RESEARCH AID A SURVEY OF ECONOMIC PLANNING IN THE USSR

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79S01046A000500020001-4
• Release Decision: RIFPUB
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• Document Page Count: 31
• Document Creation Date: December 19, 2016
• Document Release Date: June 16, 2005
• Sequence Number: 1
• Publication Date: April 15, 1957
• Content Type: REPORT

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FOR OFFICIAL USE ONLY N? 81
RESEARCH AID
A SURVEY OF ECONOMIC PLANNING
IN THE USSR
CIA/RR RA-13
15 April 1957
CENTRAL INTELLIGENCE AGENCY
OFFICE OF RESEARCH AND REPORTS
FOR OFFICIAL USE ONLY
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This material contains information affecting
the National Defense of the United States
within the meaning of the, espionage laws,
Title 18, USC, Sees. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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RI?SFARCII AID
A SURVEY OF r'CONOMIC PLANNING IN THE USSR
CIA/HR RA-13
(ORR Project 11+.992)
or-rise of Research and Reports
OR GE V'_CCIAL USE ONLY
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This research aid discusses the function of over-all economic
planning in the USSR, the structure of the National Economic Plan,
and the most important Soviet planning techniques. The function of
over-all economic planning and the most important planning techniques
are emphasized. Inasmuch as a thorough survey of the constituent
subplans of the National Economic Plan would reflquire extensive treat-
ment prohibited by the length of this research aid, only a brief re-
port on each of the 13 subplans is included. The conclusion of this
research aid assesses the efficacy of Soviet planning and the major
methodological problems currently facing Soviet leaders.
A more extensive treatment of economic planning in the USSR is
given in the following works:
Dobb, Maurice. Soviet Economic Development Since 1917,
London, 1948.
Granick, David. Industrial Management in the USSR,
New York, 1954
An additional general work on the USSR which discusses economic
planning in the USSR is Schwartz, Harry. Russia's Soviet Economy,
Second Edition, New York, 1954.
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CONTENTS
Pa e
I. Function and Characteristics of Soviet Economic
Planning . . . . . . . . . . . . . . . . . . . . . . .
II. Structure of the National Economic Plan . . . . . . . . 3
A. Aggregative Indexes of Activity . . . . . . . . . . 3
B. Production: Industry, Agriculture,
and Transport . . . . 4
C. Material-Technical Supply (Distribution of Raw
Materials, Semifinished Goods, and Capital
Goods) . . . . . . . . . . . . . . . . . . . . . . 4
D. Capital Investment . . . . . . . . . . . . . 5
E. Technology . . . . . . . . . . . . . . . . . . . . 5
F. Labor and Cadres ? . . . . . . . . . . . . . 6
G. Cost of Production (Sebestoimost') . . . . . . . . 6
H. Retail Trade Turnover . . . . . . . . . . . . . . . 7
I. Cultural Construction and the Communal Economy . . 7
J. Development of Regional and Local Economy . . . . . 8
K. State Budget . . . . . . . . . . . . . . . . . . . 8
L. Credit and Cash Plans of the State Bank . . . . . . 9
M. Foreign Trade . . . . . . . . . . . . . . . . . . . 9
III. Planning Organization . . . . . . . . . . . . . . . . . 9
IV. The Methodology of Planning : The Material-Technical
Balance Technique, Cost Accounting, and Prices . . . . 11
A. Function and Structure of the Material-Technical
Balance . . . . . . . . . . . . . . . . . . . . . 11
B. Cost Accounting and Price Systems in the Soviet
Economy . . . . . . . . . . . . . . . . . . . . . 16
V. Efficacy of Present Planning System and Major
Unsolved Problems . . . . . . . . . . . . . . . . . . 20
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Chart
Following Page
Reorganization of Soviet Planning Apparatus . . . .
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CIA/RR RA-13 FOR OFFICIAL USE ONLY
(ORR Project 14.992)
A SURVEY OF ECONOMIC PLANNING IN THE USSR
I. Function and Characteristics of Soviet Economic Planning.
Economic planning in the USSR is primarily a means, or methodology,
for achieving the successive goals for the level of economic activity
which are prescribed by the top Soviet leaders. Primarily for two
reasons the Soviet leaders use a system of centralized planning in pref-
erence to a market mechanism as a means of allocating resources. First,
to the Soviet leaders the market mechanism epitomizes the defects of
capitalistic economy. They believe that the inadequacies of the market
system as a means of resource allocation lead to depressions and
unemployment. Maintaining that a socialist society operates according
to economic laws which are inherent in the social process, the Soviet
leaders conclude that these economic laws can be implemented only by
a centrally planned distribution of resources according to the require-
ments of the user. Second, a market system of allocation with its
implication of consumer sovereignty would not be suitable to a regime
desirous of simultaneously maintaining rapid rates of economic growth
and a strong military posture. The US found itself in such a position
during World War II when it became necessary for the federal government
to substitute direct allocation of vital materials and products for the
customary methods of resource allocation. The Five Year Plans, which
are in turn broken down into yearly plans and then into quarterly plans,
state the general goals for levels of economic activity decided upon by
the Soviet leaders and prescribe a pattern of resource allocation which
will achieve these goals. The direct and detailed controls of resource
allocation embodied in the yearly and quarterly Plans prohibit any
large-scale use of resources for goals other than those of the Plans.
In its final complex form the National Economic Plan delegates responsi-
bility among the various ministries and their subordinate enterprises
and firmly fixes the responsibility for meeting the over-all goals.
This detailed delegation and fixing of responsibility makes the Plan
the focus of most economic activity in the USSR.
The outstanding characteristic of economic planning in the USSR is
centralization of decision making. While Stalin was alive, he per-
sonally made the major decisions on the level of economic activity.
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This authority is presently concentrated in the hands of the Party
Presidium, probably in the hands of six senior members at most.
