L. Gatovskiy, an essential condition for the effectiveness of
economic incentives for scientific and technical progress is the reorienting of this
so that the disadvantage of developing a new efficient technology for the national
economy would give w~~,y to advantages received by the enterprises and associations de-
veloping it.l
~
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Strengthening the effect of economic levers on the given process ple.ys an important
role in successfully carrying out thP task of developing new types of t~echnology.
It is a question of establishing the basic approach to planning and encouraging en-
terprise operations during the period of starting up tYie production of new tech-
nology.
The development period consists, in our view, of two stages which are closely inter-
related but at the sa~}e time are relatively independent. For this reason, in elabor-
ating specific measures to improve planning and incentives for the devElopment of new
technology, it is also essential to consider the specific~features of these two
stages. The first stage is the creation or working up of an experimental model and
. the second is starting up industrial production of' ~~e given model on a mass scale
(the first year or two of series production for a new article). Not only in time
but also in space the~ :tag~es~ ~.re frequently carried~ out separately (in the instance
when experimental models are created by scientific-production associations or experi-
mental enterprises). In the first of them the tasks are set of creating and intro-
ducing experimental models and the first speci:mens, and in the second the organizing
of extensive (series) production on the basis of the improved experimental modei and.
working out the production process for the new product.
Experi~ental models are frequently manufactured by the developing enterprise itself. ~
But even in the event of obtaining the model from outside (f~r example, from an ex-
perimental plant) the first stage still occurs st the enterprise, that is, introduc-
ing the given experimental model, since the manufacturing conditions for the experi-
mental model of new technology at the experimental plant and its working up at the.
enterprise are far from equivalent.
The experimental model is created with a definite purpose and this consist,s not in
the immediate satisfying of a production need but rather in the seaxch for the ways
- to satisfy it, in particular, in the search for the ways to improve the efficiency
of social production. Here it is the question precisely of a search, for subseguent-
ly a number of elements in the new product is developed or altered or the new product
is immediately manufactured in the form of several experimental versions. The deci-
sion to put the experimental model into production can be taken only on the basis of
its production operation, that is, an experimental example should find a consumer.
In our view, it is advisable to view the paxticular features of the experimental
model as a specific production product. The consumer ultimately is indifferent as
to whether the lst, 100th or 10,0~Oth (in the order of production) example of ~the
_ new machine is in operation. But for society this does make a difference, since the
lst (experimental), 100th or 10,000th exa.mple are manufactured for various purposes
and for satisfying diverse needs and need different expenditures on production.
The specific consumer and society, in viewing the experimental model differently,
are ready to recognize the various a,~nounts of expenditures on producing it as neces-
sary. As a unit operating on principles of cost accounting, the specific consumer
uses the experimental model as a means for increasing the technical level of produc-
tion, for sr~ving labor and reducing product costs. From the position of the cost
_ accounting interests of the consumer, the experimental model acquired by him, like
all the new technology to be employed, should pay back its costs. For assessing an
experimental model, the only correct position of society is the one according to
Which the task of creating the model is a search for wa.ys to increase social labor
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productivity. The expenditures needed for these purposes, if one proceeds from the
interests of society, are ~ustified and operate as socially necessaxy, for without
them the new technology cannot be created. ~ '
The first stage in developing the produc~ion of new technology is characteri2ed by
high expenditures on creating anr3 working up the experimental models. As analysis
has shown, the labor intensiveness of an experimental mode:l of a machine used for
series production is at times scores of times higher th~n the future series one.
Materials and preassem~led products are frequently specially manufactured for tYiis
experimental model and this also raises development expenditures. If one beaxs in
mind the actua.lly inevitable increased costs of th~ development period, including
for creating experimental models, they must be recognized as socially necessaxy.
One must proceed precisely from these paxticular features, in our view, in determin-
ing the ways to strengthen the effect of the economic levers on accelerating the
first stage in developing the production of new technology and improving planning
and incentives for this stage. These ways are: to fully cover all the socially
necessary production outlays by the enterprises on creating the experimental models
to particularly encourage the manufacturers and to ensure the introduction of exper-
imental models at the consumer with a positive effect for him. .
In the economic incentive system, an important ~lace is held by the cost levers and
primarily prices. The effectiveness oP measures to strengthen the effect of incen-
tives on developing new technology and accelerating scientific and technical prog-
ress as a whole depends largely upon the effective use of prices. The price Forma-
tion systam has been further developed in line with implementing the Decree of the
~ CPSU Central Committee and the USSR Council of Ministers "On Improving Planning and
Strengthening the Effect of the Economic Mechanism on Raising Production Efficiency
and Work Quality." On the ~ne hand, the proven principle has been maintained of
setting prices considering the effectiveness of the new products for the consumer.
On the other, the principle has been intr.oduced of price stability for the period of
carrying out the five-year plan. This raises the soundness of the enterprise operat-
ing indicators approved for the 5 years. In addition, prerequisites axe created for
more accurately determining the amount of development costs for the new equipment
as well as funds for covering these costs.
During a period of developing an experimental model, its price should ensure the
covering of all expenditures for the manufacturer and also bring a profit. Obvi-
ously for the acquired experimental model the consumer should pay the manufacturer
a price which corresponds to the future reduced value of the given equipment in its
series production. All of this must be provided for in the price formation system,
if one proceeds from the fact that the development process should be set apaxt in
the incentive system.
For achieving such a situation in the first development stage, it is advisable, in
our view, to set two prices for the experimental model: for the manufacturer and.
for the consumer. Here the consumer'�s price should ensure a return from the given
model. The manufacturer, in addition to this price, will also receive money from
the YeFRNT [unified fund for the development of science and technology] and this
money will be included in the overall product and profit volume. This means that .
the manufacturer sells the experimental model at a price which corresponds to its
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socirl.l v~.lue and recovers all the production outlays and a sufficient proPi'cability.
~uch a procedure for setting prices for experimental models wiTl significantly in-
crease the economic interest.of the enterprises to create them.
The decree on improving planning intends a~roadening of the use of money of the
_ YeFRNT for the purposes of accelerating scientific and technical progress and pro-
ducing new highly efficient equipment. In particular, it is provided that the value
of industrial=type work related to the development and introduction oP new technology
and carried out from the money of the YeFRNT should:be considered in the total'prod= -
uct volume with ~the figuring of a normed profit for the appropriate product groups.
The consistent realization of this provision will provide a great additional incen-:
tive to accelerate both the first development stage as well as the development period
as a whole.
The price of an experi.mental model of new equipment is closely tied to such an eco-,
nomi~ incentive source as the YeFRNT which performs a dual role. A.portion of this -
fund is earmarked for fina,ncing scientific research, experimental design and engin-
eering work while another portion is used to cover expenditur.es related to the elab-
oration and development of new types of products and production processes and improv-
ing product qua.lity and the increased expenditures during the first year of produc-
gin the new product.2 This latter portion of the YeFRNT makes it possible for,the
manufacturer enterprises not to include all the development outlays for the new
technology in the price. Such a procedure makes the new equipment sore advantageous
for the consumer and interests the enterprises in developing its production, as it _
makes it possible ahead oF time, even before sales, to receive development funds in
amounts needed for development and free of the cost accounting activities of the,
enterprise. The laxger the unified fund in the sector and that portion of it which
- is channeled to the manufacturing enterprises for the developmer,t of certain models,`
the lower the price for the new technology paid by the consumer and vice versa.
Thus, a portion of the development expenditures financed from the YeFRNT will not be;
included in the cost of +he new technology and not considered in its price, that is,
the consumer will not pay for these expenditures. But as for the manufac~urer, his
_ expenditures recovered from this fund should be~considered~in the production volume
and the profit volume. For this reason, the money for the development of new tech-
nology received by the manufacturer from the YeFRNT will be included in its produc-
tion and profit volume but will not be included in the price of the new equipment
for the consumer. This, on the one hand, will ma.intain the consumer's interest in
the new equipment and, on the other, will strengthen the interest of the manufacturer
in developing it.
