THE EFFECT OF CONSTRUCTION PROBLEMS ON TECHNOLOGICAL PROGRESS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP03-02194R000200650001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 14
• Document Creation Date: December 22, 2016
• Document Release Date: March 29, 2012
• Sequence Number: 1
• Publication Date: September 1, 1969
• Content Type: MEMO

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DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
USSR: The Effect of Construction Problems
on Technological Progress
ER IM 69-120
September 1969
Copy No. t3
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
September 1969
USSR: The Effect of Construction Problems
on Technological Progress
In a widely noted July Pravda article, Vadim A.
Trapeznikov, the first deputy chairman of the USSR
State Committee on Science and Technology, identified
construction delay as a major factor retarding tech-
nological progress. Trapeznikov's essay on a "time
is money" theme adds to the recent flurry of interest
in the construction sector. This summer Moscow issued
three decrees directed at basic problems of the con-
struction industry. The decrees authorize bonuses for
the timely completion of projects and for high-quality
work and also establish new planning methods to in-
sure greater control over the construction process
and to improve design and estimating work.
The purposes of this memorandum are to (1) ap-
praise the likely result of Trapeznikov's suggestions
for reducing average construction time and (2) ex-
amine the importance of the link between construction
time and technological progress.
Note: This memorandum was produced solely by CIA.
It was prepared by the Office of Economic Research.
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Trapeznikov's Reasoning
1. Trapeznikov believes, as do others in the USSR
and in the West, that accelerating rates of techno-
logical progress the world over make the speed with
which new technology is introduced more critical. He
says that the USSR takes longer to build plants and
install equipment than do other countries. As a re-
sult, the technology when it reaches the mass pro-
duction stage is often already obsolete and the
average level of technology in the economy (and the
volume of production) is lower than it would be with
faster construction. In addition, construction
schedules tie up labor, materials, and construction
machinery that could be used profitably elsewhere.
2. Trapeznikov asserts that the reasons for in-
eff_cient construction in the Soviet Union are "well
known." Plans, specifications, and directives are
held up too long in the planning bureaucracy. Con-
struction jobs are not given adequate funds, materials,
equipment, or men. Trapeznikov's solution is to pare
authorized construction projects to half their present
number. This, he says, would reduce the average length
of construction period by 50 percent or more. The
resources could then be redistributed with the help
of a continuous computer inventory of construction
projects and resources.
Extent of Construction Delays
3. Construction does take longer in the USSR.
Knowledgeable Soviets admit this, and professionally
competent Westerners have said the same. How much
longer cannot be estimated reliably. Viktor
Krasovskiy, a prominent economist attached to the
Academy of Sciences who has studied investment
problems since the 1930's, said in 1967 that "accord-
ing to available estimates" the design stage lasts
two to three years in the USSR (compared with his
estimate of less than a year in the United States).
After the design is completed, the average construc-
tion period for all projects is about 2/ years, and
the construction of large enterprises and complexes
can take from seven to 12 years. Anticipating
Trapeznikov, Krasovskiy argued that foreign experience
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and the experience of leading Soviet construction or-
ganizations had "proved" that it would be possible to
reduce construction periods from the national average
of 2 to 22 years (and from 7-12 years to 3-3z years for
larger projects).
4. The precise difference in average construction
time between the USSR and the United States simply
cannot be determined because no one has the informa-
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Mogilev terylene plant is a year behind schedule,
and the Tol'yatti Fiat works has fallen six to 12
months behind schedule. Delays are even worse in the
metals industry. The 2,500-mm cold rolled strip
mill at Magnitogorsk, the largest in the Soviet Union,
was supposed to have started producing in 1963-64, but
the breaking-in period only began last May. The
Achinsk alumina plant has been under construction for
more than a decade and after repeated delays is now
scheduled for completion in 1969. The plant is to
employ new technology for the processing of nepheline
ores, a substitute material for bauxite, the raw
material normally used in world practice. The list
could run on and on. Nevertheless, as Krasovskiy
pointed out, some Soviet construction organizations
when given the necessary support have measured up
to the best world standards. The more recent ex-
amples in the civil field include the Bratsk
hydroelectric complex, the Aswan Dam, and the Moscow,
Leningrad, and Kiev subway extensions.