The principal function of the central planning bodies, nominally
subordinate to the Council of Ministers, is to provide the detailed
schedules or resource flows which will achieve the major output goals
set by the Party Presidium. Ultimately, the ostensible purpose of
the economic objectives embodied in the plans is to reach the state
of "Communism," the mythical materialistic Utopia in which every
citizen will give according to his ability and receive according to
his needs. In the meantime, however, the Soviet leaders have been
faced with the necessity of industrializing a backward country and
of surviving in a more or less hostile capitalist environment while
simultaneously attempting to further the interests of world revolu-
tion by applying military force and, more recently, economic pre-ssures,
where expedient. Consequently, in any given Five Year Plan to date,
consumption in effect has been treated as a cost of production to
the state. Each Five Year Plan reflects the desire of the Soviet
leaders to maximize production, minimize consumption, and thus maxi-
mize the resources which are available for investment and defense.
The post-Stalin leaders believe that a slightly larger slice of in-
vestment resource must be allocated to consumer-oriented activities
such as agriculture and housing if high rates of growth are to be
maintained, but there is no indication that even Malenkov proposed
to make the ordinary citizen's wants and desires the-end objects of
the Soviet economy.
The objectives of the leaders not only are given priority over
the wants and desires of the ordinary citizens but also are them-
selves arranged in a strict hierarchy of priorities. A number of
basic, so-called "leading link" industries -- coal, metallurgy,
petroleum, electric power, a few key engineering industries, and
defense production -- have consistently been given overriding priority
(quantitatively and qualitatively) in the allocation of resources.
Once the output goals for these basic industries have been decided
and provision has been made for the necessary inputs, most of the
available resources have been committed. The remainder of the econ-
omy receives what is left.
Extreme centralization of decision making necessarily requires
detailed instructions to the subordinate units. Specific instructions
and decisions concerning inputs into production, the efficiency of
utilization of capital equipment, and so on, are sent down by the
central authorities, and detailed statistical reports are sent in by
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the subordinate units. Recent extension of the authority of the in-
dividual ministries and of the union republics represents, on the
one hand, an attempt to improve administrative efficiency and, on the
other hand, the recognition that much of the detailed authority pre-
viously concentrated in the Council of Ministers and the central
planning organs was seldom actually exercised. Although these changes
do constitute significant modifications, they do not change the funda-
mental character of the system, inasmuch as the central authorities
still make all the important decisions and reserve the right to re-
verse and change the minor decisions permitted the lower organs. The
operation of the US military establishment remains the closest analogy
to the Soviet system in US experience.
Finally, Soviet planning must simultaneously attract and channel
the flow of human energy required to maintain rapid rates of growth.
Centralized planning designed to promote maximum growth of heavy
industry and the specific forms of social and economic organization
required to support rapid growth and to satisfy the ideological pro-
clivities of the leaders combine to produce acute social tensions
which at the same time are necessary to the success of the plan.
Regardless of individual desires, these social tensions compel all
individuals in the Soviet society to conform and participate in the
planned pattern. The only comparable mobilization of social activity.
in the US occurs during a period of hostilities.
II. Structure of the National Economic Plan.
The over-all economic plan is a complex structure involving approxi-
mately 13 major subplans. Each of these subplans has its own peculiar
problems and structure, and each is interrelated with the others.
These subplans are discussed briefly in this research aid to indicate
their basic structure and place in the over-all system. Two of the
most important subplans -- the plan for material-technical supply and
the cost of production (sebestoimost') plan -- are given more detailed
treatment in IV, below. These two components of the National Economic
Plan were chosen for discussion because they provide the best contrast
between the method and technique of resource allocation in the Soviet
economy and a market economy such as that of the US.
A. Aggregative Indexes of Activity.
Among the aggregative indexes of activity are the monetary
estimates of national income; the gross value of output for industry,
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agriculture,, and transport; the volume of retail and foreign trade;
the index of labor productivity; and the estimate of the value of
capital investment. Inasmuch as these indexes represent the sum
of only minimum approximations-of the specific output and activity
goals, they are called "estimated," or "accounting," goals.
B. Production: Industry, Agriculture, and Transport.
The production subplan consists-of the output schedules for
specific commodities in terms of physical units. for specific time
periods -- for example, 3 months, 1 year, and the 5th, or terminal,
year. It is the most important part of the over-all plan. Each of
the major output goals in physical units represents a specific de-
cision of the Soviet leaders, and the primary function of all the
other subplans, such as those for material-technical supply and capi-
tal investment, is to provide the wherewithal to meet the production
goals. Thus the production plan for industry specifies the output of
-steel (including crude steel, rolled steel, structurals), coal and
coke (also broken down by various types and grades), petroleum and
petroleum products, machine tools (by type and model), turbines, trucks,
tractors, military end items, and so on. The agricultural production
plan specifies output goals for such commodities as grains, cotton,
meat and dairy products, and potatoes and vegetables; it also includes
the planned acreage and yields. The production goals for specific
products in industry and agriculture and for services in transport
serve as the point of departure for estimating theaggregate value
of output in monetary terms. In contrast to the "estimated" value
indexes, the production targets are known as "established" goals.
Ministers, plant managers, and the like are promoted and rewarded
or demoted and fired on the basis of their performance in meeting
and exceeding the production goals in the specified commodity mix.
C. Material-Technical Supply (Distribution of Raw Materials,
Semifinished Goods, and Capital Goods).
After the production goals are established and the responsi-
bility for meeting them is delegated among individual producers, a
schedule of allocations of resources is drawn up which in theory
provides each producer with the precise amount of raw materials,
semifinished goods, and capital equipment required to meet his pro-
duction goals. These schedules are in terms of physical units and
are constructed through the use of technological coefficients (in-
put-output ratios). The material balance technique and the use of
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technological coefficients to allocate scarce resources among com-
peting uses are among the features which most distinguish the planned
economy of the USSR from capitalist economies (see IV, below).
