SOVIET GROSS NATIONAL PRODUCT, 1960-1975

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01149A000500170009-5
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 35
• Document Creation Date: November 9, 2016
• Document Release Date: July 20, 1998
• Sequence Number: 9
• Publication Date: September 12, 1956
• Content Type: IR

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US Doe No. S-6 Copy No.
SOVIET GROSS NATIONAL PRODUCT, 1960-1975
This intelligence report was prepared as part
of the US contribution to a IMTO study comparing
economic trends in the Free sziorld and the Sino-
Soviet bloc. Other parts of the US contribution
concerned with the USSR are: S-4, ~er and
Physical Production and 5-5, Sovie t GimPt 195. 0-i960.
September 12, 1956
Do CUTAC-NT NO.
G}~ldt3f IN CLAS fl
f;l AS iANG;EED TO: TS C
P, .?il r{fi t iF .N Qt' TE: ?/'
RUTH; H 73-2 .,'
ID 5 JUN 1980
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If. Summary . ? . ? * ? ? ? ? ? ? ? . . ? ? ? ? ?
B. Basic Assumptions . . . . . ? ? . ? ? ? ? ? ?
C ? Technique of Projection . . ? ? . ? . ? ? ? ?
TABLE OF CONTENTS
D. Calculation of Future Soviet GNP . . . . . . . ? ? ? . . ? ? 11
1. Industrial Sector (Pt) . ? ? 11
2. Agricultural Sector (f. ) . ? o ? 18
3? Services Sector (St) ? ? ? ? . ? u . 19
Appendix A .
. ? ? ? ? ? . . ? ? ? ? ? ? . ? . ? ? 21
LIST OF TABLES
1. Soviet GRIP by End-Use, at Ruble Factor Cost, 1960-1975
2. Soviet GNP, Sectors of Origin, 1960-1975 ? ? ? ? ? ? ? ? . ? 5
3. Soviet GNP by End Use, 1960, 1965, 1970 and 1975 . ? . . . . 6
4.- Soviet GNP by End Use, 1960, 1965, 1970 and 1975 . . . . . . 7
5. Statistical Estitaate of Factors Determining the
Industrial Component of Soviet GNP, 19&0-?19'75 . . . . ? . ? 12
Soviet GNU' by Sector of Origin, at Ruble Factor
Cost, 1960, 1965, 1910, and 1975 ? . ? ? ? ? ? ? ? ? ? ? ? 22
A-2. Soviet GNP by End-Use, at Ruble Factor Cost,
1960, 1965, 1970, and 19'75 . ? . . . < . . . ? . ? . ? ? ? 23
A-3. Estimated Population and Labor Force, 1955-1975 . . ? ? ? ? ? 25
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SOVIET GROSS NAT1ONxL PRODUCT. 1960-1975
A9 Summary
The projections of Soviet GNP to 1975 presented in Tables 1 and 2
indicate a rate of growth approximating that estimated for the Soviet
economy during the decade of the Fifth and Sixth Five Year IPlanso
Expressed in 1953 ruble prices at factor cost,` it is estimated that by
1975 Soviet GAP will increase to almost 1,200 billion rubles. An
alternative estimate, in the same terms but using a somewhat different
approach, yields almost identical results." The computed results for
total GIs' in both estimates implies an average annual rate of increase of
7 percent; however this future growth will not be distributed smoothly
over the entire period, Smaller additions to the labor force, which the
USSR will experience during the Seventh and Eighth Five Year Plans, will
Impose some constraint upon the ability of the Soviet economy to grow from
1960 to 1970, but by 1975 it appears likely that the additions to the labor
force will more closely approach those of the Fifth and Sixth Five Year
Plan periods and thus alleviate somewhat this constraint upon economic
growth.
Differential growth rates among the various uses of the national
product will result in a very different end use pattern in 1975 (1953
prices) from that estimated for 1960, Consumption declines from 57 percent
See US Document 5-5. The implication of the use of 1953 ruble prices
in the projection is discussed in Section C below.
** See Appendix L.
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of GNP in 1960 to 46 percent in 1975, while investment increases its
share from 30 percent to 44 percent. Defense expenditures decline moderately
as a proportion of the national product, though they more than double: in
absolute size between 1960 and 1975.
The indicated increase in aggregate consumption will permit an increase
of almost 65 percent in per capital consumption or about 3.5 percent per
year for the fifteen year period, The very large growth of investment
implies that the capital stock of the Soviet economy will more than
quadruple in the 15-year period, By 1975, the capital stock in industry,
the major recipient of investment, will be almost 5 times the 1960 level,
and the capital stock in agriculture will be more than 5,5 times the 1960
level.
xs in the 1950-60 period, there are also different growth rates for
the sectors originating the Soviet national product. The industry sector
(including transportation, communication and construction) with its far
greater weight dominates the growth picture from 1960 to 1975, More than
tripling over the 15 year period, this sector increases its contribution
to GNP from 56 percent of the total to 69 percent, Agriculture, on the
other hand, lagging well behind the growth of the economy as a whole,
shows a decline in its contribution to GNP from 24 percent of the total
in 1960 to 13 percent in 1975. The service sector as a whole also shows
a decline as a percentage of total GNP, but because of the greater
urbanization expected in the next two decades housing and municipal
services grow more rapidly than any of the other sectors of origins
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The ruble figures for Soviet GNr- by end-use were converted to 1955
market dollars by essentially the same method as that used for conversion
of ruble GN figures for the period 1950-1960.* The resulting dollar
figures,,-using a Soviet product mix, are presented in Table 3. Similar
figures for the use categories, converted by using the ruble-dollar ratios
based on the 1955 US product mix, are presented in Table 4; however, no
dollar figures for total GNF in this case were calculated, since the use of
a 1955 US product mix is somewhat questionable for the year 1960 and
certainly inappropriate for so distant a time as 1975.
