ADVANCING SOVIET TECHNOLOGIES: INFLUENCE OF THE MANAGEMENT ENVIRONMENT

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• Document Creation Date: December 27, 2016
• Document Release Date: April 9, 2012
• Sequence Number: 2
• Publication Date: September 1, 1987
• Content Type: REPORT

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Directorate of Secret
Intelligence 25X1
Advancing Soviet Technologies:
Influence of the
Management Environment
A Research Paper
Secret
SOV 87-10054
September 1987
Copy 4.7 8
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Directorate of Secret
Intelligence
Advancing Soviet Technologies:
Influence of the
Management Environment
SOYA
This paper was prepared by analysts of the Defense
Industries Division of the Office of Soviet Analysis.
Comments and queries are welcome and may be
directed to the Chief, Defense Industries Division,
Reverse Blank Secret
SOV 87-10054
September 1987
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Summary
Information available
as of 17 August 1987
was used in this report.
Influence of the
Management Environment
Advancing Soviet Technologies:
General Secretary Gorbachev has singled out several key production
technologies-microelectronics, computers, telecommunications, and auto-
mated machine tools and robotics-to pace the revitalization of the Soviet
economy. In an effort to narrow the technology gap with the West, he has
exhorted the scientific and industrial establishments to expand the supply
of these key technologies and to move them more rapidly into industry.
the information that flows across organizational lines.
In the West these information-based technologies have raised the quality
and performance of both civil and military products and increased
automation and efficiency, thereby accelerating the pace of change in
industrial operations and technology development. These technologies have
also made heavy demands on industrial management. Their development
and application are highly interdependent, with advances in one technology
field required for and in turn spurring advances in another. Sustaining this
interaction has blurred the traditional boundaries between engineering
disciplines, industries, and countries and has required dramatic increases in
customer decides if a product is useful.
In contrast with the broad front of accelerating and frequently chaotic
development in the West, Soviet management has tended to produce spurts
of growth toward a predetermined target-frequently supported by heavy
doses of Western technology-followed by periods of stagnation. Soviet
and Western analysts have thoroughly documented general Soviet prob-
lems in fostering dynamic and innovative development in critical produc-
tion technologies:
? A Byzantine network of state organizations that allows local managers
little flexibility and minimizes direct contacts between producers and
consumers. For example, 30 different ministries are involved in the
development and production of personal computers.
? A rigid decisionmaking structure that effectively discourages initiative
from below-the source of most innovative ideas. Many enterprises that
attempt to implement new ideas are blocked because their requests are
not part of an authorized plan.
? The tendency for planners to seek compromise and standardization for
the sake of planning efficiency, not production efficiency or product
utility.
? A relationship between suppliers and customers that protects suppliers
and discourages consumers just the opposite of the West, where the
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SOV 87-10054
September 1987
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importance of various factors in the two countries,
reflect the attention or time that a manager must devote to
a particular ingredient of technological innovation:
? Obtaining and applying information-market and technical-consumes
much of a US manager's day. He responds to customer requirements and
has reliable suppliers.
? Assuring a reliable supply of equipment, materials, and labor is the
principal challenge confronting a Soviet manager. He responds to a
centrally dictated plan and sees little need to obtain feedback on
customer needs.
Our analysis indicates that sustained technological development must be
underpinned by a strong supply system, a responsive infrastructure of
services, and above all by institutions and incentives that allow or force
managers to concentrate on improving product utility. The information
that Western managers seek, and that Soviet managers frequently ignore,
fuels technological advance.