D. Capital Investment.
The subplan for capital investment has. two principal functions:
(1) to provide the necessary increment to capital stock in order to
meet future production goals and (2) to distribute the investment re-
sources among various industries and activities in accordance with the
priority preferences of the Soviet leaders. Thus heavy industry re-
ceives the largest share of total investment resources available in a
given time period, and, within heavy industry, top-priority industries
such as coal, ferrous and nonferrous metallurgy, petroleum, electric
power, and those engineering industries which produce coal mining ma-
chinery, metallurgical equipment, machine tools, and military end items
have first priority on the available investment resources. The over-
all level of investment, after due allowance for the military establish-
ment, tends to leave resources barely sufficient to provide to labor the
incentives necessary to achieve the production goals. In practice, in-
vestment has consistently accounted for at least 20 percent of national
income.
Because of the complex nature of capital construction, the over-
all goal of the National Economic Plan is expressed in value terms but
the most important inputs of capital equipment and construction materials
are planned in terms of physical units. These inputs constitute a sepa-
rate section of the subplan for allocation of raw materials, semi-
finished goods, and capital equipment and are computed with the aid of
technological coefficients. At the same time, the capital investment
plan indicates specific goals in terms of physical units for additions
to production capacity -- for example, area and volume of blast and
electrical furnace capacity, electrical generating capacity, square
meters of floor space, and inventory of machine tools and equipment.
E. Technology.
Since 1941 the introduction of new technological processes has
been a separate subplan of the National Economic Plan. Technological
innovations include a wide variety of measures such as the expanded
production of cutting tools made from harder steels, the use of oxygen
in steel production, and the replacement of steam locomotives with
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diesels. Inasmuch as new technology is inextricably linked with the
most modern machinery and highly skilled manpower, the technology
plan reflects the same hierarchy of priorities as the production and
investment plans. Technological innovation currently has assumed
increased importance in Soviet planning as a means of increasing labor
productivity and of maintaining high capital-output ratios.
F. Labor and Cadres.
Increments to the nonagricultural labor force are scheduled
in accordance with the over-all production goals and the planned
average increase in the productivity of the existing labor force.
Average output is expected to rise as a result, among other things,
of the program for technical training which is included in the labor
plan. The recent emphasis upon scientific and technical. courses in
the undergraduate schools reflects the contribution of technical
training and education to the growth of labor productivity.
From 1928 to the present the Soviet leaders have been able to
compensate for the chronic shortfalls in the growth of individual
productivity by increasing the labor force more than planned. The
actual increase in the nonagricultural labor force in each Five Year
Plan usually has been considerably in excess of the increase originally
planned. Because of demographic factors and the growing labor strin-
gency in agriculture, this expedient will be available for the 1956-60
period only through further reductions in the armed forces. The
necessary growth of labor productivity in the next 5 years will depend
largely upon greater incentives more equitably distributed rather
than upon harsh labor discipline and highly discriminatory distribu-
tion of limited incentives. The long reliance upon coercion, however,
makes it very difficult for the Soviet planners to estimate precisely
which incentives will produce the desired increase in labor productivity.
G. Cost of Production (Sebestoimost').
The relevant technological coefficients (input-output ratios in
physical terms) and appropriate values (prices and wages) are applied
to each production goal in order to compute unit cost of production
(sebestoimost') estimates for the particular commodity and essential
service produced. These estimates are then aggregated to provide an
estimate of complete cos-t for the production of the plant or factory.
The cost of production for all plants and products is aggregated by
the top planning organs to provide a summary estimate of all production
costs in industry, transport, and construction. The subplan for cost
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of production has two important functions. First, the cost of pro-
duction of each individual commodity serves as a basis for calculating
wholesale prices. The wholesale price represents cost of production
plus a fixed rate of profit decreed by the central authorities (about
7 percent in heavy industry at the present time). Second, the cost
of production plan provides an over-all measure of increased efficiency
in the use of labor, capital, and materials in the productive process.
Each year the cost of production of products produced in the preceding
year is planned at a lower level in anticipation of increased labor
productivity and increased efficiency in the use of other inputs.
(The cost of production plan is discussed in IV, B. below.)
H. Retail Trade Turnover.
In order to absorb the cash income of the population -- chiefly
from wages -- the state should provide consumer goods at prices which
will just clear the market. This is frequently not done, however.
Overpayment of the planned wage bill has created a chronic excess of
money in the hands of the population since forced industrialization
began in 1928, particularly before and during World War II. Since
1947, excessive reductions in retail prices have been the principal
disruptive factors. Such an imbalance blunts the incentive measures
designed to increase labor productivity. It is anticipated that the
Soviet leaders will attempt to maintain a better balance between con-
sumer purchasing power and consumer goods supplies during the 1956-60
period.
I. Cultural Construction and the Communal Economy.
The plan for cultural construction and the communal economy
provides for the construction of schools, nurseries, theaters, that
part of housing construction not carried out by the production minis-
tries, and the general costs of urbanization: municipal water supplies,
utilities, transport, and so on. With the exception of schools, most
activities under this subplan have been granted low priority in the
past, although housing construction has received growing attention
since the death of Stalin. Furthermore, the over-all costs of urbani-
zation probably will be relatively higher in the future as it becomes
necessary to attract labor with more perquisites.
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J. Development of Regional and Local Economy.
Historically, the development of regional and local economies
has been noteworthy for the low priority accorded it in practice as
contrasted with the extensive discussion of regional planning by Soviet
writers and Western observers. The emphasis on regional development
of industry has varied greatly from one Five Year Plan to the next,
and the much touted "regional self-sufficiency" of areas within the
USSR is still largely mythical. Now that short-range planning has
been separated from long-range planning and Gosplan is concentrating
on 5- , 10- , and 15-year plans and on the development of the eastern
regions,_practice should begin to conform to theory. Because of a
variety of pressures -- the lag in agricultural production that led
to the new lands program, depletion of the richest and most accessible
coal and iron ore deposits in the Ukraine and the Urals, discovery of
rich new oilfields, the increasing burden on transport, and the lure
of a vast potential for cheap hydroelectric power -- Siberia is about
to undergo an industrial boom exceeding the original eastern expansion
in the Urals and the Kuznets in the early thirties. Simultaneously,
the post-Stalin leaders are encouraging local authorities to use local
resources such as low-grade fuels, building materials, and industrial
scrap to improve-the lot of the consumer.*
K. State Budget.
The primary function of the state budget is to mobilize the
financial resources of the economy and direct the flows in accordance
with the production, investment, and military plans. The most impor-
tant financial resource flows are, on the income side, the income
from profits of enterprises and the turnover tax. These revenues
constitute the "net income" of the state and account for most of the
difference between consumption and production incomes created in the
current time period. On the expenditure side, the principal items
are the allocations to investment and defense. To the Soviet citizen
and to the Western observer as well, the annual state budgets provide
the best single indicator of economic policy.