In the second stage of developing production af new technology which staxts after
the elaboration of the experimental model, the production methods are worked out for
- creating the new products, the production Pittings are manufactured, new equipment
- is purchased and installed and in a number of instances new production areas axe
built. Over a certain period of time (1 or 2 years and sometimes longer) there is a
rapid rise in the production volume of the new products and the economic indicators
change for the produ~tion of the new product, including: costs, labor intensiveness,
profit and so forth. The given stage ends when the design indicators axe reached for
producing the new product, that is, the production voltame meets the needs of the
national econorr~y whi.le costs and price make it possible for the users to operate the
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machine with an economic advantage for themselves. This is ordinarily reached in
the third yeax of producing a new product.
The second development stage is characterized by a gradual cha.nge in the auiount of
expenditures per unit of new technology. The r.atio between the quantity of labor
needed to produce the new equipanent and the quantity of labor saved by its tise in .
the national econaqy gradually changes with the production of the new technology re-~
quiring Tess labor than is saved in employing it.
_ The planning and incentxve~:system must take into account the specific nature of the
given stage in the development of new technology. This means that in the first
place, it is essential to ensure the-producer recovers the initial production expend-
itures and, secondly, to create conditions for the unobstructed introduction of the
new products at the cons~mmers and precisely where they will bring the greatest ef-
fect. The plans should make provision for the required capital investments and. con-
sider the high cost of the first examples and the recovery of this cost through the ,
price and through the funds of the YeFRNT.
During this period, in our view, the consumer plants of the given technolo~r should
be determined (in terms of the models). In developing the production of new tech-
nology, there must be a precise orientation toward a specific user and toward the
future spheres of its exploitation.3 The necessity of solving this complicated prob-
lem has long been present for the production of new technology irregardless of the
specific sphere of use gives rise to difficulties in selling it, it leads to ma~or
losses for the national econoiqy and impedes the development process. ~
The state plan sets the manuPacturing ministries for new technology but does not set
+ the consumer ministries. In the sectorial plans of the ministries, the specific
clients and consumers (plant or association) are virtually absent si.nce a sectorial :
- plan for the introduction of new tecr~nology has not yet been worked out. While a
producer ministry gives the enterprises a plan for new technology, the consumer mi~n-
istry cannot do this. The spheres of use for the new technology should be indi-
cated for the various levels of planning. The state plan for new technology must
include the quotas for the five-ye~ar plan (broken down for the years) ~or producing
various types of equipment (according to the equipment groups). Such~ quotas:should
- be set for the manufacturer ministry with the indication of the consumer ministry.
For exa.mple, in the machine tool building sectors, the plan must give the conaumer
ministry for such groups of ma.chine tools as numerically controlled machine tools arid _
machine tools with a tool magazine, for laser working, with a built-in computer and
so forth. For this reason in the stage of designing the equipment it is advisable
to establish the sphere of its use, although at the given stage it is still im~osrs
sible to know the specific consumer plant. The production plan for new technology
over the 5 years (broken down for the yeaxs) on the sectorial level should be more
detailed. It should contain the range and models of machines indicating the specifYc
clients. On the basis of it contracts can be concluded for the deliv~ry of the gi:~nen
equipment models to the specific consumers. In other words, for its plants the con-
sumer ministry works out specific quotas for the group of equipment to be purchased.
Considering the range of equipment established for them the manufacturing plants ~
. conclude contracts with the plants consuming the equipment..
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T'or this it is essential to solve the problem of the accelerated startittg up of pro-
duction of new technology in the second stage and the system of ineasures related to
organizing and encouraging its development must be coordi.nated. Here the main role _
- is played by planning the preduction of thz new product, the expenditures on its.cre-
ation (initially high and then dropping rapidly) and the:capital investments on or-
ganizing production and introducing the new technology into the national.economy
(with a focus on the specific co.nsumer, that is, for the models a.nd.this, incidental-
ly, will be one of the wa,ys for raising,the efficiency o~ social production).
Planning new technology encompasses only the first stage in developing.its produc- `
tion (the manufacture and working up of the experimental model) while the product"s'
put into series produetion axe not included in the plan for new technology.
- At the same time the start of series production for the new products (the second ~i
stage of developing new technology) should be planned and accounted for separately
and set apaxt specially in the volume of already developed products. In working.out
the plans fo-r aew technology, tha new articles should be included in them for the
entire development period. _
!
Since elements of risk and uncertainty are inevitable in the period of developing
the production of new technology, the accura~y of the planning calculations for all
_ production declines. The enterprise plan during the development period should have
a more flexible natare as is envisaged in the decree on improving planning. It spe- ~
" cifically includes a point which permits the min~stries and depaxtments to ad3:ust '
the plans of the ~roduction associations (enter~rises) upon their proposals if the
indicators of cost accounting activities decline in comparison with the plan and tfie
product volume drops because of the development and increase in the output of highly
efficient equipment. As yet this procedure is still not suf.ficiently realized in
practice. Its wide dissemination could be aided by the elaboration of a procedure
for determining the influence of developing the production of new technology on the
enterprise econo~y. Scientific and practical work is already being carried out in
this area.
In the second stage of developing the production of new technology, the system of
economic incentives for producing it �also needs improving. During this period the
price for the new equipment is the basic form of economic incentive. But the price
still does not sufficiently interest the enterprises in series pxoduction of a new
product. The problem is that the second developmznt stage is the period when the
costs and labor intensiveness are, as a rule, still higher while labor productivity
is lower than the planned. For this reason the enterprise must bear additional out-
lays which are inevitable but which it must recover. Moreover, in line with the
overall difficulties of producing a developed product (the deterioration in cost
accounting indicators), the enterprise should have benefits fbr carrying out the .
plan to produce new products.
As is known, certain economic benefits, in particulax the establishing of a substan-
tial surcharge on the wholesale price which ensures high profitability and for this
reason increases deductions from profit into the economic incentive funds are pro-.
vided for that period when the new product has been certified and receives the higher.
quality category. According to the established procedure, certification of a newly
developed product should be carried out no later than a yeax after the staxt of its
series production and for a paxticularly complicated product, two years later.
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According to the procedural instructions on the procedure for planning and account-
ing for the growth of production for superior quality products (.basic provisions),
the product is considered in the superior quality category the moment the decision
of the State CertiPication Commission to issue a certificate awaxding the product
the state Quality Mark is registered with Gosstandart [State Committee for St~,ndard~
iaation].4 From the given moment it actually begins to receive the price surcharge.
This surcharge is not included in the plan for the production of new products, a1-
though it is accounted for in the report (this strengthens the interest of the en-
terprise ) .
Obviously for ~trengthening the incentive role of prices for devsloping the output
of new highly efficient technology and for raising the level of saturating the
national econo~}r with such technology, it would be advisable to extend a11 the price
benefits which are presently extended on~jr to the superior quality products to a11
products included in the plan for new technology and begun for development. At the
center of the incentive system should be all new technology to be created a.nd partic--
ularly the technology in its development period and not only after its end.
Such a procedure would lead to a widening of the list of products for whicY! the
price surcharges should be set. But this does not require great work, as it in-
- volves an insignificant amount of product (basic~.lly several pieces of experimental
models or the first industrial batches) and would be extended for a short time (a
yeax rr two). At the same time preferential conditions would be created for the ac-
celerated development of all actually effective technology. In addition, with the
introduction of the proposed pr~cedure, we would eliminate the existing compulsory
forms of covering the high development outlays for producing new equipment (for ex-
ample, by including these in the cost of the product to be developed).
For i.mproving the price system for new technology during the development period.(in
_ both stages), it is essential to work out a system for considering the expenditures
on production development for each model. The outlays on developing production of
the first models and the experimental series in fact are reflected nowhere and this
is certainly tr~ae for the exceeding of the actual costs oP the new article over the
planned in the first year or two uf. development. In our view it is advisable to in-
troduce special charts for considering the development outlays for the production of
new technology for the vax ious models and these would include all the expenditures
on developing production of each model. A changeover to a system of schedule orders
would greatly help to solve this problem.
As for the current form of statistical reporting on expenditures for measures relat-
ing to new technology, it does not provide a complete and cleax picture of the ex-
penditures. In the first place, it does not divide the expenditures on the develop-
ment of the new technology and its introduction. In our view it is advisable to in-
troduce such separate accounting. Secondly, this form does not cleaxly separate the
expenditures on developing the output of new technoTogy from money of the YeFRNT and
other sources and this impedes analysis of the structure of compensation for the de-
velopment outlays. Thirdly, data on the actual expenditures in the report year on
the introduction of all measuxes relating to new technology and for scientific re-
search are not coordinated and cannot be compared with tlie total amount of outlays.