5. In the absence of hard direct evidence on
the difference between construction times in the
United States and the USSR, a comparison of the ratio
of unfinished construction to the value of investment
can provide an indirect measure. According to
Krasovskiy, the ratio of unfinished construction to
investment in America in 1958 was far less than roughly
comparable ratios in the USSR in recent years. To
some degree, these comparisons are biased against
the USSR because unfinished construction tends to be
larger relative to new annual fixed investment the
faster the rate of growth of investment and the
greater the share of "green field" construction in
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total investment. Nevertheless, the differences in
the ratios are quite large (see the table) -- in almost
every case the ratio for the USSR is about twice that
for the United States. Thus the fact of significant
differences in average industrial construction time
between the two countries seems well established.
6. An examination of the behavior of the ratio
of unfinished construction to investment over time,
however, casts doubt on Trapeznikov's statement that
Ratio of Unfinished Construction
to Investment
United States
1958
USSR
1966-67 a/
All industry
Electric power and gas
plants
0.42
1.01 b/
Metallurgy
0.79
0.98 c/
General machine building
0.34
0.83
Construction materials
0.52
1.11
Chemicals
0.70
1.42
Petroleum and coal
processing
0.47
1.01 d/
Food processing
0.34
0.60
Textiles
0.24
0.66 e/
a. Calculated from data in Soviet statistical
handbooks.
b. Electric and thermal power.
C. Ferrous only.
d. Coal, oil, and gas.
e. All light industry.
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the construction problem is getting worse. Unfinished
construction stood in much the same relation to invest-
ment in the economy (excluding collective farms) in
1968 as it had in most of the preceding decade (see
the chart). Similarly, the ratios for industry in
1965-67, the most recent years for which the ratio can
be calculated, were virtually identical with those
in 1961-63. Even if construction delays became much
more pronounced in the first half of 1969, Trapeznikov
is talking about a longstanding, not a new, problem.
Ratio of Unfinished Construction
to Annual Gross Investment
7. The influence of construction delays on
technological progress does not seem very large, if,
as Krasovskiy estimates, the goal is to reduce average
construction periods by one-half year. In the USSR,
however, as in other countries a great deal of in-
vestment simply replaces or supplements old produc-
tion facilities with new facilities not very different
with respect to the technology embodied in them.
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Undoubtedly there are some areas of new investment that
tend to advance technology more than others. Trapeznikov
insists that a planned economy should have an advantage
in speeding up construction on this kind of "key" proj-
ect, as he claims the USSR has been able to do in the
fields of atomic energy and space.
8.. The difficulty with the key projects has
been that they are important precisely because they
change the pattern of development. As a result they
requ-re new kinds of equipment that frequently have
to be imported or whose development is also a "key"
project. According to Krasovskiy, in the 1960's "the
construction cycle ranging from earth-digging opera-
tions to the construction [of buildings] was ac-
complished far more successfully and rapidly than
the subsequent installation-technological part which
depended on the supply of the necessary equipment."
9. If the USSR could manage to rank investment
projects by prospective return and then build them
more efficiently, technological progress in the USSR
would be faster but by not nearly as much as Trapeznikov
imply-es. The technological gap between the USSR and
the United States, for example, exists because in the
USSR the process of incorporating known world tech-
nology into actual construction designs is so slow,
cumbersome, and uncertain. While domestic critics
rail at the time it takes to complete new productive
capacity, the more important economic losses arise
from the building of capacity known to be outdated.