Gorbachev has adopted a two-pronged strategy to improve Soviet techno-
logical performance. He has demanded impressive gains in performance in
the target areas and has announced a massive infusion of investment
resources to support his goals. Although this strategy is likely to produce
some improvement in performance, Gorbachev's statements, and those of
other officials, reveal an appreciation of the implications of our inter-
views-that sustaining rapid technology development depends critically on
stimulating initiative at the enterprise level, developing a strong linkage
between customers and suppliers, and enabling managers to quickly shift
resources to the most productive applications. The Soviets have introduced
several reform initiatives to realize these objectives; expanded self-financ-
ing, increased enterprise autonomy, and decentralized wholesale trade are
among the more promising. None, however, have proceeded far enough to
permit a firm judgment on how effective they will be
The Soviets are likely to struggle in their effort to be competitive in
advanced industrial technologies. They will eagerly copy Western advances
and will master high-volume production of standardized equipment, but
they will probably fall short of developing the kind of efficient, flexible
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manufacturing capability that will allow them to take full advantage of the
benefits of advanced technologies. The centralized Soviet approach will
serve better in areas such as telecommunications and basic computer
equipment, where standardization provides some advantages. It will fall
short in fostering innovative applications of the core microelectronic and
computer technologies and of software, the glue that binds the system
together.
Prospects for more efficient development and use of these technologies
would improve with structural reforms targeted at the free flow of
information and more decentralized management, but the outlook for such
change is highly uncertain. Sticking to the current blueprint for technologi-
cal progress may cause the Soviets to lose ground to the industralized West
and perhaps to even newly industralized nations. Current Soviet reforms
and investment plans focus primarily on those factors central to sustained
technology development that concern Western managers the least-
namely the dependability of supply of inputs to production. Shortfalls in in-
puts may extend into the military arena, where cost-effective manufacture
of high-performance weapon and support systems depends increasingly on
information technologies.
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Contents
i
Background
The Promise and Challenge of Advanced Technology
1
Soviet Development of Key Technologies for Modernization
5
Computers
6
Managing Technological Progress in the United States and the USSR
10
Important Considerations in US Experience
11
Weighing the Factors
Will Gorbachev's Initiatives Help?
Implications
The Economic System and Society
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Advancing Soviet Technologies:
Influence of the
Management Environment
Industrial modernization is the cornerstone of Gener-
al Secretary Gorbachev's strategy to revitalize the
Soviet economy. The program he has outlined aims at
bringing the quality of Soviet products and the effi-
ciency of Soviet industry up to world standards by the
year 2000 and is to be achieved through accelerated
technological development, innovation, and renovation
of industrial capital. Modernization also promises the
image of vitality and strength that Soviet global
prestige demands and provides the means to strength-
en the industrial base needed to compete economically
and militarily with the West.
Since assuming leadership of the Soviet Union, Gor-
bachev has exhorted the scientific and industrial
establishments to expand the supply of key technol-
ogies and to move these new technologies more rapid-
ly into industry. His program emphasizes develop-
ment of the high-technology sectors that provide the
advanced equipment and processes needed for indus-
trial and military modernization, especially microelec-
tronics and instrumentation; computer equipment and
software; telecommunications; and machine tools, ro-
botics, and flexible manufacturing systems. The sup-
porting industrial base for these information technol-
ogies resides in the favored machine-building and
metalworking sector of the economy.
This paper assesses the influence of the Soviets'
planning and management system on Gorbachev's
prospects for wringing benefits from these technol-
ogies to the degree that has been realized in the West.
It outlines the reasons these technologies are deemed
essential for the continued development of advanced
economies. It reviews the conditions that have fos-
tered Western technological development,
and compares these conditions with those tra i-
tionally prevailing in Soviet industry. The paper then
contrasts the relative importance attached to various
factors involved in innovation by US managers, =
managers in the Soviet Union, and
Western experts on Soviet industry. It concludes by
assessing Gorbachev's prospects for transforming the
Soviet economy into an engine of technological ad-
vance and the implications of this assessment
The Promise and Challenge of Advanced Technology
In the West, applications of these information-based
technologies have raised the quality and performance
of both civil and military products, created a vast
service industry, and increased automation and effi-
ciency in manufacturing:
? Since 1975 US high-technology industries as a
group had a rate of growth of real output more than
twice that of total US industrial output. Nine of the
10 fastest growing US industries since 1975 have
been high-technology industries.'
? The rate of price increase for high-technology indus-
try products during the 1970-80 period was only
one-third that of the overall inflation rate in the
United States.
? During the 1970s, average labor productivity of the
industries in the high-technology group grew six
times faster than that of total US business.