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;
In terms of the second stage of developing production of new technology, of g~eat '
significance is the fact that in the Pirst years, at the beginning of series'manu-
facturing of the new products, the YeFRNT must cover the exceeding of actual expendi-
tures over the planned as well as compensate for the enterprise.':s expenditurea for
improving the quality of the manuPactured equipment. However, the amount of money`. `
in the YeFRNT does not make it possible to cover these expenditures and in actual
terms they are si.mply written off against the cost of the new products and this eu-
tails an increase in the prices for them. This substantially reduces the incentive
role of the YeFRNT and impedes the introduction of new implements oY labor in the
national economic sectors. An indixect indicator of ~~he amount oY the YeFRNT could '
be data on its share in the structure of actual expenditures on introducing all
measures relating to new technology (including development and introduction) and
these confirm the necessity of a signiPicant increase in the YeFRNT. Thus, in ~979,
for the 11 ms.chine building ministries the shaxe of the YeFRNT in these expenditures -
averaged 32�3 percent, varying from 16 percent to 53 percent for the sectors. From
22 percent to 32 percent of the development expenditures was covered by writing off
against the costs of new technology. _
Within the li.mits of the�presently allocated money of the YeFRNT for new technology,
in our view, a redistribution could be cax�ried out in favor of production develop-
ment. This is shown from the experience of a ma~ority of heavy machine building
enterprises where approximately two-thirds of the money of the YeFRNT goes to the
enterprises and one-third to the scientific research organizations. However, often
from the YeFRNT existing in the sectors a larger share (sometimes up to three- .
quaxters) is cha.nneled to the scientif~c reseaxch organizations and the smaller paxt
to the enterprises.
A number of areas for improving the formation and use of the YeFRNT is already being
implemented. Thus, in accord with the decree on improving planning, the sectors
~ ~(ministries), starting with the llth Five-Yeax Plan, on the basis of the quotas set
for them in the five-year plan will have a stable profit deduction rate (differenti-
ated for the years) for the profit to be left at the disposal of the ministry and
spent on the development of pr.~duction, science and technology and for forming the
economic incentive funds.
The approach proposed by us to strengthen the effect of planning and incentives on
developing the production of new technology naturally does not solve all the ques-
" tions but it will make it possible, in our view, to accelerate the realization of
achievements from scientific and technical progress.
FOOTNOTES
1. See L. Gatovskiy, "Economic Incentives for Scientific an3 Technical Progress," -
VOPROSY EKONONIIKI, No 2, 1981, p 64.
2. The money of the YeFRNT is used to repay the increased expenditures of the first
and in individual instances (upon permission oY the ministry) also the second
year of series (m~.ss) production for a new (modernized) product, with the excep-
tion of a produc-c which is being developed for the first time in the USSR and
- for which temporary wholesale prices are set.
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3. See L. Gatovskiy, "Managing the Effectiveness of Scientific and Technical Prog-
ress," VOPROSY EKONOMIKI, No 1, 1980.
4. See "Sovershenstvovaniye Khozyaystvennogo Mekhanizma" [Improving the Economic
Mechanism~, a collection of documents, Izdatel'stvo Pravda, 1980.
COPYRIGHT: Izdatel'stvo "Pravda", "Voprosy ekonomiki", 1981
Socioeconomic Ramifications of New Technology
Moscow VOPROSY EKONOMIKI in Russian No 5, May 81 pp 23-32
[Article by V. Fel'zenbaum: "The Socioeconomic Effect of New Technology and Cost

~ Accounting"]
[Text] The strengthening of the social orientation of national economic management
requires a shift from assessments of the economic effectiveness of new technology to
a determining of its socioeconomic effectiveness. This has led to the necessity of
_ solving a number of new and complicated methodological questions. Among them one
might mention: disclosing the essence oi' the category of the socioeconomic effec-
tiveness of new technology; establishing the relationship of the economic and social
aspects of its introduction; elaborating a concept of the socioecanomic result of
new technology, establishing an assessment for the indicator of its national eco-
nomic socioeconomic effect and so forth. Some of these have been taken up in the
draft worked out by the Economics Institute of the USSR Acade~y of Sciences Basic
Procedural Provisions for Determining the Socioeconomic Effectiveness of New Tech-
nology" and in a number of articles.i
The end result of introducing nPk: technology into the national economy is its socio-
economic effect. For this reason it is important, in our view, to examine the pos-
sibilities and conditions for realizing this effect in the enterprise cost account-
_ ing.
In a socialist society, the economic interests of an individual enterprise may not
directly coincide with the interests of all society due to the definite economic
independence of the enterprise and its rights within certain limits~to dispose of
the resources allocated to it. This nonantagonistic contradiction which is resolv-
able by the system of economic instruments, and above all by the modern price for-
mation methods, gives rise to two categories of effect from new technology, the
national economic and the cost accounting. The cost accounting effects of the manu-
facturer and the consumer of the technology are parts of the national economic one.
Certain scholars consider the categories of the national economic and cost account-
ing eff~cts of new technology to be identical. It appears that the reason for this
lies in a narrow understandin~ of cost accounting and in underestimating that degree
of freedom which the enterprise possesses in carrying out the plan. The overall
assessment of enterprise operations, its financial state and the material incen-
tives for the workers depend upon the implementing of the plan quotas. However, the
quotas and the incentive systems which encourage their fulfillment are not always
clearly coordinated. The enterprise first carries out those which to a greater de-
~ree determine the overall assessment of its operation.~ and the formation of the eco-
nomic incentive fund~.
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t.:~ ~u:;~e ciint, ~h~ cu~c ~.ucouriti~~~; oP socialist enterprises t~as limits and is
uiider� the effect of society as the owner of the means of production. In terms of
scientific and technical progress, the determining role of society is manifested in
the fa.ct that it ensures the development of science, it establishes the needs for
various types of technology, it selects and plans the introduction of new technology,
it makes certain that the parameters of the technology conform to the system of
social norms, it sets the prices for the technology, it ensures the financial pos-
sibilities for purchasing it and so forth.
Within cost accounting, an opportunity is created for coordinating the national eco-
nomic and cost accounting effects of the new technology. The most important instru-
ment for such coordination is the setting of a price for the new technolog,y within
the interval between the upper and lower li.mits making it possible to split the
national economic effect of the new technology between its producer and consumer and
to create an interest for both in introducing the new technology.
The cnoice of new technology and the introduction of it into production using the
criterion of the maximum national economic effect have been carried out since 1961.
In 196g, for the first time a procedure was established for determining wholesale
prices for new production and technical products and this envisaged the setting of
prices for new technology in the interval between the upper and lower price li.mits.
This created a basic pririciple for constructing a system of cost accounting effects
of new technology based on the national economic effect and coordinated with the
national economic effect. However up to 1977, the detErmining of the cost account-
ing effect ~~ras not provided for in the official procedures and this led to a lessen-
ing of interest for the enterprises to introduce new technology.
Thus, the cost accounting economic effect of new technology is a form for realizing
the national economic economic effect of new technology within the sytem of cost
accounting relationships. But with the transition from the category of the "eco-
riomic" effect of new technology to the category of the socioeconomic one, the es-
sence of the cost accounting effect is altered and the mechanism of coordinating it
with the national economic one is signific~.ntly complicated. Cost accounting, as a
method of runnir~g the economy, in its nature is an economic category and not a socio-
economic one. For this reason, by the cost accounting socioeconomic effect of new
technology orie conditionally means its economic effect obtained by the enterprise
with the presence of a certain system of social constraints.
The cost accounting socioeconomic effect is determined by what economic gain re-
flected in the indicators of production and economic activities an enterprise will
receive from introducing new technology under the condition of ensuring the estab-
.lished social standards and norms. In contrast to the national economic socioeco-
- nomic effect of new technolopr which ic a vector of the increments of the social and
economic i�e~ults from the use of new technology, the cost accounting effect is ex-
pressed by a number iri the calculating of which the values of the social components
- o� the vector of the national economic effect are considered as constraints.