No conversion of Soviet GNF by sector of origin was attempted because
the available price data are insufficient to calculate appropriate ruble-
dollar ratios for sectors of origin. While no quantitative estimates can
be given, it appears that the services component expressed in dollars
would be a somewhat higher percentage of total GNP than that indicated
in the ruble calculation. Consequently, either the industry or agriculture
components, or both, would constitute a smaller proportion of GNP expressed
in dollars.
* See US Doe 5-5, pp. 2, 15-20.
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 NM'
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SOVIET GNP BY ENDZUSE ? AT RUBLE 'P, CTOR COST, 1960< 19`15,
.,-.. ~- .W,,.,...a._
1960
1965
1.970
1975
Billion 191313 Rubles
Cons+; ;~ti?x~
8ci
1120
1461
"023
InveSt.1cnt
4.62
745
1166-
18:5
Defense
19?
246
313
399
~',:,Tn, , ;irr,
1:520
2111
X940
4.177
B.
Index (1960-10(1)
Consumption*
100
129.5
168.9
v,2.3
Invc went
100
161.6
252,4
9101.5
Def'ouz o
100
128
163
208
T0T,,J OF?
100
139.0
193.5
27,000
I.xxde;z E .oh Fire Years
Conswga't, iou*
129.5
130.4
131.6
IuuvaeUnent
16113
156.5
159.1
Defense
128.0
128.0
12'. R.0
CVO V,
153.0
139.6
7.'x2.1
D.
.jercentago Distribution
Cons zptiont
57.0
33.0
4.9.7
464
Invest,nont
60.4-
36.3
3"7
44.4
Defense
1206
11.7
1013
946
TOT: J, GE):'
10000
100.0
10000
100.0
Ine'lu es ;ovex?~v~.en u~n~3xxistr tian, shovm sor,aratoly in the estimates
for v~.a ?orioct 1950-19G0 M; .vc:n in \FS Doeu ont S-5.
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WMI-
Table 2
SOVIET GPTP SECTORS OF ORIGIN, 1960-1975
196Q
216.5
11970
197
A.
Billion 1953 Rubles
Indus try*
850
1,299
1,927
2,895
Agriculture
360
,418
482
562
Housing and Municipal SorvLccs**
37
56
87
135
Trade**
101
138
194
275
Other Services**
__1
204
250
310
Total GNP
1,520
2,111
2,940
4,177
B.
Index (1260--100)
Industry*
100
153
227
341
&griculture
100
116
134
156
Housing and Municipal Services**
100
151
235
364
Trade**
100
137
192
272
Other Services**
100
116
145
180
Total GNP
100
139
194
2-75
Industry*
153
148
150
Agriculture
116
115
117
Housing and Municipal. Services;;
15-1
155
71::55:;
Trade**
137
140
142
Other Servicesi**
116
125
124
Total GNP
139
139
142
D.
Percentage Distribution
Industry*
56,0
61.5
6505
69.,x4
Agriculture
23`67
1908
16Y.4
13,4
Housing and Municipal Services**
204
2.6
3.,0
3.2
Trade**
66
6.6
6:.6
66
Other Services**
11-.3
.__9;5
8,.5
__Z.4
Total GNP
100.0
100.0
10 0 0 0
100.0
Includes construction and transportatiof4neommuicat ons.
These three sectors combined are comparable to "Trade and Services" in
LS Document S-S.
Q.VA%.kLarMMM~
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GOWQ& 6
TABLE 3
SOVIET GNP ~3Y p TD USES ] 60?x-, 65. 1220-,-, and IM
(Comr>uted in dollar market prices, using soviet product mix)
1
960
170
17
A.
Billion 1955 collars
.
consumption
130.4
168.9
220p2
289.9
Defense
5097
64.9
82.6
105.4
vest
ent
I
_62
1 .2 7
176.
280.
n
m
Tot d GNP
251.0
346.5
479.2
675.9
Index (1960 = 100)
Consumption
100
130
169
222
Defense
100
128
163
208
ent
st
I
100
161
252
401
m
nve
Total GNP*
100
128
191
269
C,
Percent
Consumption
52
49
46
43
Defense
50
19
17
16
Invest
ent
28
32
27
Z
m
__
Total GNP
100
100
.100
100
The dollar values in this table were derived by applying the appropriate
sector dollar-ruble ratio to the ruble value of the end use components
for each year. The somewhat slower rate of growth of the dollar total,
as compared with the ruble total shown in Table 1, results .tim t'.10
different component weights which are implicit in this prooeuur.a as
compared with the factor cost ruble weighted GNP index.
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Table 4
0VICT GNP BY BTID TTSEs
1 ' s 'Q and 1975
.., .
(Computed in dollar market prices, using Tproduct mix)
X60
1` 6~,5
l~'70
l 7
A.
Billion 1955 clolla e
Consumption
93.0
120.9
157,2
206.5
Defense
46.1
59.0
75.1
95.9
Investment
57.7
2~2.j
1454
21.
Total G1 P*
(159.2)
_
-~-
--
B.