* The type of regional organization envisaged by the decree of the
Central Committee in February 1957 is designed_primarily to combat
certain institutional problems inherent in the functional ministerial
structure. It also will enhance the trend toward greater regional
self-sufficiency.
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L. Credit and Cash Plans of the State Bank.
The cash plan of the state bank consists primarily of esti-
mates of cash flows and is designed to maintain a balance between
such aggregate flows as wage payments and outlays for consumer goods
and services. In addition, the state bank is the principal collector
and disburser of the incomes and outlays summarized in the state
budget. The credit plan is the balance sheet of the state bank show-
ing anticipated short-term loans for working capital on the asset
side and deposits of enterprises and institutions on the debit side.
M. Foreign Trade.
Historically, foreign trade has accounted for a very small
proportion of economic activity. Recently, however, a new era has
opened. Intra-Bloc trade rapidly is becoming a significant factor
in economic activity. Meanwhile, the European Satellites apparently
may become an economic liability instead of an asset. In any event,
the new policy of economic specialization and greater independence
in the Satellites (in contrast to Stalin's policy of across-the-
board expansion of heavy industry and economic subservience to the
USSR) will promote the growth of intra-Bloc trade.
Inter-Bloc trade also has entered a new era. In the early
years of industrialization, Soviet foreign trade with the West was
primarily to acquire machinery, and later, to import certain key raw
materials such as copper and rubber. Now that the USSR has more
nearly eliminated the technological gap and achieved a volume of indus-
trial production second only to that of the US, the Soviet leaders can
afford to further their political objectives by a considerable volume
of capital exports to underdeveloped nations outside the Bloc. The
advantages accruing to the USSR from the raw materials imported in
return, however, probably are coincidental.
III. Planning Organization.
Only one top-level planning organ was attached to the USSR Council
of Ministers before 1948.* The Council of Ministers is dominated by
the Presidium which in turn is run by the same men who constitute the
Presidium of the Communist Party, so that the Planning Commissions are
in effect staffs of the Party Presidium, or of Stalin personally before
* See the chart, following p. 10.
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his death. The-reorganization of 1948 was prompted primarily by two
clearly defined circumstances: (1) the output goals of the Fourth
FiveYear Plan (1946-50) were not internally consistent and invest-
ment costs had been seriously underestimated, and (2) the system of
direct allocation of the more important resources -- raw materials,
semifinished goods, and capital equipment -- was working inefficiently.
Individual enterprises were not receiving the supplies needed to
fulfill production goals, and there was little control from the top
over the efficiency of use of these resources. The State Committee
for Material-Technical Supply (GOSSNAB) was set up to meet these prob-
lems by constructing more exact, detailed, and internally consistent
1-year plans which would insure closer approximation to the Five Year
Plan goals; by relating the newly introduced (1947) subplan for
allocation of material resources to the various producing ministries
in accordance with production obligations; and by insuring more-eco-
nomical use of centrally allocated resources. In 1951, further
specialization was introduced with the creation of the State Com-
mittee for Food and Industrial Supply (GOSPRODSNAB) to plan and allo-
cate funded commodities such as cotton yarn which are allocated to
consumer goods industries. It is this system-of direct allocation of
funded commodities and the associated material-technical balance
technique which provides the methodology for reaching the successive
-goals set by the top leaders and which most distinguishes the Soviet
economy from a normal, peacetime market economy.
In-December 1956 the position and powers of the Commission for
Short Range Planning were greatly strengthened when its former Chair-
man, Saburov, was replaced by a committee of Deputy Premiers of the
Council of Ministers headed by Pervukhin. Pervukhin's committee
brought with it the extensive, complementary powers of the Presidium
of the Council of Ministers over current allocation of resources.
The reorganization was primarily the result of serious lags in produc-
tion of coal, cement, ferrous metals, and timber which represent an
incipient threat to the production goals set forth in the Sixth Five
Year Plan (1956-60) directives approved by the XXth Party Congress
in February 1956. It is still not clear whether Pervukhin and his
committee will be able to maintain the key 1960 goals intact.
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REORGANIZATION OF SOVIET
PLANNING APPARATUS
PRIOR . '(
1948
USSR
COUNCIL OF MINISTERS
STATE
PLANNING COMMISSION
1948
STATE COMMITTEE
FOR NEW TECHNOLOGY
New techniques
and equipment
1951
1953
USSR
COUNCIL OF MINISTERS
STATE COMMISSION
FOR PLANNING
USSR
COUNCIL OF MINISTERS
U SSR
COUNCIL OF MINISTERS
GOSPLAN
1955
STATE COMMITTEE
FOR NEW TECHNOLOGY
New techniques and
equipment
USSR
COUNCIL OF MINISTERS
STATE COMMISSION FOR
LONG-RANGE PLANNING
MIS ION FOR
STATE COM
CURRENT PLANNING
Current plans
1 year and less
STATE COMMITTEE FOR
MATERIAL TECHNICAL
SUPPLY
GOSSNAB
Material-technical bal-
ance and the distri-
bution of material and
capital equipment to
the economy
STATE COMMITTEE FOR
FOOD AND INDUSTRIAL
SUPPLY
GOSPRODSNAB
Distribution of food-
stuffs, semi-finished
and finished products
to the population and
economy
STATE COMMITTEE FOR
LABOR AND WAGES
Functions performed
by GOSPLAN prior
to 1955 _
507082
11 JULY 1955
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IV. The Methodology of Planning: The Material-Technical Balance
Technique, Cost Accounting, and Prices.