The sys~em of social constraints in cost accounting should be worked out, in our
view, in j;he following directions: 1) Excluding from the volume of enterprise pro-
duction (net or coiranodity product) and profit the portion obtained from violations
of the established social norms and standards; 2) compensation to the manufacturer
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tt~rou~,t~ tt~e price for new technology for his expenditures on social needs and con-
sideration in the price of the socioeconomic effect of the consumer; 3) the intro-
duction of a payment for the used natural resources (land, water, lumber and so
forth); recultivation of fertile lands on an inereased scale at the expense of
the enterprises using these lands; 5) a wider practice of paying compensation, penal-
ties and fines for the polluting of natural resources such as the release of flue
gases,the discharging of untreated water and so forth.
The economic mechanism employs only certain elements of this system, in particular
the "payment" for agricultural land confiscated for construction, for water, the
stump tax for lumber, and expenditures on recultivation of the land. This is clear-
ly insufficient. "Under the conditions of commodity-monetary relations, when the
operation of enterprises using n~.tural resources is assessed from the profit and
profitability indicators, the gratis nature of natural resources," writes Academician
T. Khachaturov, "gives rise to a different attitude toward them than towaxd the
fixed capital for which the enterprises pay a fee."2
The decisions of the 26th CPSU Congress provide a further improvement in the forms
of cost accounting relationships, a rise in the role of the financial and credit
levers in intensifying production, a strengthening of cost accounting and a stronger
econo~y drive. For using the methods of determining the socioeconomic effectiveness
of new technology as an instrument for controlling scientific and technical progress,
it is advisable to use the above-listed elements in the economic mechanism. It is
basically a question of improving the environmental conservation aspect of the eco-
nomic mechanism.
The use of new technology designed to improve working conditions, as a rule, has a
positive influence on enterprise cost accounting. The enterprise which spends money
on special equipment which improves working conditions itself recei.ves a cost ac-
counting effect from the inereased labor productivity, the reduced product costs and
the greater amount of profit. As for ecological equipment, its influence on enter-
prise cost accounting is varied and contradictory. Most often it does not bring a
- benefit directly to the enterprise applying it.
In building treatment works or vaxious filters, the enterprise does not increase
the production volume, it does not raise labor productivity and more often does not
reduce the cost of the product per se. On the contrary, it must make additional
expenditures to operate this equipment and this worsens its cost accounting indi-
cators. For example, according to calculations of the Sector for the Effectiveness
of Scientific and Technical Progress at the Economics Institute of the USSR Academy
of Sciences, the additional expenditures related to the normal operation of gas
scrubbers at metallurgical plants reduce the return on investment by 2-2.5 percent,
they raise the cost of commodity product by 0.5-1 percent and lower production
profitability by 0.8-1.2 percent.
A cost accounting effect, as a rule, is received by the enterprises which previous-
ly suffered from this pollution. As a whole, the national economy gains from the
introduction of the new ecological equipment.
In a number of industrial and construction sectors, equipment is located in the
open and the production environment of the enterprise itself is a portion of the
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natural environment. In polluting it, these enterprises also pollute their produc-
t.ion area, they lower the working conditions for the employees and the operating
conditions of equipment and this leads to a decline in the cost accounting indica-
tors. Thus, at cement plants, due to the release of raw materials in the flue gases
from the rotating kilns and the cement dust in the grinding and loading of cement,
up to 5 percent of the cement is lost, the employee sickness rate rises and, as a
consequence of this, personnel turnover goes up. As a result of the abrasive effect
of t~e dust, equipment wear is tolerated and additional expenditures axe needed on
cleaning up the territory and plant areas. In these sectors, the additional expend-
_ itures on producing ecological technology, as a rule, axe covered by the obtained
profit. For this reason here the enterprises are more willing to install treatment
works, filters and so forth. In the cement industry more tha.n 86 percent of the en-
tire kiln fleet is equipped with electric filters, although there are shortcomings
in tr,eir use. In moving from the economic effect of new technology to the socioeco-
nomic on~ (a,nd paxticularly considering the impact of technology on the environment),
the traditional system of cost accounting relationsY:ips between the manufacturer and
consumer is complemented by a third party, the "consumer" of the social consequences
from ma.nufacturing or using the technology. Naturally, the natural conservation as-
pect of tYie economic mechanism should be organically combined with that aspect of
the economic and social development plans which contain specific quot~,s on protect-
ing the environment, reproducing the natural resources, recultivating destroyed
lands and so forth.
The contradiction between the cost accounting interests of the enterprise which pol-
lutes the environment and the interests of the enterprise which uses natural re-
sources should be eliminated by a compensation mechanism and by strengthening the
planning management methods. The social constraints on the working conditions and
on the state of the environment should be realized through cust accounting by adjust-
ing the enterprise evaluation indicator~ as well as by widening the system of sanc-
tions, penalties and reciprocal compensation (in addition to ad.~ninistrative type
measures) for the failure to observe social standards and norms.
With insufficient responsibility for the violating of norms to ensure safe working
conditions and the state of the environment, often the ent~rprises intentionally
re�use various treatment devices i,n order not to cause a drop in the cost accounting
results. For exa.mple, at certain metallurgical enterprises during the nighttime
shift tYiey shut down the gas scrubbers since this increases the productivity of the
open heartr~ furnaces, although this sharply increases furnace waste products and ex-
ceeds the m~.ximally acceptable levels. Obviously a procedure must be instituted
wher~eU,y ttie portion obtained by violations as a result of the idleness of labor
safety or environmental equipment wauld be completely excluded from the product
(commodity or net) volume and from profits. The directing of the economic mechanism
towarcl Lh.is would check the desire of certain enterprises to obtain a cost account-
ing effect as a consequence of the failure to observe social standards. Such sanc-
i~ions, for example, are provided in violating the curx�ent price formation procedure
a.nd in producing products which do not meet the requirements of the State Standards.
Let us exa.mine the question of the recovery of expenditures on social measures in

_ manufacturirig and employing new technology. The reorganizing of production in pro-
ducin~ these products often requires measures to improve employee working conditions.
Labor safety measures (including in producing nerr technology) are carried out from
product costs (if they are of a noncapital nature) ar from the capital eonstruction
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financing sources: the ~u~get alloc~,tions, the development fund anc~ the amortiza-
tion fund. ~Environmental protection measures axe also financed from the same
sources. In a ma~ority of instances this should not lead to increased costs of the
product (new equipment) since an improvement in the production and living conditions
for the workers at the given enterprise increases their labor productivity and lowers
the additiona.l expenditures of the enterprise related to eliminating vocational ill-
nesses, compensation and benefits with bad working conditions. The enterprise should
be compensated for the increased costs through prices for the new equipment if the
additional expenditures keep within the lower and, respectively, upper price limits
Much more often the production of new technology costs more because of the incorpor-
ating in it of attachments and devices which ease employee working conditions or im-
prove the state of the environment for the consumers of this equipment. Thus, the
expenditures on manufacturing the Niva combine, according to the estima,tes of vari-
ous experts, would increase by 10-30 percent because of the designated factors.
However, if the decision to introduce new technology is taken according to the cri-
terion of the maximum national economic socioeconomic (and not the economic) effect,
then these additional expenditures, like the possible additional expenditures of the
previous type, are fully covered by the socioeconomic results of the new technology.
The task is merely to replace the economic effect by the socioeconomic one as part oP
the upper price limit for the new technology (and consequently the price generally),
here having maintained the existing method of distributing the efPect between the
producer and consumer of the new technology.
The enormous significance of the problem of the thrifty use of the reserves of min-
erals, land, water, forests and so forth has been caused~by the increased scale of
social production with the limited and unreproducible nature of many natural re-
sources. At one time a system of ineasures was planned to develop economic research
in this area and to improve the economic mechanism for the purposes of the protection
- and reproduction of natural resources. In the first stage they proposed working out
the methodological principles for an economic assessment of all types of natural re-
sources and the estimates them~elves incorporating them in the designing and plan-
ning. In the second stage these estimates were to be turned into payments which
would be part of a system of cost accounting relationships between the enterprises
and of their economic relations with the state. This meant tha.t the use of na~ural
resources was to become paid for. Finally, in the third stage a system of independ-
ent natural conservation enterprises was to be formed (similar in type to the modern
forestry establishments) operating on full cost accounting and they would be included

i in the unified national economic complex. At present the measures of the first stage
are being completed and certain steps have been taken to implement the measures of
the second.