10. The example of oxygen-steelmaking can be
cited. Despite its clear advantage, only 9 percent
of the total increase in steel production in the USSR
between 1956 and 1964 came from the oxygen blown
process, compared with 35 percent in France, 48 per-
cent in West Germany, 54 percent in the United Kingdom,
61 percent in Japan. In the United States, in fact,
there was a 128 percent increase (as the output of
other processes declined). Leading Soviet experts
deprecated the seven-year plan's intention to get
79 percent of new steelmaking capacity from obsolete
open-hearth furnaces. The controversy escalated to
higher and higher levels until by 1961 Khrushchev
himself had entered the debate.
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11. Thus the diffusion of new technology in the
USSR is slowed by a number of factors quite apart
from construction delays. The price system is not
very helpful in ranking investment projects because
it reflects relative costs imperfectly. New produc-
tion methods and products have to be introduced by
administrative direction and incorporated in long-
range plans that run counter to the interests of enter-
prises whose quotas and bonuses are threatened by the
interruptions to production caused by changes in
techniques. Evidently Trapeznikov had this bureau-
cratic structure in mind when he complained:
Lengthy examinations, agreement, and
confirmation of drafts delay the realiza-
tion of technological ideas; prolonged
periods of agreement on planning and manage-
ment processes, periods occasionally lasting
many months, slow down decision making.
Potential Effect of Adapting Trapeznikov's Program
12. Practically all of the remedies that
Trapeznikov suggests for the construction problem
have been tried before. For example, the 1960 Budget
Speech announced that a special list of priority con-
struction projects had been created. Another decision
declared that no territorial organs were to submit an
investment project for approval without authorization
by a specified Communist Party committee. Still the
ratio of unfinished construction to investment in-
creased in 1961 and 1962. In 1962, 476 projects were
supposed to be given special attention, the pro-
cedure for approving construction plans was central-
ized, and no project worth more than 2/ million rubles
was to be included in the construction plan without
Gosplan's approval. In both the economy as a whole
and in industry, the ratio of unfinished construction
to investment fell very slightly in 1963.
13. The five-year-plan directives (1966-70)
stressed the modernization and extension of existing
capacity so as to get a quicker return on investment.
Construction was to be carried out only when it
could be shown that a project: (1) had complete
documentation, (2) was fully provided with financial
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and material resources, and (3) could be completed
within the time specified by the plan. The number
of new starts on large construction projects was to
be cut from 463 in 1965 to 327 in 1966. According
to the official commentary on the plan this would
"permit us to significantly reduce the share of un-
finished construction in which now is found about
70 percent of the annual volume of capital investment
and to free significant material and financial re-
sources." But in 1966 the ratio of unfinished con-
struction to total investment began a slow but steady
rise -- from 66 percent in 1965 to an estimated 73 per-
cent in 1968. Just last December Nikolay Baybakov, in
his ;speech revealing the 1969 plan, announced that the
government was submitting a list of 300 new construction
projects of a productive nature, about half the number
in the 1968 plan. Those projects which were most im-
portant for "overcoming bottlenecks" in the economy were
marked for preferential treatment.
14. Clearly, the antecedents of the current pro-
posals to whittle down investment programs to fit
the available resources are numerous. Why, then,
have earlier actions had so little tangible effect?
The answer seems to be that administrative orders
to concentrate construction resources do not work in
the present planning environment. As M.M. Golanskiy,
a deputy chief of the Central Mathematical Economics
Institute, remarked recently to American Embassy
officials in Moscow:
Academician Trapeznikov is certainly
correct that we would be better off if
we concentrated on fewer projects, but
in practice this is almost impossible to
achieve. The planning system encourages
construction trusts to start as many proj-
ects as possible and there is a dynamic
in our approach to development which also
encourages more and more projects.