? The high-technology industries accounted for more
than 60 percent of total private industrial research
and development in the United States, although
they represented only 13 percent of the value of
manufacturing product shipments.
The Promise
Application of these advanced technologies (see inset
for thumbnail descriptions of the leading technologies) 25X1
can have profound effects on the cost, quality, and 25X1
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' For purposes of this paper we define high-technology industries to
be microelectronics, computers, software, telecommunications, and
machine tools and robotics.~ 2 ~""
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Microelectronics: Integrated Circuits or Chips
An integrated circuit consists of many transistors and
other electrical components linked by conductor seg-
ments and fabricated on thin wafers of silicon or
other insulating material. Each wafer, containing
many ICs, is separated into chips that are packaged
separately.
Computers
Mainframe. Large, general purpose, multiuser com-
puters possessing dozens of terminals and disk drives
and several printers. Mainframes can have word
lengths of 32, 48, or 64 bits and can accommodate as
many as 300 to 400 users.
Minicomputer. A computer anywhere in size between
a mainframe and a micro with word lengths of 16, 24,
or 32 bits (superminicomputer). Minicomputers often
operate in distributed systems as data collection
points. They also serve as dedicated computers, often
handling communications protocol responsibilities in
computer networks.
Microcomputer. Small microprocessor-based com-
puter containing a central processing unit, memory
chips for storing programs and data, and input-
output interfaces for exchanging data with peripheral
devices. Also known as the personal computer.
Telecommunications
Analog Transmission. A process in which the infor-
mation content of each communications channel is
represented by a continuously varying smooth
performance of producer and consumer goods, sup-
porting their diffusion throughout the economy. Mass
production of inexpensive, general purpose integrated
circuits (ICs) and automated production of custom
ICs have caused the cost of memory and logic func-
tions to plummet, fueling an unprecedented explosion
in the use of microelectronics-based computing and
communications by the military, industry, medicine,
and the public. For example, in the last 15 years the
selling price per bit of information has fallen by a
waveform. This process is suited to transmission of a
continuously varying input, such as voice traffic, but
subject to distortion of the information content by
common types of noise.
Digital Transmission. A process in which the informa-
tion content of each communications channel is repre-
sented by combinations of pulses in an on-offformat.
The process is suited to the transmission of various
types of information-voice, teleprinter, computer
data-and is particularly compatible with the use of
integrated circuits. It is less susceptible to distortion
by most forms of noise than analog transmission.
Advanced Machine Tools and Robots
Numerically Controlled (NC) Machine Tool. An
automated machine tool whose movements and func-
tions are recorded on paper tape, punch cards, or
magnetic tape. Readers convert this information into
signals that operate servomotors that move the ma-
chine along each of its axes.
Computer Numerically Controlled (CNC) Machine
Tool. An advanced NC machine tool in which a
computer is substituted for the command portion of
the machining tool's control system. Advantages are
online program revision, automatic correction of ma-
chine inaccuracies, and the elimination of tape or
card handling. A computer may control several ma-
chines and incorporate them into an integrated manu-
facturing system.
factor of 1,000, and the number of transistors per chip
has risen by a factor of 100,000. Although advances
in power, speed, and efficiency of large mainframe
computers were fairly predictable, the surge in the use
of minicomputers and personal computers was largely
unforeseen 10 years ago. Today, a modestly priced
personal computer can perform many of the functions
of a large, costly, mainframe computer of the type
used as recently as a decade ago.
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Manipulator. A device that moves material, parts, or
tools through limited, preset motions to perform
simple tasks, such as single point spot welding and
simple materials handling (stacking, point-to-point
transfer).
Industrial Robot. A reprogrammable multifunction
manipulator that moves material, parts, tools, or
specialized devices through variable programed mo-
tions to perform a variety of tasks.
Flexible Manufacturing System. An integrated sys-
tem of several CNC machine tools and robots, often
with automated material handling and warehousing,
which automatically performs several machining,
transfer, and inspection functions under common
control of a host computer.