Index (1960 =
100
Consumption
100
130
169
222
Defense
100
1.28
163
208
Investment
100
252
401
Total GIP *
A dollar-ruble ratio for the tot . GNP requires US weights for the
three categories of end use. The absence of these weights prevents
the calculation of a tot El dollar-ruble ratio for the years after
1960. For the same reason, no percentage breakdown can be given.
See footnote to Table 4, p. 6, In Document S-.5.
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am"IrT 8
B. Basic assumptions
For the purposes of the projection presented in this report, the fol.
lowing basic assumptions were made s (1) There would be no "hot" war during
the period of the pro-lection, nor wo-ald the USSR convert its economy for
a full-scale war during this period, (2) The basic institutional struc-
ture of the Soviet economy would remain unchanged, (3) Rapid economic
development, particularly of heavy industry, would remain a primary Soviet
objective, It should also be noted that specific account of Soviet foreign
trade was omitted in calculating the future size and composition of Soviet
GNP. Extensive Soviet activity in foreign trade markets, especially a
marled increase in trade with non-bloc countries, would subst as.tially
alter the growth pattern from that indicated in this report,
Within the basic frame of reference, the allocation of resources could
vary from that assumed for the purposes of this calculation. For example,
consumption (Including administration) is est3_mated to grow at a rate
one percent less than the rate of growth of GIMP, but a more rapid growth
would be consistent with the basic assumptions enumerated above as long
as this Fate of growth remained less than that of investment. Similarly,
defense is assumed to grow at 5 percent per year, but might increase at a
slower or faster rate. The growth rates of the use-categories adtua7.ly
used In this projection conform roughly to the experience of the 194-55
period and to the trends indicated by the Sixth Five Year Plano
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They are consistent with an economic policy placing primary emphasis on
economic growth, but permitting the maintenance of a ;high state of military
preparedness, and relying on real income incentives rather than on force
to stimulate labor productivityo The projected rate of growth would be
the same if allocations to defense were somewhat reduced and allocations to
consumption correspondingly increased; however, it would be greater if
allocations to investment were increased out of either defense or consump-
tion.
C. Tel-mi.aue of Pro: ectio t
The projection the Soviet National Product presented here is the
product of the solution of a two equation model. The first equation refers
to the generation of GNP and is expresseds Yt i Pt ,t At ~ Stywhere Yt is
GNP in year t, Pt is the industry contribution, At is the agricultural
contribution, and St the services contribution. The second equation
presents the distribution of GNP among the end uses and is expressed as.,
Yt r G t / Dt 1L It ,where Yt is again GNP in the year t. Ct is the amount
allocated to consumption, Dt the amount allocated to defense and, It the
amount allocated to investment. The simultaneous solution of these two
equations for the year in question results in GNP for that year,
The prices employed to value the Soviet product for the purposes of
this projection are ruble prices of 1953. The use of these prices for an
,economy undergoing such rapid growth limits the usefulness of the results
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3.0
for intertemporal and international comparison. Changing price relations,,
which will come about as a result of growth itself, will undoubtedly have
a deceleration effect upon the calculated rate of economic growth. More..
overt compared with the growth of more balanced economies, it is likely
that changing price relations in the USSR will exert a relatively Treater
decelerating influence on the statistical measurement of future Soviet GNP*
in estimating the GAP for any years the first step was the calculation
of the output of the industrials agricultural, and service sectors,*
This procedure automatically gave a breakdown by sector of origin, but
involved making subsiderary estimates of both input and output indicators.
Once the GNP was computed for any year, it was broken down by use-category
by computing aggregate consumption and defense expenditures in accordance
with the assumption mentioned above and deriving investment as a residual.
Given the assumption that military expenditures will increase about 5
percent per annum, it would be equally appropriate to estimate investment
independently and derive consumption as a residue. The latter procedure
was used in the alter. native calculation described in Appendix A.
Throughout this discussion, the nindustrial"sector includes (in addition
to ianufacturing and mining) construction, transportation and communi.--
cations; the ttservices1 sector includes housing,., municipal services,
trade, and all other services.
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"IMMOM
D. Calculation of Future Soviet CLTP
1. Industrial Sector (Pt)
The future output of the industrial sector depends on the e.cpected
growth of the inputs of labor and capital and on productivity changes.
The rel.ationahip between computed output and these factors was assumed to
be a production function comparable in form to the Cobb Douglas function,
viz. Pt-Lt (a) ?Kt(b) 'Tt -. Imputed coefficients of 60 percent for labor
and 40 percent for capital were used since (1) most of the actual shares
for industry in the US and other countries as estimated by Douglas were
between 60-40 and 70-30, and (2) the results of a multiple correlation
applied to labor and capital in relation to Soviet industrial output for
the 1928-55 period gave approximately the same results. Although capital
is likely to have a smaller importance in construction than in industry
proper, it has certainly a much greater one in transport. The 60-40 set
of coefficients was therefore applied to the broader industrial category
as a component of GNP. The estimated values of the variables L. Krand E,
In this equation, for any given year (t), the variables P, L, K and E
are as follows:
Pt is an index of industrial output.
Lt is an index of labor in units of constant quality.
Kt is an index of capital stock in constant prices.
Et is the ratio between the output index and the indexes of labor
and capital comb1ned, and represents all factors which affect
the growth of output but are not measured as part of labor and
capital.