A. Function and Structure of the Material-Technical Balance.
Soviet leaders prefer a system of direct allocation of re-
sources to a market system primarily because of ideological factors
and the rapid rate of growth forced upozi the economy. In order to
achieve rapid over-all rates of growth, top priority is given to
a very few industries -- the coal, petroleum, metallurgy, electric
power, machinery, and defense industries. Thus the leaders strive
not for some approximate level of national income in rubles but for
specific rates of output of coal, petroleum, pig iron and steel,
electric power, planes, ships, and so on. The only analogous con-
dition in US experience is during wartime, particularly during
World War II, when the efforts of the entire nation were directed
toward producing the number of ships, guns, planes, tanks, and so
on, which were estizlated to be necessary to win the war, and when
the US government set up a system of direct allocations for vital
materials and equipment. Moreover, the Soviet leaders historically
have placed top priority on increasing production, with cost con-
siderations secondary. Consequently, the USSR has maintained in
production inefficient plants and has built modern efficient plants
beside them, so that the same product usually has many producers
whose costs are far above the average. An allocation system which
utilizes the Western price mechanism would not permit high-cost
producers to remain in operation.
The policy of a strict hierarchy of priorities for heavy in-
dustry (and the disregard for the consumer) has one important conse-
quence: the number of commodities and services over which the
leaders must maintain strict control is limited. In other words,
the planners do not have to solve all the simultaneous equations in
the economy. Their task is limited to controlling the goods most
essential to the key producers, relying on the delegation of re-
sponsibility and the system of rewards to insure that the ministerial
officials and plant managers arrange the distribution and utilization
of those goods and services which are not centrally allocated. The
commodities whose distribution is centrally planned are known as
"funded commodities," which means that the Council of Ministers itself
defines the purposes for which they may be used and the quantity
which may be used for any specific purpose. About the time of Stalints
death the list of "funded commodities" had grown to more than 1,600,
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but the number has subsequently been reduced by broadening the defini-
tions and delegating more authority to the individual ministries.
Fundamentally, however, the system remains the same.
The material-technical balance technique of planning, therefore,
has three principal functions. First, the balance technique is intended
to insure internal consistency (in Soviet terminology, "proportionality")
between the various output goals by providing the means for resolving
any inconsistencies that appear in the planning stage according to the
priority preferences of the Soviet leaders. Second, the balance tech-
nique provides a basis for constructing a rational flow of funded com-
modities to the various producing ministries, and by the ministries to
their subordinate plants, thus insuring that the producing units receive
the minimum inputs, but no more, to meet their production obligations.
Third, the technological coefficients used in constructing the balances
are designed to promote economy in the use of the funded commodities
allocated to the various producers. Thus the combination of direct
allocation of funded commodities and the balances technique is the
methodology employed to reach the successively higher levels of economic
activity defined by the top Soviet leaders. In practice, the inevitable
unforeseen inconsistencies and production failures which do arise are
partially solved by resorting to contingency reserves.
The system of material balances, which is roughly analogous to
a system of double entry bookkeeping, is constructed inthe following
manner*:
Resources
Production (output
of commodity x)
Imports
State reserves
Inventories (exist-
ing)
Requirements
Production (inputs of commodity x
to production of y and z)
Construction (capital investment;
imports of commodity x to con-
struction activity)
Market fund (sale of commodity x
to individual consumers)
Exports (of commodity x)
State reserves (gross additions to
this centralized inventory under
the Council of Ministers)
Inventories (planned -- gross addi-
tions to enterprise inventories)
* Itshould be noted that the usual terms supply and demand are
specifically avoided in favor of resources and requirements because
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Soviet long-range planners keep two fundamentals in mind:
(1) every output is an input for some other commodity or commodities,
and (2) planning is concerned only with funded commodities. If the
production goals for commodity X are compared with the requirements
of X needed to produce commodities Y and Z and it is found that the
planned production of X is not sufficient to supply all the require-
ments, or, in Soviet terminology, a disproportion" exists, then a
number of alternative solutions are possible. The output goals for
commodity X may be increased, or the requirements for Y and Z may
be reduced -- in accordance with the priority preferences of the
leaders -- by reducing the production goals for commodities Y and Z.
Imbalances also may be alleviated by imports during a 5-year period
(assuming exports can be maintained), but state reserves and inven-
tories generally cannot furnish additional resources over a span of
several years, inasmuch as they must grow in proportion to the growth
of the economy as a whole.
For a Five Year Plan the function of the material balances
is almost exclusively to insure internal consistency, or "proportion-
ality," between the various goals. Five Year Plans have only a
rudimentary subplan for direct allocation of resources. The tech-
nological coefficients used to equate the resources of commodity X
to the requirements for its use in producing commodities Y and Z
reflect rather general goals for increased economy in the use of
resources. If the application of the material-technical balance
technique to the 1-year plans is considered, it may be seen that
the plan for direct allocation and the technological coefficients
are worked out in greater detail and with much more precision. The
State Commission for Current Planning is charged with drawing up
the 1-year plans which will push the Soviet economy to the 5-year
goals.
In the 1-year plans the subplan for allocation of funded com-
modities is drawn up in great detail and the technological coefficients
are used to force increased efficiency out of the various producers.
If commodity X is coal and the production goals for coal are to be
made consistent with the requirements necessary to produce the planned
amount of steel, electric power, and other coal-consuming commodities
the former have inseparable connotations of market-price mechanism
and hence are unsuited to a description of the system of direct
allocation used by the Soviet planners.
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and services, then the amount of coal necessary to produce the planned
amount of steel is determined by multiplying the planned "norm" for
coal expended in steel production by the planned output of steel. These
planned "norms" (or technological coefficients) are known as average-
progressive norms because they do not represent a simple arithmetic
average of tonsof coal expended per ton of steel in the past but, in-
stead, the average coal expenditure for a selected group of the most
efficient plants in the industry. The coal inputs required to generate
the planned amount of electric power and all other funded commodities
requiring coal in their production processes are similarly determined.