Computer-Aided Design (CAD) System
A system in which a computer serves a designer
workstation and a plotting station. The system allows
a designer to develop, record, display, and interacti-
vely alter the design of a part or assembly at a
workstation terminal. The designer may then com-
mand the plotting station to produce engineering
drawings of the design for use in manufacturing. In
its more advanced form, a CAD system can generate
NC tapes or computer programs for controlling the
manufacturing functions of machine tools and robots.
The advent of digital transmission and switching
systems has substantially reduced the cost of voice
communication and has permitted new services, such
as facsimile transmission and teleconferencing. Ad-
vances have also supported high-rate data communi-
cations services, linking computers and data bases in
commerce, government, and industry. Advanced tele-
communications links within and between organiza-
tions support high-speed information networks used to
access or share information, thereby enhancing a
company's productivity or competitive position. Local
area networks integrate production scheduling, pro-
curement, and material handling. Many larger manu-
facturers are using various telecommunications tech-
nologies to integrate computer-aided design functions
with computer-aided manufacturing to create fully
automated factories.
Advances in computing and telecommunications have
depended heavily on the software that generates the
myriad instructions that operate, link, and apply
computers and telecommunications hardware. Soft-
ware increasingly determines the function and perfor-
mance of digital systems, enables hardware to be
more generally applied, and serves as the nervous
system of national and local telecommunications net-
works. In 1983, for example, one large telecommuni-
cations network was linked to 100,000 computer
terminals and required 4,000 minicomputers and 300
mainframe computers to operate.
factory.
The application of microelectronics has revolutionized
machine tools, leading to a new generation of highly
automated, general purpose machinery with dramati-
cally increased capabilities. Minicomputers and mi-
crocomputers routinely control manufacturing pro-
cesses, machine tools, and robots. Flexible
manufacturing systems link machine tools and pro-
grammable robots under the supervision of a comput-
er to further automate manufacturing processes in an
ever growing range of industries. Computer-aided
design terminals with complex and often specialized
software packages create in hours designs that would
have required months to complete manually. Larger
manufacturers are developing computer-integrated
manufacturing approaches that will eventually inte-
grate many of these functions into a fully automated
The Challenge
The appearance of these technologies has substantial-
ly increased the pace of change in industrial opera-
tions, market development, and the development of
even more advanced technologies. Their immediate
impact on economic growth and productivity, howev-
er, is debatable. Many benefits have proved difficult
to represent on a balance sheet-for example, in-
creased product quality and uniformity and greatly
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Figure 1
Microprocessor Production Milestones, United States Versus USSR
US USSR . Best estimate
Year comparable 1970 80 90 production
Generation Device
32-bit
Motorola
Motorola
?
68020
16-bit
3 Motorola
68000
(M
W
16-bit
Intel l 8086
16-bit
2
General
Instruments
1600
8-bit
Intel 8080
(DID
4-bit
Intel 4004
Figure 1 shows the dates the United States and the USSR first
achieved initial series production and full-volume production of
various types of microprocessors. Microprocessor type is defined
by word length, although this measure is necessarily vague
because complex microprocessors often have inconsistencies in
their internal word length. We have therefore related the various
types of microprocessors to a US standard chip for which the
Soviets have developed (or probably will develop) a counterpart. It
should be noted that Soviet ability to produce a counterpart does
not imply that the Soviet part matches the performance of the US
original-in fact, Soviet microprocessors seldom approach the
performance of US counterparts.
increased flexibility to change products and product
lines with minimum time and retooling, thus enhanc-
ing competitive responsiveness. In industry, cost
reductions generally arise from reduction of waste and
work-in-process inventories, while reduction in direct
labor costs is usually of minor significance. Afford-
able computers, software, and communications have
spurred rapid growth of the service sector in the West,
but their impact on productivity has been unclear.
Some analysts argue that productivity for white-collar
workers-three-fourths of the US labor force-is no
greater in the 1980s than it was in the 1960s. Even
properly applied factory automation is only beginning
to live up to earlier expectations as the systems
integration skills learned over the past decade begin to
bear fruit.