The exponents (a) and (b) represent constant imputed shares of labor
and capital in output. The sum of (a) and (b) is equal to unity. The
use of a function with constant exponents involves an assumption that
marginal productivity of capital relative to that of labor declines
proportionately to the increase in capital per worker.
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Table 5
ST :T I T IC AL ESTDILPCE OF FACTORS
D1 , : MINIM TIC! z TDUC TRI L COOTOT-TENT OF SOVIET IT1'
].960-1975
a65
1970
1975
A.
IndustriaC Labor_Force. Lt)
Sizes millions of persons 34 39
47
57
68
Size: index (3.960=100) 100 116
138
1
122
Size: index each five years 116
119
Quality: index (1960=100) 100 110
119
8
126
106
Quality: index each five years - 110
10
B.
CQmita1 ,tock . ,
Amounts billion 1953 rubles 1,220 2;9155
3,632
5,877
82
Amotmt: index (1960=100) 100 177
298
68
4
162
Amounts index each five years - 177
1
C.
1offIciency_ Q
Index (1960=100) 100 105
110
115
105
Index each five years - 105
105
D.
m izted Rstics
GO
,
Capital/Output: ratio 1.14 1.66
1.88
2.03
141
Capital/Output: (1960=100) 100 115
130
Net Increm.Cap./Tnerern Output - 2.08
2.35
2.32
Output/GWorker: 3.953 rubles 2,512 :3,314
4,126
6
5,097
203
Output/Wjorlrer.: 1960=100 100 132
4
1
ital/worker: 1953 rllbles 3, 600 5, 500
Ca
7, 800
10, 300
E
p
C a-oital/wor!ser: 1960=100 100 153
217
28
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together with certain ratios, are shown in Table 5.
as Labor force. The tot .:1 labor force in the USSR is estimated
to grow less rapidly in the period 1960-.1975 than in the decade 1950-1960.
This slower rate of growth will be due to the following factors: (1)
Smaller increments to the population of employable are. (2) A continued
increase in school, especially high school and university enrollments,
though at a Slower rate than in the 1950-60 period; this will reduce
child labor and the participation in the labor force of persons in their
late teens and early twenties o (3) An equalization of the sex ratio --
women of marriageable a*e now greatly exceed men -- which will probably
result in a higher marriage rate for women, and, in consequence, a decline
in the participation of women in the labor force, (4) Continued urban-
ization and possibly reduced necessity to work as living standards rise,
which may reduce the participation of both women and old men in the labor
force.
Taking these factors into account and assuming a very slight decline
in the agricultural labor force during the period. l1;'S0-65, it is estimated
that the industrial labor force will increase by about 3 percent per year
in this quinquennium. For later years, the industrial labor force was
derived as a residue -_ the agricultural labor force was assumed to
decline about 1.5 percent per year in 1965-70 and 2.5 percent per year in
1970-75; the resulting non-agricultural labor force increased 2.5 percent
per year in both periods and the derived industrial component thereof grew
at 3.5 percent per year in 1965-70 and at about 4 percent per year in
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19'70-75.,' These additions to t'-ie industrial labor force could be transfers
from the agricultural sector. This appears to be well witkiin Soviet
capabilities given the large allocations of invest" ent to agriculture
which are expected to be mace. However, it could also be effected from
new entrants to the labor force without drawing on older persons currently
erip'loyed in aryricultures many of whom whould probably be difficult to
train for industrial positions.
The quality of labor, and therefore its productivity, tend to grow
with improvements in educational levels and technical skill, The great
strides which have been made in the field of general and technical
education in the USSR since the lg2O.ws are believed to have had a major
effect on the growth of the economy, particularly in industry. Present
Soviet plans are to make 10-year education compulsory by 1960. On the
basis of enrollment, gr ^duation, and population trends, the distribution
of the adult Soviet population by highest level of school reached was estim-
ated for selected years and projected to 1975. It was assumed that the
relative average productivity of workers which have completed the various
levels of formal education and training is roughly proportional to the
average wage expectancy of each educational group. An index of labor
Some of the labor force, notab:-~* forced labor, is not accounted for in
the above national categories. Inclusion of forced labor would slightly
reduce the percenta.-e growth of the labor force, especially in the
industrial sector,
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quality as related to education was computed by weighting the percent of
the adult population in each educational group by the estimated average
wage expectancy of workers in -: ach group. It is reasonable to expect a
lag between graduation from school and the fullest utilization of this
newly acquired knowledge. In the U,S., higher levels of education are
fully reflected in higher wages 10-15 years after graduation. Accord-
ingly, the growth of labor productivity attributable to education during
each 5 year period was assumed to equal the average rate of growth of
educational attainment during both this period and the prccoding 5 years.
In other words, this aspect of labor productivity was related to a 10
year moving average of educational attainment.
b. Capital Stock, In any future year, the capital stock depends
on the capital stock in the base year, on gross investments between the
base year and the future year, and on retirements of capital assets during
this period. Fixed capital assets only are considered in this context, It
is estir:ated that about 70 percent of gross investment consists of fixed
capital; the remainder is principally capital repairs (which tend to grow
faster than capital investment) and increases in inventories (which tend
to grow more slowly.
In determining the amount of gross capital investment in the industrial
sector, it was assumed that 55 percent would be allocated to this sector,
20 percent to agriculture, 15 percent to urban housing and municipal
services, and 10 percent to other services. These shares appear to have
varied but little during the entire period since 1928; the projected share
of the industrial sector and of housing and municipal services is slightly
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higher than during the Fifth and Sixth Five Year plans, hi.le the share of
agriculture is lower than in the recent past and immediate future but
higher than before World War II.