The Decree of the CPSU Central Committee and the USSR Council of Ministers "On Im-
proving Planning and Strengthening the Effect of the Economic Mechanism on Raising
Production Ef.ficiency and Work Quality" envisages the introduction of a payment for �
water (out of product costs) taken by industrial enterprises from the water manage-.
ment s~rstems. The "payment" for land in the form of compensation for expenditures
- on the development of new lands is c~=lected from enterprises newly under construc-
tion or reconstruction for those lands which are taken out of economic circulation
for them. The payment is differentiated for the Union republics and the regions con-
sidering the quality of land confiscated. The estimated cost of the pro,jects to be
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built will sei�ve as the source for covering these payments, and they are to be
turned over by the state to the agricultural bodies for the development oP new ].ands.
Unfortunately, as yet this payment has not become a powerful lever for developing a
careful attitude toward land as a consequence of its small size (at present, the
payment is 1-2 percent of the cost of the construction-installation work3) as well as
due to the fact that effective incentives to reduce the estimated cost of construc-
tion have still not been developed. But the very fact of including it in the eco-
nomic mechanism is very important.
The recultivation of destroyed lands, that is, the restoring of their productivity
and national economic value, is aimed at preventing the uneconomic use of the land.
In accord with the decree of the USSR Council of Ministers oP 2 June 1976 on the re-
cultivation of land, the enterprises and organizations exploiting mineral and peat
deposits and caxrying out work related to disrupting the soil cover on agricultural
or forested lands made available to them must return them to a state suitable for
permanent op~ration in their imunediate purpose. It has been established tha.t the
expenditures of industrial enterprises on the recultivation of lands are considered
as enterprise product costs. For this reason as part oP the cost accountl.g socio-
economic effect of new tectuiology it is advisable to consider changes in product
~ costs as a consequence of expenditures on the recultivation of land, since the im-
plementatian of the various technical decisions, particulaxly in the extracting sec-
tors of industry, often entails the use of lands which vaxy in amount.
In the USSR and the other socialist countries, three types of economic sanctions are
employed for violating the rules related to protecting the air basin and bodies of
water against pollution: penalties imposed on oPficials (the USSR, Bulgaria, Hungary
and Czechoslovakia), penalties imposed�on enterprises (Hungary and Czechoslovakia),
and finally, a pollution payment (Czechoslovakia).4 Practice shows that the fining
of ~ust the association and enterprise leaders does not produce a result, as the
ministries and departments try to compensate the enterprise leader for his losses.
It is essential to introduce effective economic sanetions against the enterprises so
that they would pay the pollution payment and penalties from their profit. This
would reduce the economic incentive funds and consequently would encoura.ge them to
ca,rry out conservation measures. This is shown from the experience of a number oP
socialist countries. However, this measure would not produce the proper effect at
enterprises which have not been converted to the normative method of profit distribu-
tion, in maintaining the free profit balance which goes to the budget regardless of
the results of economic activities.
The system of economic sanctions for polluting the environment should be so organized
that the enterprise expenditures in the event of their violating of the conservation
standards and rules would be greater than the cost accounting benefits received.
This principle is met by the dual system of sanctions: the pollutian payment which
has a compensatory nature in combination with the penaltiPS for the nonoperation or
incorrect operation of existing treatment facilities.5
In settling the question of introducing such payments, inevitably the dilemma axises
as to what should serve as the source of these payments: product costs or enter-
prise profits. As practice shows, the covering of these payments from costs leads
to a situation where the ministries and departments, in including them in planned
costs, weaken enterprise interest in the rational use of natural resources. More-
over, since planned costs are the basis for setting the prices, in the next price
revision these unproductive expenditures axe transferred to the consumer.
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There is the fear that the introduction of such payments would require a fundamental
reorgariization in the system of current wholesale and purchasing prices. But iY the
payments come from enterprise profit and not the product costs, then there would be
no need for a ma~or reworking of the price formation system. The payments and penal-
ties for air and water pollution cc+uld be introduced without detriment to the etate
bu3get, if a portion of enterprise profit or the free balance were the source of
them. Simultaneously the enterprises would have effective incentives for the care-
ful consumption of natural resources and those which manage skillfully would not only,-
not suffer losaes but also receive additional income.
According to our figures based on the estimates of experts, if the payment Yor pollu-
tion were put against the costs of the produced product, the scale of the increase
in production costs in 1978 in the seven polluting sectors (electric power, oil re-
fining and petrochemistry, ferrous metallurgy, the lumber, woodworking and pulp-
paper industries, the chemical and building materials industries) would ha.ve been
within the limits of from 5.~+ to 7.3 billion rubles. The free profit balance paid�
to the budget for these seven sectors was 7.8 billion rubles. Consequently, the
introduction of a pollution payment from the free profit balance would not lead to
an increase in costs and to a fundamental change in price formation and would cre-
ate powerful incentives for the enterprises to improve the financial results of
their activities and to be careful of the environment. The improvement of the eco-
nomic mechanism in these areas will malse it possible to create ~he prerequisites for
converting to a determination of the cost accounting socioeconomic efPect of new
technology.
The cost accounting effect of new technology of both the manufacturer enterprise and
the consumer is characterized by a system of indicators: the generaliZing (summary)
indicator for the cost accounting socioeconomic effect of new technology expressing
the total savings in the expenditures of all types of production resouxces in ensur-
ing the set social results, and by paxticulax indicators rePlecting the savings oP
expenditures for individual types of resources (live labor, fixed capital and mater-
ials). As the generalizing indicators of the cost accounting ePYecty one could rec-
ommend net profit from the production of new technology (.the cost accounting effect
of the manufacturer) and the increase in net proYit from its use (the cost account-
ing effect of the consumer), and as the particular ones, indicators for the change
in the labor, material and capital intensiveness of the product (work) produced by
the new technology. Thus, as the basic indicator one uses net profit and the method
for determining this depends upon the profit distribution procedure, one of the moat
important elements of the economic mechanism.
' In accord with the decree on improving planning, the USSR Ministry oP Finances, the
USSR Gosplan and the USSR Gosbank on 29 December 1979 approved a new regulati~on
governing the procedure for profit distribution of production associations, enter-
prises and organizations of industry.6 According to this procedure, after excluding
the profit which has a strictly specific nature and used in a particular me,nner, the
rema.ining portion is paid to the budget for the fixed productive capital and normed
- working capital; for paying to the budget the Pixed (rent) payments; Por paying the
bank interest on the use oP credit. Only after the budget payments are Pigured does
_ the enterprise form the economic incentive funds. This predetermines the Porm of
the cost accounting ger~eralizing indicator for the socioeconomic effect of new tech-
nology.
~
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The generalizing indicator for the influence of the socioeconomic effect of new teclr
nology on the cost accounting of an enterprise (or in other words the conditional
indicator of the cost accounting socioeconomic effect of the enterprise manufactur-
ing the new technology) expressed in net profit from the pro`uction of neW tech-~
nology must be determined according to the formula:
P = ~Zn-Zn)- ~C~-Cn) - Ef�Fn-Rn-S~~ ~1)
where 7,n--the volume of sold product (new technology) in current prices (or other
evaluation indicator) which should include a surchaxge depending upon the amount of
its national economic socioeconomic effect (in rubles); 7,n--the portion oP this vol-
ume obtained due to vio3ating the social demands as a result of the nonoperation of
labor safety and environmental protective equipment (in rubles); C~--the cost oY
manufacturing the annual volume of new technology, including expendit~~.rea on operat-
ing the social-purpose equipment directly related to producing the given new tech-
nology as well as the expenditures compensated from the costs of the produced prod-
uct (recultivation of land, geological prospecting and so forth) to compensate for
the losses of the other national economic sectors (in rubles); Cn--the savings in
cost of manufacturing the volume of new technology obtained due to violating the
social standards as a result of the low use of available labor safety and environ-
mental protective equipment (in rubles); EF--the rate of. the payment for productive
capital used in manufacturing the new technology; Fn--production capital used in
manufacturing the new technology (in rubles); Rn--the fixed (rent) payments related
to producing the given new technology (in rubles); Sn-�the pollution payment and the
penaltiea from profit for violating social standards in manufacturing the new tech-
nology (in rubles).