If the total of the requirements is assumed to exceed the
planned production of coal, the range of solutions to the imbalance
would allow for less far-reaching adjustments than in the Five Year Plan.
Instead, the plan would usually require a series of compensating adjust-
ments in the following year. Thus an imbalance between planned produc-
tion and planned requirements for coal may be removed by increasing
the coal production plan or by reducing the requirements by cutting
back planned production of lower priority items. Actually, the latter
is ultimately unavoidable as coal production can be increased only by
additional resource allocations, but the planners can usually defer
this -consequence for a few months or even a year. On the other hand,
in a 1-year plan the imbalance may be removed by depleting inventories
which were larger than planned at the end of the previous time period.
State Reserves may also be drawn upon, but again there is the almost
inevitable penalty of rebuilding the reserves in the subsequent time
period. Finally, imports may be increased. In any event, the complex
process of adjustment and approximation continues until a "balance" is
struck, and `!proportionality" insured.
If the problem of balancing the production and requirements
of an item of capital equipment is considered -- for example, machine
tools -- the process is essentially the same, with the important
exception of the norm (or technological coefficient). In estimating
the allocation of new capital equipment, the Soviet planners use so-
called "maximum norms" of capacity rather than the average-progressive
norms used to estimate requirements of raw materials and semifinished
goods. These maximum norms may be derived from an estimate by engi-
neers of the maximum output possible with a given stock of capital
equipment under ideal conditions or from the highest rates of output
achieved by existing plants at peak periods. From the point of view
of the planners, of c-ourse, the objective is the same for both the
maximum and the average-progressive norms -- to put strong pressure for
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increased efficiency on each producer in each successive time period
by allocating slightly fewer resources to produce an equivalent out-
put.
In addition to the requirements for production and construc-
tion (capital investment) there are requirements for the market fund
(consumer goods) to be sold to the population, the normal expansion
of State Reserves and inventories plus replacement of past depletions
if any, and exports. The market fund represents something of an
anomaly in the system. Finished consumer goods, unlike goods allo-
cated to state enterprises, are not rationed to each consumer in
accordance with estimates by the central authorities of his needs.
Finished consumer goods are simply offered for sale, and the con-
sumer may buy or not as he pleases. If the population refuses to
buy some product in the quantity and at the price offered, the state
may reduce either the output of the commodity or the price. On the
other hand, prices are seldom raised even if the demand far exceeds
the supply at the price offered, and indeed political considerations
have sometimes resulted in price cuts for commodities already in
short supply. Most of the raw materials and semifinished goods allo-
cated to consumption -- for example, cotton yarn, grain, flour, and
leather -- however, are treated as funded commodities until final
processing for sale in the market is completed.
Organizationally, the subplan for allocation of funded com-
modities is broken down by the Gosekonkom (State Commission for
Current Planning) only as far as the ministerial level. Each minis-
try then draws up a schedule of allocation encompassing its subordi-
nate plants and can freely adjust the norms for any individual plant
as long as the ministry as a whole remains within the prescribed
limits. Continuous adjustments are necessary at every level -- the
plant, the ministry, and the central planning bodies -- but the
basic pattern is that decreed in advance by the central authorities.
Thus the system of material-technical balances serves to secure in-
ternal consistency between the production goals desired by the leaders,
to force constant improvement in efficiency, and to construct the
schedule of resource allocations which will achieve the output goals.
The maintenance of large State Reserves (inventories of funded
commodities which are under the direct control of the Council of
Ministers) is an essential condition for effective operation of a
direct allocation system under Soviet conditions. As the Soviet
leaders are constantly pushing the economy to the limit and constantly
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pressuring the individual plants for greater efficiency, the individual
plant's stock of raw materials and semifinished goods is kept at a
minimum. Emergency and unforeseen contingencies such as failure to
meet production goals for an essential item, a transportation tieup,
malfunctioning of the supply apparatus, or erroneous planning, can
.all bemet by releases from State Reserves which the plant pays
back after the emergency has passed. State Reserves also contain
certain strategic stockpiles for wartime use and may be used to facili-
tatepolitical measures such as launching the consumer goods program
after Stalin's death.
B. Cost Accounting and Price Systems in the Soviet Economy.
Whereas the system of direct allocation through the material
balances, the norms, and distribution plan described above is the
principal mechanism-for resource allocation in the planned economy
of the USSR, it does not follow that Soviet cost accounting and the
various price systems possess neither function nor meaning. It may
be noted that the term "price systems" is employed rather than the
more common "price" or "prices." The reasons for this terminology
provide a good introduction to the meaning and function of Soviet cost
accounting categories and price systems. First, the prices of various
kinds of goods vary widely in their structure and function. The final
price of producer goods is the wholesale price, which differs somewhat
in composition from the wholesale prices of consumer goods and differs
radically in function from the final price of consumer goods -- the
retail price to the consumer. The procurement (and contract) prices
which the state pays the collective farms for agricultural products,
unlike the wholesale prices of producer and consumer goods, bear no
relationship to the cost of production, which is indeed unknown for
most agricultural. products. Unlike the retailprice of consumer
goods, it has no allocational function. Foreign trade prices form
another distinct price system. The only area in which prices are
comparable to prices in a market economy is in the collective -farm
market, which only accounts for 10 to 12 percent of retail trade in
the USSR.
The second distinctive characteristic of the various price
systems in the Soviet economy is the absence of that automatic adjust-
ment (omnipresent in a market economy) in the price of one commodity,
and consequently of related commodities, in response to changes in
relative scarcity. Thus an increase in demand for a consumer good
usually will not result in a higher retail price, but more likely in
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longer queues rather than an increased supply. It almost never will
result in any change in the price of the inputs into the production
of the consumer good. A decrease in demand, on the other hand, oc-
casionally will lead to a reduction in price and usually to a cutback
in production. With the notable exception of collective farm market
prices, virtually every price change is the result of a specific ad-
ministrative decision, and the decision is seldom, if ever, automatic.