Retirements were calculated on the basis of U.S. analogy and on the
postwar relation between gross capital investment and the growth of fixed
capital. stock in the USSR. Assuming an average la of one year between
investment and the resulting increment to capital stock, actt.I retire-
ments during the Fourth Five Year Plan appear to have been much smaller than
the amounts as calculated, but about the same during the Fifth Five Year
Plan. Howevar, given the pressures of the reconstruction period., this
resat is not surprising,
c. ^fficienc; For purposes of this projection, all factors
which determine the level of economic activity other than labor, the
quality of labor, and the stock of fixed capital are treated aggregatively
by the factor called "efficiency," This includes the net effect on output
of such elements ass (1) The rate of technological change, which is in
turn influenced by engineering and scientific research, the availability
of investment, the number of trained personnel, and the ability to borrow
Retire:-,ent assimptions for the industrial sector, expressed as a per-
cent of original cost per five year period, are as follows,
From stock existing in 1945:
15%
From increments-to stock, of ages 0 - 5 years: 0%
6 -10 years: 7%
ll-.j 15 yce ars : 12%
16 -20 years: 12%
21 -25 years : 10%
26 -30 years : g%
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technology from abroad. (2) Economies of scale as production grows and
becomes more specialized. (3) Diminishing returns to fixed factors,
especially agricultural land and mineral resources o (4) Gains from foreign
trade. (5) Improvements an planning, the organization of production,
and financial control; or conversely losses and inefficiencies due to ill
advised institutional changes and plans, (6) Worker and managerial morale
and. incentives as affected by living standards, wave scales, attitudes
toward the reg Lrne, etc,
An appraisal of the manner in which these complex and oftexi 6oiiilicta..
ing elements will affect Soviet output in the future is necessarily very
speculative; moreover, historical experience provides a poor guide
because of the many uncertainties involved in, calculating soviet capital
stock in constant prices. If reasonable assumptions are made regarding
capital stock in the USSR since 1928, it appears that there was a sharp
decline in efficiency during the earjy 1930ts (when there was an extremely
large inflow of unskilled labor), followed by a sharp rise from 1934 to
1936, a drop in 1937 at the time of the purges, and a leveling off until
the war. Since World War II, efficiency has follooed an upward trend,
except for a temporary leveling off in the 1951-53 period. Starting from
a very low level, due probably to the poor condition of plant and the large
use of marginal labor and overtime work, efficiency increased by about 20
rercent from 194 to 1955, and reached the 19/+0 level in the latter year.
Half of this increar..e was prior to 1950. Fulfillment of the Sixth Five-
Year Plan would require another increase of approXimately 10 percent in
efficiency by 10,60; this would raise the level of efficiency to the
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highest roin.t in Soviet experience to date (viz. the 1936 level). Further
increases in efficiency after 1960 are considered likely, though at a less
rapid rate than that indicated for the immod:i.ate postwar years. For
simplicity, the percentage increase for each five year period after 1960
was assumed to be constant.
2. Agricultural Sector (A-)
Agricultural production is estinuted to increase by 3 percent a
year after 1960, or roughly one percent a year faster than population.
This is close to the minimum growth compatible with continued self-suffic-
iency; on the other hand, a significantly higher growth rate would probably
entail very high and. possibly increasing costs. Substantial increases in
yields in certain areas may result from the greater use of fertilizer and
the planting of hybrid corn, crop losses could be cut through fwrther
mechanization, and increases in the value of productive could result from
but
a greater concentration on livestock products, /it is evident that climatic
and soil conditions axe far less favorable for long :run expans ion of
agricultural production in the USER than they have been in the US In
addition, m. mt....of -the--ara'bleland is already being intensively cultivated.
The inability of the TESR to raise per capita agricultural production
to any significant degree in the past can be partly attributed to low
investment rioritiesin this sector, to the destruction of agricultural
assets (notably livestock) during the early 19301s, and to losses sustained
in World War II. Recently there has been a considerable shift of priorities
in f aver of agriculture. The agricultural share of :investment allocations
has risen, as has the labor force employed in agriculture, especially in
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the skilled categories . Continuation of such a policy would probably,
however, act as a severe drag on the economy, since labor is much more
productive outside agriculture and capital yields in other areas are Jess
subject to the restraints imposed by a relatively fixed factor of produc-
tion (i..o , land)
There is a great deal of uncertainty regarding the effectiveness of
alternative agricultural policies in the USSR, but It seems likely that
some reduction in the agricultural labor force will occur and possibly an
increase in agricultural imports rather than a disproportionate increase in
investment allocated to this sector. The projected share cL agricultural
investment is close to the 1928-55 average and would, barring wholesale
destruction of livestock by peasants in the event of drastic changes in
institutions, result in a substantial growth in the stock of agricultural
capital. Whether the USSR will in fact follow this course of action is
uncertain, but the projected investment .Locations to agriculture are
believed to be sufficient to permit the estimated increase in production and
decline in labor forces
3. Services Sector 4t).
This sector was subdivided into three components because of their
differing relation to inputs. (a) Rent and Utilities services were
assumed to grow proportionately to urban housing space; the growth of urban
housing space was estimated by valuing the existing stock of housing and
utilities, adding investments in housing and, municipal services, and de-
ducting estimated rat-Ire-rent-s. (b) Trade services were assumed to in-
crease w= th the GNP. Trade turnover will certainly increase faster than
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consumption because it involves only consumption of goods, which tend to
grow faster than consumption of services, and also because an increased
percent of consumer goods production is marketed as urbanization progresses.