The summary indicator for the cost accounting socioeconomic effect of the enterprises
consuming the new technology, from our viewpoint, is t.he increase in net proPit as a
' result of employing the new technology in place of the base. The calculation is
made using the following formula:
~P1 = ~~1b+Clb)-~C1n+Cln)+ (Elg�Flb-Eif�Fln) + (Rib-Rln)+ ~Slb-Sln)- E~rKcr~ ~2)
where Clb and1C n--current expenditures on operating, respectively, the base and new
technology (for the entire volume of new technology), including expenditures on oier-
ating the social-purpose equipment directly related to the use of the new technology
as well as expenditures on compensating national economic losses recovered from the
current expenditures of the consumer (in rubles); Z~1~ and'~ln--the savings in cur-
rent expenditures on operating, respectively, the base and new technology and ob~-
tained from violating the social requirements as a result of the nonoperation of the
labor safety and environmental protective equipment (in rubles); E1--the payment
_ rate for the given type of productive capital; Fib and Fln--the value oP enterprise
productive capital in using, respectively, the base and new technology (in rubles);
Rib and Rln--the fixed (rent) payments to the budget in using, respectively, the
base and new technology (in rubles); Slb and Sln--the pollution payment and the pen-
alties paid from profit for violating social standards in using, respectively, the
base and new technology (in rubles); E~r--credit interest; K~r--the unrepaid portion
of credit (in rubles).
~.5
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In determining the planned cost accountirig socioeconomic effect of the new technol-
ogy, naturally, Clb, Cln, Slb and Sln axe not plann~d as unproductive expenditures. ~
- In the proposed formula, one should note the difference in the generalizing indica-
tors of the manufacturer and the consumer of new technology: the total net profit
- for the former and its increment for the latter. The problem is that in setting the
price for new technology between the upper and lower limits, a portion of the ;
national economic effect (as the maximally possible cost accounting effect oY the
consumer) is transferred to the manufacturer precisely in the form of the total
amount and not the increase in net profit.
- The concept of the increase of net profit for the manufacturer presupposes the pres-
ence of his own base, that is, p~+oduction of the technology to be re~laced. But in
determining the national economic effect and calculating the upper price limit, the
base is the consumer's technology to be replaced by the new technology. This serves
as the basis of determining the cost accounting efFect for the consumer. IY there
are no permanent economic ties between the producer and consumer of the technology
for the ~iven type of it, it turns out that they have different bases of comparison.
Since the determining of the national economic eYfect and the ugper price limit is
based on the conswner's base, the cost accounting ePfect for the manufacturer "is
suspended in mid-air" and is not coordinated with the national econoffii.c effect oP ~
- the new technology and for this reason is not a form oP its expression.
The paxticular indicators oP the cost accounting effect such as the reduction in ex-
penditures or the total amount of individual resources (labor, material and capital
intensiveness) per unit of product (work) produced (performed) with the aid of the
new technology ax e calculated from the Pollowing ~or~ula:
R � ~Rb-Rn~gn' ~3)
where ~R-,the reduction in expenditures or the total amount of utilized individual
resources ~er nnit o~ product (.work) a,n using.the new technolog,y; Rb aud R~--the ex-
pend~.tures o~ the 3,ndiVidual resources or the total amount of thosP used in producing
a unit oY product (.workl manuPactured (,pex~'oxmed) wi,th the aid of the base aud new ~
technology in physical units ox in rubles; g~--the volume of sold product produced
with the new technology minus that portion of it obtained in violation of the social
requirements (in pY~ysical units).
If the production or use of new technology provides a cost ~ccounting effect as a
result of its impact both on the working conditions and on the environment, then the
influence of each of these factors on the amount oP net prof3t or its increase is
set by factor analysis. The actual cost accounting ePfect of the producers and cors-
sumers of new technology should, as a rule, be established on the basis of 'bookkeep-
ing data. In terms of certain oY these elements, it is possible to combine the
direct bookkeeping data with the results of normative calculations under the condi-
tion that the latter are also given in the bookkeeping documents.
At present a transition is underway to planning the economic effect of new tech-
nology. In our opinion, ~he indicators of the cost accounting effect should be
used as the directively set planning indicators and the actual indicators to be in-
cluded in the syst em of state statiatical reporting.~' This is due to the fact that
the national economic effect of new technologyr is re~~lized in the cost accounting
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activities of the enterprises which manufacture and consume the new technology.
Oniy the cost accounting effect corresponds to the real physical and monetary flows
in the national econo~y. The national economic effect, as a rule, is realized not
in the given enterprise but rather at another which uses its product. The coordi-
nating of indicators for different plan sections and the pla.nning of the effect from
new technology as a source for inereasing production efYiciency should be determined
- at each enterprise where this effect arises. Such a task can be caxried out only
with the aid of the indicator of the cost accounting effect.
Moreover, the national economic efPect both at the enterprise manufacturing the new
technology and at the enterprise using it is calculated in the sphere oY its consump-
tion. For this reason, in totaling the national economic eY~ect for the enterprises
inevitably double counting axises and this can be avoided in totaling the individual
cost accounting effects of the producers and consumers of tY:e new technology. At
t,he same time, the national economic effect should maintain its importance in choos-
ing vaxiations of new technology, in taking decisions on introducing it and as the
basis of the system for cost accounting effects.
- The strengthening of the social orientation in national economic ma.nagement poses
the question of planning the socioeconomic effect of new technology as the end re-
sult of scientific and technical progress. For converting to a determination of the
socioeconomic effect of new technology as the basis of planned management of scien-
tific and technical progress, it is advisable that the USSR Academy of Sciences work
out a procedure for determining the socioeconomic effectiveness oP new technology,
inventions and rationa.lization proposals. It i~ advisable that the USSR Gosplan,
the USSR State Committee for Science and Technology and the state committee for in-
ventions review this procedure, test it experimentally in 1981-1985, approve and in-
troduce it to replace the procedure (basic provisions) for determining the economic
effectiveness of the use of new technology, inventions and rationalization proposals
_ in the national econo~,}r.
It is also essential to instruct the USSR State Committee for Science and Technology,
the USSR Gosstand~..rt, the State Committee for Metrology and Control of the Ste,te of
the Environment, the USSR Ministry of Public Health and the USSR Acade~}r of Sciences
along with other interested ministries and departments, in 1981-1985, to conduct in-
terdisciplinary research aimed at working out a scientifically sound strategy for
introducing standaxds regulatin~ the state of the environment considering social,
technical and economic factors (including expenditures on their introduction and an
economic evaluation of the damage to be eliminated).
As a result of such research, a procedure and optimum sequence should be established
for introducing standards which would regulate the state of the environment and
would further strengthen the norms set in them for the maximum acceptable concentra-
tions and maximally acceptable disch~.rges of harmPul substances.
FOOTNOTES
l. See L. Gatovskiy, "The Socioeconomic Effectiveness of New Technology (Questions
of Methodology)," VOPROSY EKONOMIKI, No 2, 1979; M. Vilenskiy and V. Fel'zenbaum,
'"Socioeconomic Effectiveness of New Technology," VOPROSY EKONOMIKI, No 11, 1979~
Yu. Zykov, "The National Economic, Socioeconomic Effect of New Techology,"
VOPROSY EKONOMIKI, No 12, 1979�
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2. T. S. Khachaturov, "Intensifikatsiya i Effektivaost' v Usloviyakh,Razvitogo
Sotsializma." [Intensification and Efficiency under Conditions of Developed
Socialism], Izdatel'stvo Nauka, 1978, p 284.
3. See M. B. Vitt, "Ekonomicheskiye Problea~y Rekul'tivatsii Zemel'" (Economic,
Problems in the Recultivation of Land], Stroyizdat, 1980, p 133.
� 4. See "3otsializm i Okhrana Okruzhayushchey Sredy: Pravo i Upravlsniye v Stra~akh--
� Ghlenakh SEV" [Social~sm and the Conservation of the Environmeut: Law and Manage-
ment in the Socialist Countries], edited by 0. S. Kolbasov, Izdatel'stvo
Yuridicheskaya Literatura, ~979, p 173.