15. Under a system in which investment resources
are still largely allocated by the state, every
ministry, enterprise, republic, and oblast is in-
deed encouraged to ask for as much as it thinks it
can get. What is worse, each unit tends to minimize
the cost of the construction projects it wants. The
effects of this practice spread in all directions as
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actual construction costs exceed planned costs. Based
on the understated estimate costs, projects are al-
located too little money and too few men, and the
planned production of building materials falls short
of actual requirements.
16. The "dynamic" Golanskiy refers to has its
origin in the overriding concern with growth in the
USSR. Historically, investment has been the source
of the high Soviet growth rates. Thus, the ministries
are driven to press as many projects as possible on
planning agencies which lack the authority and the
ability to ration investment resources efficiently.
At the same time, localities have been starved of the
housing, roads, and municipal services they require.
In these circumstances, the pressure on investment
resources is almost impossible to satisfy.
17. Beyond the pressures generated by the overall
environment, the practical difficulties confronting
Trapeznikov's proposal to halve the number of on-
going construction projects are enormous. Postponing
certain projects means postponing production that is
already counted upon in the national economic plan.
Priority lists, moreover, rarely mesh with the actual
geographic distribution of construction brigades and
building materials. In these circumstances, the
computer-assisted inventory of building projects
advocated by Trapeznikov would help to make the
choices of the planners more practicable; they would
not be any less difficult politically.
18. The scattering of construction resources among
too many projects, however, is only part of the
problem the USSR faces in trying to reduce construc-
tion delays. Except for very high priority projects --
such as military, nuclear energy, and space construc-
tion and showcase projects like dams and subways --
construction organizations have to deal with haphazard
deliveries of materials and equipment. Often working
under rigorous conditions, the typical organization
has a high rate of labor turnover. The supervisor
on the spot has very little control over the hiring of
personnel and even less over firing them. Therefore,
he has to accept and keep what comes to him -- an in-
experienced, casual labor force. On the other hand,
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for the managers, there is little or no penalty for
failing to finish a project on time. All of these
conditions combine to create a work situation in which
apathy and frustration defeat construction schedules.
Until the incentive structure is revised, the effect
on average construction times of cutting back on the
volume of construction will be uncertain.
Other Possible Motives for Trapeznikov's Proposal
19. Perhaps Trapeznikov's proposal was prompted
less by a conviction that technological progress de-
pended heavily on average construction times than by
a belief that too much emphasis has been placed on
the sheer volume of investment. In line with his
position on the State Committee on Science and Technol-
ogy, he has in the past called for a doubling of in-
vestment in research and development, even at the
expense of capital investment. Using a dubious
estimating procedure, Trapeznikov has claimed that
investment in science is 32 times as profitable as
capital investment in new production facilities.
20. Alternatively, Trapeznikov could have been
trying to distribute the responsibility for the
much-discussed "technological gap" beyond the
province of the State Committee on Science and Tech-
nology.
Conclusions
2:L. Trapeznikov's suggestions for alleviating the
USSR's construction difficulties and thereby acceler-
ating technological progress will probably have little
effect. The administrative measures proposed to gain
stronger control over construction have been tried
repeatedly, but average construction times have not
changed much. Perhaps the extension of the principles
of the economic reform to the construction sector
will help somewhat, although the experience of in-
dustry under the reform is not reassuring.
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22. What is needed to reduce construction delays
is a shrinkage of the overall demand for investment
funds and a reform of incentives within the construc-
tion sector. Until this happens, it will be very
difficult either to provide enough investment re-
sources to go around or to use them efficiently. The
USSR has lived with these construction problems for
years. They can be overcome only by rewarding con-
struction teams adequately for getting quality work
done on time and by firing, demoting, or transferring
those who fail to do so.
23. Because of the construction delays, techno-
logical progress in the USSR is held up. Neverthe-
less, a sudden improvement in average construction
times would not raise the rate of technological
progress dramatically. Diffusion of new innovations
lags in the Soviet union primarily because of the
reluctance to take a chance on new products and new
techniques and because of the time-consuming and un-
reliable procedures necessary to include an innovation
in the investment program.
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