(c) Other services are assumed to grow at approximately 4 percent per
year. This corresponds to a yearly rate of increase of 2,5 percent in
employment and 1.5 percent in labor productivity; the latter productivity
allowance is intended to account primarily for upgrading and for shifts
from lower to higher productivity services,
Approximately the same methodology was used in projecting services
as in estimating the past growth of services. Consistency with US
Department of Commerce methodology could not be attained. In the 13
the growth of private services is measured by deflating the vat ue of output
series to constant prices, while the growth of government services is
measured by the growth of government employment; increases in labor pro-
ductivity, therefore, affect the movement of US private services, but not
the movement of goti-ernment services. S nce the bulk of measurable ser-
vices in the USSR are performed by government employees, it is impossible
to use US methodology without imparting a severe downward bias to the com-
puted growth of the service sectors This is one of the reasons for using
a mixture of input and output indicators to estimate the growth of
services in the USSR.
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APPF1NDD A
1~I,'1'" T?+TTVC C Ifit~Zly `!'TCTS SOVr,,T GNP 106! -1975
An independent calculation of the future size and composition of
Soviet GNP was made on the basis of projections of the labor force and
output per m.an-year. While this approach is conceptually simpler than
using a Cobb-Douglas t-?'pe function, it is not necessarily more parsi-
monious. Any calculation of future growth rates involves mating various
assumptions; whether these assumptions are many or few is perhaps less
important than whether they are reasonable. The z sults obtained in this
independent calculation are remarkably close to those presented in the
main body of this report, but this agreement on the magnitude of Soviet
GNP in the period 1960-1976 does not imply that the two methods confirm
each other. The most that can be claimed is that the assumptions in both
cases are equally reasonable.
.A comparison of the composition of Soviet GNP in the two cases a hr ;a
certain differences in detail, though not in the general structure of the
Soviet economy. These differences are well within the margin of error
that must be associated with any long-range projection. Accordingly,
the alternative figures presented in Tables A-1 and A.-2 should be thought
of not as a cross-check on those presented in the main report or as de-
fining the limits of this Margin of error. At best, they merely indicate
the direction in which the latter figures might be changed and still remain
quite reasonable. Whether either set of figures approximates the truth
may very well be still open to debate during the Soviet Tenth Five Year
Plan.
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J BLE
SOVIET GNP BY SECTOR OF ORRIGIN, AT RUBLE FJ CTOR COST,
].900, 196 y 7 970
4ind 975
~~~
'Billion 195 Rubles
Agriculture
360.2
407.4
460,,,8
521,2
Industry, including construction 699.0
1087.5
1672.7
2524.8
Transport and c =auuioations
150.4
234.0
359.9
543.3
Trade and services
310.0
386.3
48103
599.7
TOTAL
1519,,6
2115.2
2974,7
4189.0
B.
Index (1960 = 100
Agriculture
100
113
128
145
Industry, including construction 100 125
155
193
Transport and communications
100
156
239
361
Trade and services
100
156
239
361
TOTAL
100
139
196
2 76
0.
Percent
Agriculture
237
19.3
15.5
12.4
Industry, including construction 46,0 51.4
56.2
6043
Transport and communications
9,9
11.11
12.1
1340
Trade and services
20.4
18.2
16,2
14.3
TOTAL
100.0
100.0
10000
100.0
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23
1960,
1965, 1970, and 1975
Consumption
834,6
1127.3
1544,0
2109.2
Investment
462,3
6950
104-5* 5
1572,,1
Defense
3.92,6
257,7
344,8
461.3
Adminis tration
3001
3499
4004
46.4
TOTAL
1519,6
2115,2
2974,97
418900
B .
Index (1960? M 100)
Consumption
100
135
185
253
investment
100
150
Defense
100
134
179
240
Administration
100
116
134
156
TOTAL
100
139
3.96
2 76
Cons'4ption
54* 9
53.3
51.9
5004
Investment
30.4
32,9
35x.1
37.5
Defense
12.7
12.2
11,:6
11.0
Administration
200
1.6
1.4
1.1
TOTAL
100,0
100.0
10010
100.0
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24
A. Calculation of Total GNP, x.960-197,,,,,E
1. Labor Force (See Table A-3)
The starting point of the alternative estimate is the recent ITS
Bureau of Census estimate of Soviet total population and number of people
in the 16-59 year age group, which takes account of the official popu-
lation data published in the new Soviet Handbook. The number of persons
of working age (16-59 years) in 1955 and 1960 was compared with the estim-
ated labor force in these two years t the ratio of these two magnitudes was
then projected into the futures It was assumed that until the middle of
the 1960$s, ie.., as long; as addit_ one to the working age population are
small and the sex ratio continues to be heavily distorted, the participa-
tion of the working age group in the labor force would not change pre-
ceptibly. Thereafter it would tend. to decline, chiefly due to the with-
drawal of women from the labor force. If Soviet population and labor force
develops as indicated in Table&.3the 1975 ratio would be similar to Italy's
in 1954 (44.1 percent) and consV.erably above the US ratio (39.9 percent)
in 1950.