5. Such a system employed in Czechoslovakia has proven highly efPective. Enter--
prises which pollute the atmosphere above an acceptable limit pay penalties and
a pollution payment consisting of a basic payment for each type oP pollution
standard for all regions of the nation and a surpayment the amount oP which de-
pends upon the pollution axea. An analogous system of econoinic sanctions is
applied to enterprises which pollute the water.
n
6. See "Sovershenstvovaniye Khozyaystvenogo Mekha.nizma [ImProvement of the Economic
Mechanism], Collection of Itocuments, Izdatel'stvo Pravda, 1980, pp 197-201.
COPYRIGHT: Izdatel'stvo "Pravda", "Voprosy ekonomiki", 1981
New Technology's Economic Effect .
Moscow VOPROSY IItONOMIYCI in Russian No 5, ~Y 81 pp 125-130
~ [Article by D. Starik: "The National Economic Effect of New Technologyrr~
[Text~ A rise in ~he role of the indicator of the economic effect From new tech-
nology in the economic mechanism, in light of the decree of the CPSU Central Cot~mmit-
tee and the USSR Council of Ministers on Improving Planning, raises the task of im-
proving the methods for determining the given indicator, and in particulax, the in-
dicator of the national.economic economic effect of new technology. One of the ways
for solving this problem, in our view, could be the elaboration of a uniform general-
- izing indicator oY the economic effect which would be a summary one for the sectors
and the national econ~y and would consider the specific Features of both the tra-
ditional types of new technology (individual installations) as well as complex tech-
nical systems. The methods for determining this indicator should more fully reflect
the real conditions for the creation and use of the new technology, that is, the
change in the expenditures and the parameters of the new te~ehnology over the years
of development, production and operation.
The economic effect of new technology in the national economy is calculated by formu-
las [3~ and [4] of the Procedure for Determining the Economic Effectiveness of New
.Technology.l A number of auth rs have noted the.contradictoriness of the recommen-
dations in the procedure, according to which the economic effect from the applica-
tion of new production processes and production mechanization and automation is cal-
culated according to formu3.a [3~ as an annual one while the effect oF creating new
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me~a.ns of' labor is calculated according to formula as an effect over many years.2
In our view,,there are no contradictions between formulas [3] and if one con- :
siders their following particulax features: formula [3] applies to ittdividual pro~-
ects and formula [4] to systems of uniform pro3ects.
Let us examine the method of calculating the economic efPect for the national econo-
~}r from individual pro~ects (machines, devices, stands and so forth): For indi-
vidual pro~ects a distincti~n is drawn between the annual effect, that is, for one
year of their service, 01, and the effect over the entire service life, O1T. The `
annual effect of an individual pro3ect can be determined using the indicator f~r
ad,justed expenditures in formula [3~ of the procedure. The given formula is appli-
cable only for those individual pro~ects which have the same service lives, the
same amount of work performed by the pro3ect or volume of product manufactured'by
~ the pro~ject; the operating costs for the pro~ect over the years of operation do not
change, while capital investments axe made once to starting up the pro3ect. With
these conditions the effect over the service life is determined by the folTowing
formula:
Ol . O1
o1T = T t ' �r o1T - R+E) ~ . ~l~
y,~ ~~+E~
M 11"~ ~ . . .
where R--renovation coefficient; T--service life~of pro,ject, yeaxs.3 .
If the compared pro~ects differ in terms of prod~ctivity and service life, then the
amount of the effect over the service life of the new pro~ect (under the cordition
that the price of the pro~ect is determined by the amount of ad,justed expenditures)
can be calculated according to the formula:
B2 Ri+E ~I11-I12)- E(K12 Kil) C2,
T
O1 = Z1 B1 �R2+E + RZ+E - Z2,
where Z1 and Z2--ad~usted expenditures per unit of the base and new pro~ects, in
rubles; B1 and B2--the annual volumes of product (work) produced in using the base
and new pro,jects, 3.n physical units; R1 and R2--the shaxes of deductions from bal-
ance sheet value for full replacement (renovation) of the base and new pro~ects,
K11 and K12--ancillary capital investments by the consumer (capital investments not
considering the value of the designated pro~ects} in using the base and new pro~jects
in the calculation for the volume of product (work) produced by tY~e new pro,ject, in
rubles; I11 and I12--annual operating expenses for the base and new pro~ects calcu-
lated for ~he volume of product (work) produced by the new pro~ect, in rubles.
Let us take up a definition of the economic effect in the ~zational economy from a
system of projects. Let us assume that this is a system of uniform machines, a
xleet of uniform machines (for exa.mple, a fleet of aircraft, a motor vehicle fleet
and so forth). For a system of machine, as for individual machines, a distinction
is drawn between the annual effect and the effect aver the service life of the en-
tire system or entire fleet of machines, and this is termed the integral effect. :
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The annual effect of the fleet in operation is calculated from the annusl. effect of
an individual machine multiplied by the number of machines in operation in the given
yeax. The integral effect of the system of machines in operation can be defined as
the total of the annual effects of the system over the entire period of its opera-
tinn, To. Consequently, the effect of the system of machines is determined from the
indicators of its operation (the operating period of the system, the number of
machines~according to the years of operation). Such an approach is applicable in
calculating the effect for machin~s.wYiich have one or a limited number of spheres
of use. In such instance, the sizes of the machine fleet by year~ and the period
of its operation axe clearly fixed.
However, chaxacteristic for a ma~jority of machines is a multiplicity of spheres of
use and as a consequence of this it is impossible or ill-advised to set the size of
the machine fleet by years. Proceeding from the machine output program, the effect
is calculated for the indicators of producing the flset of machines (considering the
operating indicators for the individual ma.chines). With such an approach the inte-
gral effect of the fleet is determined in the following ma.nner. On the basis of the
effect of an individual machine over the period of its life (O1T) and the size of
- the machine output progra.m in yeax~ t of production, the economic effect is figur~d
for the service life of the fleet of macY~ines corresponding to the amount of the
- annual output program. The effect from the annual machine program (A.t) over the
~ service life will be: .
0~ = O1T�At. ~3)
For obtaining the integral effect of the machine f3eet, the effects of the annual
- machine output programs for the entire period of manufacturing the machines axe
added up:
Tm
p~ _ ~ 0~(1+E)-t~
t=1
where T~--the manufacturing period of the machines, in years.
In terms of the amount of the integral effect of the system of machines, that is,
- in terms of the effect over the entire period of its operation, it is possible to
_ find the average annual effect from the operation of the system. For this the
amount of the integral effect of the system must be divided by the number of years
of its operation. Ur~der the condition that the expenditures are discounted, the
amount of the integral effect must be divided not by the amount of the period of
operating the system (To) but rather by the amount of the expenditure discounting
coefficients (l+E)'t. The average annual effect of the system of machines will be:
~E ~5)
- oE = m o .
- ~ (i+E)-t
t=i
The proposed approe.cY~ to calculating the economic effect of the system of machines
is, in essencp, the method of determining the effect of new long-term use means of
labor as proposed~in the procedure. But in it the calculations axe made not for
, 50
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any year of production but rather Yor the calculai,ed one. Instead of the amount A~,
- a constant amount A2 is used or the annual production volume oP new means oY labor ;
in the calculated year in pY~ysical unita.
Considering formula (2) , formula [`~?1 of the procedure can be represeuted in tLe f~i1~ ,.r~
; f-
lowing form:
B2 R1+E (I11-I12)-E(Ki2-Ki1). ,
p T = ~ - � + - Z2 A2� ~6),.
A 2 ~ 1. gl RZ+E R2+E
- -a
We would point out that the calcul,a~ions.using formula in this instance as.well~; ,
_ approximately reflect the annual ef~ect of the fleet.of machines. The annuel,effect ~4
of the fleet of machines can be calcu],ated using.formula (5)� IY one proceeds ~'rom~;
the procedure accordin g to~which the program for product output over:the y~ars'=of h~',~
production does not change and equals A2, then.formula (5) considering formulas
and (6) can be transformed into a formula for determ,ining the ~nnual average efPect
of the system oP machines: r~p~
_~2 R1+E (I11-I12)-E(K12-K11) T
,
A2 Zi B_..' R+E+ R+~ -Z2 ~1+E)-t :
1 2 2 t=1 (7)
Og = - �
� To
~ (1+E)-t
t=1
In its economic essence, formula (7) is identical to formula [3] of the procedure "
- as both reflect the annual economic ePfect.