All of these caveats notwithstanding, the various cost and
price systems do have meaning and do perform essential functions for
the Soviet planners. The most important cost category is sebestoimost',
which may be translated as "direct cost"* of production. Sebestoimost'
serves as the measure of the major production costs, as the basis for
determining the wholesale price for producer and consumer goods (the
final price for the former), as an over-all index of increased economy
in the use of all production factors from one time period to another,
and as a means of putting pressure upon the producing enterprises to
reduce costs. Although primarily a derivative of the plan for material-
technical supply, the plan for sebestoimost' both in the aggregate and
for individual commodities and services ranks with the supply, invest-
ment, and labor plans as the subplans most essential to achieve the
production goals and to mobilize current savings for investment in the
subsequent time period.**
There are five basic components to the sebestoimost' of indus-
trial production: materials and semifinished goods, fuel and power,
wage payments, amortization, and "other" (which is largely miscellaneous
wage payments). The basic Soviet policy is to constantly reduce
sebestoimost' for each commodity and in the aggregate for a comparable
commodity mix and at the same time to reduce the share accounted for
by wage payments. Thus sebestoimost' is reduced by economy in the use
of material inputs, more technologically advanced capital equipment,
and the growth of labor productivity. Economy in the use of material
inputs is promoted primarily through yearly downward revision of the
technological coefficients described above. Labor productivity is
promoted through training, new technology, application of improved
* Sebestoimost' does not have an exact equivalent in Western account-
ing categories and, therefore, the Russian word is used.
x Sebestoimost' cost accounting is used in industry, transport, com-
munications and, with variations, in construction, machine tractor
stations, and trade. As has been noted previously, production cost
accounting is virtually nonexistent for most agricultural products.
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management, and increased availability of consumer goods. The share
of wage payments in total sebestoimost' is decreased by upward re-
vision of the output "norms" for labor. Thus from 1949 to 1955, al-
though aggregate sebestoimost' of industrial production was reduced
approximately 34 percent, the share accounted for by wage payments
declined from about 25 percent to about 23 percent of the total,
despite the lack of a general revision of the norms and widespread
abuse of the bonus system which resulted in chronic overpayment of
the planned wage bill.
Reductions in sebestoimost' not only provide the measure
of over-all economy in the use of resources, but also are a prin-
cipal source (together with increases in volume of output) of
increased profits for financing future investment and periodic
price reductions. Thus in 1955-56 most of the increase in profits
resulting from lower sebestoimost' and increased volume have been
used to finance a_reduction of about 10 percent in wholesale prices
of producer goods.
Finally, the planned sebestoimost' for each individual in-
dustrial product provides the basis for calculating the wholesale
price, which is determined by adding a rate of profit decreed by
the state to the planned sebestoimost'. Although the rate of
profit is generally uniform for producer goods, some significant
variations are introduced so that the price structure resulting
will serve to encourage production and substitution. Such manipu-
lation of prices, however, generally is stable over periods of
3 to 5 years and has a very limited allocational function. Thus
both the over-all rate of profit and the rates for specific com-
modities are fixed for base years such as 1952 and 1955 and are
allowed to rise in the intervening years as sebestoimost' declines,
only to be cut back again when a major price reduction is effected.
And although the rate of profit in light industry, for example, is
approximately three times that of heavy industry, light industry
does not automatically compete with heavy industry for scarce re-
sources. The day-to-day and month-to-month changes in relative
scarcity and in order of priority are reflected in such adminis-
trative actions as granting or withholding of material resources
(the funded commodities) through the plan of material-technical
supply and by increasing or decreasing the production and invest-
ment plans. It must also be remembered that the sebestoimost'-
profit formula chosen for an industry as a whole is one which in-
sures a net profit to the industry, but not to every plant. Many
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plants and one entire industry -- timber -- operate at a loss.*
Judging from Malenkovts statement of losses, net profit of indus-
try in the 1951-55 period would have been about 20 to 25 percent
greater if all unprofitable plants had been eliminated. Obviously
the Soviet leaders are more interested in production than in
profits.
In addition to these accounting and control functions, the
wholesale prices of industrial products (sebestoimost' plus rate
of profit) in a base year -- currently 1955 -- are used to plan and
measure the growth of gross industrial production and investment
for the next 5-year period. Identical or similar procedures are used
to plan and measure the over-all growth of transport and communica-
tions and trade and are even applied to agriculture, although the
result is virtually meaningless.
In summary, the wholesale prices of industry have meaning
and function as accounting measures and controls which are indis-
pensable to a reasonably efficient operation of the Soviet planned
economy. Their allocational function, however, is extremely limited.
The retail price of consumer goods (wholesale price plus turnover
tax plus trade margin) does have a rationing function, but there is
no automatic feedback affecting the supply of resources to consumer
goods industries. Prices of transport and communications services
are generally analogous to industrial wholesale prices with the im-
portant qualification that railroad rates are designed to discourage
long hauls. Government prices paid for agricultural produce generally
have no relationship to production costs (which are generally not
known) and are merely units of account. The low level of agricultural
procurement prices, even after the substantial increases of the recent
years, however, provides a crude measure of the extent of forced sav-
ing in agriculture. Foreign trade prices form another entirely
separate system. Only in collective farm market prices and to an in-
creasing extent in wages are there price systems whose structure and
function are more or less comparable to market prices.
It is likely that some significant modifications of the role
of cost accounting and price systems in economic decision making have
* Losses as well as profits are planned; they do not always result
from miscalculation of demand or of production costs. The entire
system of input norms and sebestoimost' calculations is used both
to minimize planned losses and to maximize planned profits.
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been made or are in the offing. The comparative costs of producing
coal and petroleum, for example, seem to have played an important
part in the recent decision to increase petroleum's share in the
over-all fuel balance. Capital-output ratios may emerge as a really
significant factor in decisions involving investment alternatives.
There is a definite tendency to make planning somewhat more "eco-
nomic" and less "administrative," as one Soviet economist put it.
Although these modifications probably will not change the funda-
mental characteristics of the various price systems (with the excep-
tion of agricultural procurement prices), as outlined above, they
will tend to reduce rather than increase the functional differences
between the Soviet price systems and the operation of the price
mechanism in a capitalist economy.