In recent years no less than half of the total Soviet labor force
was employed on the farms. This compares with an average of 27 percent
in Western Europe and 13 percent in the US (1950). The TBS has greatly
reduced its agricultural labor force during the past decades, in fact
See Arthur AoCampbell, Estimates and Projections of the Pow ation
of the I7"SR; 1955-3,996 , U5 Bureau af' the Census, August 3, 1956.
0Fla ME-TA ONLY
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'0 $L4
a) 01 ) 0
S--) U pr 0 1,
~Qyi aJ ~ ? 5., ~+
H
O r-1 $y O ri
Lid D 0 '.r () ~! 0 43
N
-I r9 O w
0i
17 Ski O 4-.)
?rl v-i I~ Gi
O 97 0 -P r-( l D
-P PI, -A CH
149 400, 500170009-5
r ~. O
Lf'~ ?ri
-P 0
CT AS r-t C
O
"Wer
() rj
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26
by 1.7 percent per annum between 1920 and 1953 and by 2.6 percent per
annum between 1940 and 1953. It is unlikely that the Soviet Government
will allow the present state of affairs to continue; efforts to reduce the
enormous proportion of farm labor can be expected after 1960, even though
no reduction occurs during the Sixth Five Year Plan period. On the other
hand, it Is recognized that the transfer of additional millions of people
into the already overcrowded and still fast-growing cities raises very
serious financial and administrative problems, Balancing these two con-
siderations, it is assamed that the USSR would be able to reduce its agri-
cultural manpower by a modest 1 percent per annum, i.e., much less thin the
US did over the past thirty years. If this assumption is correct, Soviet
farm labor would still be close to 50 million in 1975 or 38 percent of the
entire labor forces This ratio would not be much below Italyts 1951 ratio
of 4.0 percent and Italy is well-known for its rural overpopulation and for
the inefficiency of much of its agriculture?
The labor force outside of agriculture (obtained by subtraction) would
rise by 9.3 percent in 1960-65, by 9.2 percent in 1965-70, and by 8,6 per-
cent in 1970--75. it had increased by 9.2 percent under the Fifth Five Year
Plan and is expected to increase 10.5 percent under the Sixth Five Year Plan.
Thus, the projected increase in the non-agricultural labor force after 1960
is in line with recent historical experience, though somewhat lower than
that indicated by the current Five Year Plan,
2. Proth1cti.vity Rates
Soviet productivity on the farms -- or more exactly, agricultural
output per man-year increased only 1.5 percent per annum under the Fifth
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Five Year Plan. The estimates of agricultural output and labor force for
the Sixth Five Year Plan period imply an averge annual increase in output
per man-year of about 3.2 percent. The :increased attention ieing given to
agriculture in the USJR makes this latter increase very probable and if
Soviet efforts to bring arriculture closer to modern conditions are rea-
sonably successful a continued rise in productivity should occur after 1960.
For the purposes of this calculation, an average annual increase of 305
percent was assumed. This may be somewhat generous in the light of Soviet
experience to date; however, it is gi4te modest when compared with the
approximately 7 percent per annum achieved by US farmers In the past 15
years
Output per man.-year outside of agriculture rose by 7 percent per year
under the Fifth Five Year Plan and is calculated to increase by 6.2 per
cent under the Sixth Five Year Plan. For the period 1960-75, it was
assumed that the rate of growth would continue at slightly over .6 percent
per annum. There are several factors in favor of a continuing fast rate
of growth: elimination of marginal workers resulting from the declining
participation of the population in the labor force; the rising standard
of living (including more leisure); better education and training; con-
tinued technological improvements, including serious attempts to eliminate
obsolescent machinery and equipment. It should also be noted that sub-
stantial incteases in consumption moans that sectors will be greatly
developed which are now embryonic or inefficient. Food processing will be
improved, consumer durables industries promoted, distribution modernized.
In all these sectors a significant increase in output per man-year can be
expected.
MON"MMME
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3. Total GNP and Breakdown : Sectors of 7ri
The product of the estimated labor force anf.1 output per man-year
r ves, of course, total output. The agricultural component of (NP was
then c alculated directly from the subsidiary estimates mentioned above;
the same was done for the non-agricultural sectors as a whole, The
resulting figures show an average annual increase in agriculture of about
6 percent, in non-agricultural sectors about S percent, end in the total
GNP about 7 percent. The non-agricultural output was bro]en down on the
assumption that services would continue to increase at the same average
annual rate as during 1950-60, viz. 4.5 percent; in the remainder, the
transportation-communication sector was assumed to grow at the same pace
as the industry-construction sector.
B B. Breakdown by End-Use .
A breakdown of total GNP by end-use was obtained by assuming growth
rates for defense and aid .,iinistrative expenditures, computing investment
on the basis of a rising capital-output ratio, and deriving consumption
as a residue. This procedure d Iffers from that used in the estimate
presented in the report proper, but is neither more nor less reliable.
Indeed, for certain purposes it would be Just as sensible to derive
defense expenditures as a residue and calculate the other sectors by any
of the combinations of assumption and ost Anation that seemed appropriate.
1. Defense
Defense expenditures were increased by a a a ;sight 6 percent per
annum. This is rather high but -- quite apart from the price relations
problem -- it must be recognized that modern weapons technology is ex-
GPPMPPW~
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tremely expensive and that personnel costs would tend to increase in line
with the over-all level of living stdards*
2. AdmSniatratian
Administrative outlays were raised by only 3 percent per annum,
i.e., twice as fast as the population growth. This may be an understatement,
but the magnitudes involved remain so smdL I that the over=all use pattern
would not be influenced by a much greater increase in administrative
expenditures,
3. Investment
The analysis by sectors of origin indicates that the Soviet GNP
will increase 20 times in the 15 years between 1960 and 1975, The im_
plied rate of growth of 7 percent per annum presupposes a specific degree
of investment; a lesser amount would not suffice to raise the GNP by 7
percent, a greater amount would produce a higher rate of growth. The
amount of investment needed depends, in turn, on the efficiency of capital.