Under the condition of att equal.ity in the periods.of production and:.operation of the
fleet of machines, that is, ~rith T= To, the average annual effect of the fleet oP
machines is calculated to formula ~4] of the procedure. In the general instance the
- results of the calculations using formula [1~] differ from the results of calcula-.
tion using formula. (7) by the amount:
T
Tm a
~ (l+E)-t : ~ (1+E)-t.
t=1. t=1
Formula (7) is, in essence, formula [3~ in terms of calculations for a syatem oY
vniform pro3ec.ts.
The calculation of the annual effect oP the system of machines according to Pormula
(7) is impossible when the period of their production and the period of operation
are indeterminable. In such instances, i~ can be accepted that these periods axe
- approximately equal and the calculations us~ng formula of the procedu.~e will
approximately reflect the annual effect of the fl:eet of new machines.
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~bove ~.re given the methods for determining the annual economic effect of individual
projects and systems of uniform pro,jects of new technology. The already-mentioned
review article on improving methods for calculating the economic effect of new tech-
nology points out that the most universal formula for the economic effect is the
formula of the integral effect and that in recent editions of the procedure formula
should be replaced by a more universal formula for calculating the integral ef-
fect for the servi.ce life of the equipment and not related to the condition of a
permanent amount of current expenditures on operating the equipment during all the
years of its functioning.4 In our view, this proposal merits support. We give the
followin~ example for confirming its practical importance.
Technical progress in air transport systems, along with other indicatars, is char-
acterized by high durability indicators for the aireraft and their elements, the
aircraft engines. The service life of aireraft engines is several thousand hours.
As the engine reaches this upper level of accrued operating time, fuel consumption
_ rises. As a result, the problem comes up of determining optimum engine durability
considering the change in fuel consumption, that is, current expenditures over years
of operation. Such a problem can be solved only by a universal formula for calcu-
lating the effect which would take into account a change in current expenditures
over the life of the machine.
The formula for determining the integral effect of' the fleet of machines is the
numerator of formula (7) which has been derived on the basis of formula [4] of this
procedure and for this reason is related by the following conditions: the annual
machin.~ output program is constant over the yeaxs of production, current expendi-
tures for the manufacturer and consumer axe constant, respectively, over the years
of production a~d operation of the machines and machine productivity also does not
change over the years of its life.
Let us transform the formula for calculating the integral effect of the fleet of
machines for figuring the dyna.micness of expenditures in production and operation
as well as considering changes in the productivity of the machines over the years of
operation. In solving the set problem we simultaneously solve another problem of
deriving a formula which would make it possible to consider and isolate the expendi-
tures and effects in the various stages of the life cycle of the new technology:
development, manufacturing and operation.
One of the merits of formula in the procedure is that it brings together the
effect for the manufacturer and the effect for the consumer. For an individual
machine, this is the effect from the production of the machine with the effect from
operatin~ the machine over its entire life. For the annual machine program this is
the effect in producing the annual program with the effect from operating the fleet
of machines (in the amount of the annual output progra.m) over the life of these
machines. However, formula has been derived from the conditions that expendi-
tures for the manufacturer do not change over the yeaxs of production.
Let us examine a more general case when expenditures change over the yeaxs of pro-
duction. The essence of formula [4] is that the base version of the new technology
is reduced to the new version in terms of operating conditions (productivity, dura-
biiity, operating costs and so forth). Ho~ever according to this formula the base
variation is not reduced to the production conditions of new variation. In the new
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universal formula, expenditures on the base vaxiation (cost and capital intensive-
ness of the product) are reduced to the production conditions of the new vaxiation.
For this it is assumed that the manufacturing periods for the first and second vari-
ations are equal and that the programs over the years of production are also eq,ual
~A2t = Alt~.
According to the given conditions it is essential to ad~ust the costs and capital
invensiveness of the base product.
The universal formula for the integral effect from new technology has the follow-
ing form:
T2m
pE = T~m (C1t+EKlt)A2t(1+E)-t~R1+E) ~ B2t (l+E)-t _ ~ (C2t+EK2t)A2t(1+E)-t +
t=1 t=1 lt t=1
T2 T2 B2t l T2m
+ ~ ~Illt'I12t~~1+E)-t + E G (K1 Blt - K2I~l+E)-t ~ p2~(1+E)-t~ ~8)
t=1 t-1 ~ t=1
where T2m -manufacturing perio3 of new technology, yeaxs; Clt, C2t--costs of base
and new product in year t of production (in rubles); Klt, K2t--capital intensiveness
of base and new product in year t of production (in rubles); A2t--amount of output
of new products in yeax t of production (in units)~; Blt, B2t"Productivity of base
and new technology in year t of operating life (in physical units); T2--life of new
product (years); Illt and I12t--annual current expenditures for consumer for base
and new technology calculated in terms of productivity of new technology (in rubles);
K1 and Y2--subsidiary capital investments in using base and new technology (in
rubles). On the basis of formula (8) it is possible to determine not only the in-
tegral effect of new technology but also the effects in the manufacturing stage and
in the operating stage. In actuality, if the system of new machines in terms of op-
erating parameters differs in no way from the base system, that is, Bit = B2t,
Ilt - I2t~ K1 = K2~ then from formula (8), it is possible to determine the effects
over the year,~ of producing the new machines and the integral effect in production
over the entire period of manufacture OmE:
T2m ~j
- O~E = G [~~1t+EKlt) - ~C2t+EK2t)JA2 � (1+E)-t, ~9)
t-1
'r'or various types of new complicated technology, of great importance is a calcula-
tion of expenditures and the effect in the first stage of the life cycle, the de-
velopment stage:of new technology. In order to consider the development expendi-
tures, from the integral effect determined by formula (8), it is essential to sub-
tract expenditures on developing the new tecYinology ZdE:
Td -t
ZdE - G ~Cdt+EKdt)~1+E)T~ , ~10~
t=1
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- where Td--duration of development period of new technology (years); t--ordinal num-
ber of development year; Cdt--current expenditures on development in year t(in
rubles); Kdt--cap~tal expenditures on development in yeax t(in rubles); T--dura-
tion of period from start of development to beginning of manufacture (years~.
- The proposed formula (8) for determining the integral economic effect of new tech-
nology for the national economy makes it possible to take into account the effect
for the manufacturer and the consumer of the new technology, the expenditures or.
the development stage of the new technology and the expenditure dynamics in the
_ various stages of the new technology's life cycle. This corresponds to the propos-
al s of the Standard Procedure for Determining the Economic Effectiveness of Capital
Investments and the Procedure for Determining the Economic Effectiveness from the
Use of New Technology, Inventions and Rationalization Proposals in the National
Economy. On the basis of this universal formula it is possible to derive approxi-
mate, simplified formulas reco~nended for mass practical calculations for the effec-
tiveness of various types of new technology. Obviously the given formula Por calcu-
lating the integral effect can be employed for possible improvements in the adopted
procedure for determining the economic effectiveness of using new technology in the
_ national economy.
FOOTNOTES
- l. See "Metodika Opredeleniya Ekonomicheskoy Effektivnosti Ispol'zovaniya v
Narodnom Kho yaystve Novoy Tekhniki, Izobreteniy i Ratsiona,lizatorskikh
Predlozheniy [Procedure for Determining the Economic Effectiveness of Using
- New Technology, Inventions and Rationalization Proposals in the National
Economy], Izdatel'stvo Ekonomika, 1977, pp 8-9� Here and below we give the
formulas of the given procedure in brackets.
2. See, for example, "Improving Methods for Determining the Effectiveness of New
Technology (Review)," VOPROSY EKONOMIKI, No 12, 1978, pp 106-1~9.
3. I~ere we do not examine the question of the equality or inequality of the effec-
tiveness and discounting coefficients, assuming that they are equal.
4. See the above-cited review, p 115.
COPYRIGHT: "Izdatel'stvo "Pravda", "Voprosy ekonomiki", 1981
10272
CSO: 1820/194
. EriD
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