V. Efficacy of Present Planning System and Major Unsolved Problems.
The efficacy of the Soviet system of economic planning is attested
to by one fact: in the course of 30 years the USSR has achieved a
level of industrial output second only to that of the US. Given,a
relative abundance in natural resources and a disregard for human
costs, it is a system well adapted to forced draft industrialization
of a backward nation. If rapid industrial growth instead of con-
sumer satisfaction is taken as the criterion of economic accomplish-
ment, the Soviet system of direct allocation of resources in accord-
ance with the priority preferences of the leaders compares favorably
with the subtle and indirect market mechanism. The social costs of
the Soviet system, however, have been enormous. The machine has been
valued more than the worker, and all the amenities of life which are
not essential to achieving the production goals have been removed or
neglected. Indeed it can be argued that the first 5 to 10 years of
industrialization on the Soviet model inevitably require no increase-
or even a decline in consumer real income with the calculated use
of terror to insure social and economic discipline.
When Stalin died, the USSR was rapidly outgrowing its period of
"primitive socialist accumulation." The supply of machines had
been increased to the point where future growth began to depend more
on efficient use of machinery rather than simply more of it, which
in turn required that the worker be valued at least as much as the
machine. Housing, more meat and dairy products in the diet, con-
sumer durables, and other amenities of urbanization and industrializa-
tion demanded more consideration than in the past. Depletion of the
more lucrative and easily accessible deposits of coal and iron ore
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and harnessing of the most advantageous hydroelectric power sites
necessitated either much more efficient exploitation of remaining
reserves or the working of equally lucrative but more distant virgin
deposits, or both, if high rates of growth were to be maintained in
the future.
Concomitant with the policy changes that have followed Stalin's
death, there have been certain changes in planning organization,
methodology, and attitude which are designed to continue the rapid
tempo under changed conditions. The decision-making process at the
center has been streamlined by grouping details into broader cate-
gories and by ceasing to decide as many minor questions as were
attempted under Stalin's regime. Within the limits of over-all
goals, the area of discretion with regard to implementation of the
plans left to the judgment of the individual ministries, the plant
managers, the governments of the various republics, and local authori-
ties has been considerably broadened. Although the slight loosening
of the bonds has engendered strong pressures to slow the rate of
growth of the economy, the leaders thus far have been able to counter
this tendency effectively and to keep the lower officials' wider
discretion from encroaching upon the basic decision-making authority.
On the other hand, the regime is benefiting from the greater initia-
tive exercised at the lower levels.
Technological progress has become the principal means to increase
labor productivity in current Soviet policy, at least until agricul-
tural output can be substantially increased. The propagation of in-
formation on foreign technological developments has regained the
attention it commanded before Zhdanov's preoccupation with Russian
tradition became widespread in 19+7-48. On the other hand, the drive
for technological progress is hampered by the historic condemnation
of technological obsolescence as one of the inherent wastes of capi-
talism and by the consequent refusal to allow for this factor in the
accounting system. Soviet economists now admit that technological
obsolescence exists in their system too, but so far they have not
been able to evolve accounting techniques which will really encourage
replacement of outdated equipment.
Prospects of solving the major planning problems in the nonagri-
cultural sectors are somewhat better. If Soviet economists can over-
come their Marxist bias against interest rates, more meaningful measures
of choice between investment alternatives can be worked out and, if
such measures (coefficients of effectiveness in Soviet terminology)
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are actually used in choosing between investment alternatives, the
probability of maintaining the rate of growth will be strengthened.
Increasing the rate of growth of labor productivity is more compli-
cated. Historically, Soviet planners have paid little attention to
the relative contribution of such factors as material incentives,
technological change, and labor discipline to the growth of labor
productivity. Although Soviet economists are presently devoting
considerable attention to the problem, it will be difficult to come
up with solutions which are practical in the light of existing
institutional practices and preoccupation with a high rate of growth.
The recent broadening of the plant managers' authority is conducive
to greater efficiency, but the managers will not necessarily exercise
their new rights in a manner wholly consistent with the unchanged
over-all objectives and demands of the top leaders.
On balance, the Soviet planning system appears to be undergoing
some of the adjustments and changes in attitude and method which
are required if it is to continue to be an effective instrument
for maintaining a rate of industrial growth comparable to that in
the past. But, even allowing for great improvement in planning
methods, the almost inevitable decline in the rate of growth of
the industrial labor force in the next decade will make it extremely
difficult to expand industrial production at the rate of 10 to 12
percent per year -- a rate of growth which Soviet economists believe
can be maintained more or less indefinitely. Furthermore, owing to
the political predilections of the top leaders agriculture probably
will continue to be the weak link which could hamper the prospects
for maintaining the present rate-of industrial growth.
On the other hand, the Soviet economy has reached a state of
development in capital goods production in which it probably is
economically advantageous to export capital goods in return for
agricultural and other raw materials. Theeconomic gains of such
trade, however, must be weighed against the politicaland economic
consequences of dependence upon outside sources of supply in an
emergency. Historically, the USSR has followed the principle of
autarky, or economic self-sufficiency, and has developed a number
of high-cost domestic raw materials industries. It is unlikely,
therefore, that Soviet trade outside the Bloc will be determined
in any major degree by the concept of "least cost." Political and
military considerations will predominate, although some non-Bloc
trading arrangements may have an immediate economic advantage to the
USSR.
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The Soviet economic system requires firm leadership from the
political leaders who are at the apex of the pyramid and who provide
the principal impetus for the rapid growth. Prolonged indecision
and internecine struggles at the top level, or inability to control
and channel the social forces released by the relaxation of the past
14 years, not only might tend to slow economic growth to a rate below
the level necessary to outstrip the West but also might result in
radical changes in economic institutions. Finally, the removal of
the most important coercive controls over labor and the at least
temporary abandonment of mass terror will have as yet incalculable
effects upon social discipline which may prove to be inconsistent
with continuing high growth rates in the future.
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