The estimates for 1950-7.960 show that the incremental capital-output ratio
(ICOR) during the Fifth Five Year Plan was 3.8, i.e., the USSR had to
invest in the course of five years 1,830 billion rubles in order to raise
the GNP by 314 billion; the forecast for the Sixth Five Year Plan implies
an ICOR of 44. For the 1960-1975 period, it is estimated that the ICOR
will continue to increase (specifically to 5.0 and ultimately to 5.5) and
hence that the efficiency of capital will decline. This implies that the
gross investment will rise at a faster rate (8.5 percent per annum) than
the GNP 0
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There are at ].east four c ircumst ences that tend to lower Soviet cap-
ita], efficiency. The first is the shift in labor-capital input; the
slower growth of the labor factor as compared to the capital factor tends
to produce diminishing returns? The second is the increasing share of
capital replacements in gross investment as the capital stock r?rows 9 pates.
titularly if obsolescent equipment should be more rapidly discarded than
up to now. The third factor is the unavoidable shift from investment in
industrial plant equipment to less productive investments in housing,
public utilities, roads, and the like in order to relieve present over-
crowding in the cities and to accommodate the increase of the urban popu-
lation.. This would be particularly necessary if the city population is
swelled not only by its own growth. but also through migration from the
countryside. Larger investments in agriculture than would be required
with a stable agricultural labor force also tends to lower the efficiency
of Soviet capital. but this effect may be offset by the greater produc-
tivity of workers shifted from farm to factory. Fourt'ily, the program of
developing Soviet Asia that will occupy Soviet energies in the next'decades
seems to yield smaller returns than investments in the. Ubst. This is to
some extent normal.. A newly settled area has, as a rule, a more unfavor-
able ratio of investment to output than a fully developed area; there are
more unfinished projects in the new region (e.g., in the form of large
dams and power stations under construction) and the facilities (e,g.,
railroads) may as yet be insufficiently utilized. But the ratio of invest-
ment to output for Siberia may also indicate something else, namely,, a
faulty investment policy, faulty at least from a purely economic point
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of view.
These considerations support the estimated increase in the ICOR,
but obviotusly do not preclude the possibility that the future ICOR may be
different than that specifically assumed, For e:,:ample, the ICOR coed
remain t .changed (viz. 4.4), but in this case either 7'ross investment
would increase less rapidly or the GNP would increase more rapidly. The
former consequence tends to run counter to present indications of Soviet
investment policy; the latter consequence tends to yield long--range growth
rates that are more incredible than the 7 percent estimated. Similarly,,
the ICOR could also be h:Lgher and hence Soviet eq)ital even less efficient
than that implied by the present estimate. But this seeare unlikely since
in many fields which the USSR has neglected in the past but will have to
develop in the future (eog., agriculture, construction, manufactured con-
sumers! goods, distribution), technological and organizational factors
should to some extent counteract the overall decline in capital efficiency.
Moreover, any credible growth in GNP coupled with an ICOR as high as 7
implies that the L?SPR in 1975 would be devoting half its natural product
to investment and presumably reducing per capita consumption below its
present level.
4. C onstlm ti.on
aggregate consumpt _on, obtained as a residual, rises by about
6-1/2 percent per annum, i.e., by 5 percent per capita. This represents
a very considerable improvement in living conditions, ptrticul.arly in
view of the accompanying investment In housing and civic facilities,
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But given the general rate of (rowth, this increase in consumption is an
unavoidable concomitant. If the growth of consumption were ar ua ficially
kept at a lower rate, and military expenditures did not sk yroc..vt, then
investment would. grow correspondingly faster and the forecaster would be
stuck on one of the horns of the dilermna previously mentioned.
C . Coneiudii2. Remarks
The picture that this forecast unfolds is imIi'essive. It is t.-.at of
a country that is expected to grow steadily' and at a rapid rate over a
long period of time. And not only will the producerst goods sector expand
but consumers' goods output .-.? 3;e?~., chiefly the output of manufactured
consumers t goods will rise at a rate that shorid be highly satisfac-
tory to the Soviet people.
However, while it would be dangerous to underestimate the Soviet growth
potential, it teem, equally dangerous to compare the projected rate of a
7 percent per annum with the American long,-range rate of 3-3-1/2 percent.
The US estimates are conservative and extrapolate series based on GNP com-
putations that tend to understate our progress; the Soviet projection leans
in the oprosite direction. In addition, neither the US nor the Soviet
forecast maize an allowance for the influence of chancing scarcity relations.
Both are in present prices; in current prices or in the prices of the
3E 14hile business cycles of the western type are ruled out, the USSR is
also exteriencing occasional. 'Precessions" due to shifts in planning
or faulty progrcnmi.ng such as the one of 1953 when the national in-
come according to the official series rose by only 11, percent.
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terminal year the gap between the growth rates would be considerably
smaller, Any attempt to measure this gap in rieanin ful terms is beyond
the scope of this report -- and. perhaps even beyond the ability of im-
aginative soothsayers,
State F'D, Wash. DC
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