Fostering and accommodating such information
technology-based advances has challenged even well-
managed Western firms. Most advances occur when
existing technologies are applied to old problems in
new ways, and successful development and incorpora-
tion of these technologies into industry have histori-
cally required savvy and determined inventors and
0 Full-volume production.
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Figure 2
Share of World IC Production by
Country or Region, 1980 and 1984
implementers. Underpinning all advances are infor-
mation about what customers require; an infrastruc-
ture that provides trained personnel, finances, and
support; and a supply of materials and equipment that
is sufficiently advanced to allow further progress. The
increasingly interdependent nature of modern indus-
trial technologies not only makes these factors more
critical, but also produces a broad front of advance,
with new developments in one field spurring advances
in another. Sustaining this process has blurred the
traditional boundaries between engineering disci-
plines, industries, and countries, and required enor-
mous growth in the information that flows across
organizational lines.
Soviet Development of Key Technologies for
Modernization
Soviet progress in these technologies has been sporad-
ic, with spurts of growth and development toward a
predetermined target followed by periods of techno-
logical and economic stagnation. This contrasts sharp-
ly with the more continuous and accelerating develop-
ment of technology in the West. In every area the
Soviets have leaned heavily on the West, pursuing a
follower strategy by importing previously proven tech-
nical innovations. Nevertheless, Western export con-
trols and Soviet difficulties in assimilating foreign
technology have frustrated Soviet efforts to cut into
Western leads.
current Soviet levels by a factor of 10.
Microelectronics
The Soviets have developed a major microelectronics
industry, specializing in the production of ICs for
military applications. Soviet production yields and
product quality, nevertheless, remain far below those
of Western counterparts. If the Soviet microelectron-
ics industry-with its considerable production floor-
space-used US technical processes and equipment, it
has been estimated that production would exceed
The Soviets have developed more than 25 micro-
processor types, spread across a number of technol-
ogies and system architectures. These include 2-, 4-,
8-, and 16-bit (word-length) microprocessors, which
by Western standards would be first, second, and low-
level third generation. By 1990, Soviet circuits will
probably compare to high-level third-generation and
current fourth-generation (for example, 32-bit) micro-
processors now widely used in the West' (see figures 1
and 2). The Soviets have indicated their intent to use
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Figure 3
Computer Technology: United States Versus USSR
High-performance
peripherals
5 6 7 8 9 10
Approximate length of US lead in years
Note: The United States leads the USSR in all fields of general
purpose digital computer technology. This lead ranges from at
least three years for internal memory devices to 10 or more years
for software and high-performance peripherals. In general, the out-
look for the remainder of the 1980s is for the US lead to increase,
although for some high-priority applications, the Soviets may be
able to reduce, or design around, a particular technology gap.
these devices in minicomputers planned for series
production about 1990. In IC memory technology, the
Soviets have produced dynamic random-access memo-
ries (DRAMs) up to the 64K level and-as with
microprocessors-have spread their memory ICs
across several technologies.
the Soviets are applying considerable effort to
improving low production yields on 64K DRAMs and
have begun initial series production of a 256K
DRAM.
approach, however, limits flexibility to make improve-
ments to production processes and circuit design
efficiently, and restricts the range of industrial uses.
Further, the USSR's dependence on copying Western
technology assures a US applied technology lead of
over three years-the minimum time required for the
Soviets to adapt a US IC and achieve pilot produc-
tion. In addition, Soviet weakness in achieving volume
production has ensured that the United States re-
mains at least three to four years ahead in series
production capability.
The Soviets often partially o~set lags in microelec-
tronics production capabilities in military systems by
aggressively applying new ICs while they are still in
the prototype production stage; the United States
usually does not place such circuits in weapon systems
until full-scale production is achieved. The Soviet
Computers
In 1967 the Soviets made a major policy decision to
adapt the architecture of the IBM System/360 to an
existing indigenous technology base. This program,
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Figure 4
World Stock of Large Computers,
1960-80
Japan
CEMA
countries
0 1960 65 70 75 80
Note: The Soviet Bloc countries trail far behind
other industrialized nations in computer pro-
duction capability, and the gap appears to be
widening.
called the Ryad series, was placed under the Ministry
of Radio Industry. One Ryad model was seen in 1971,
but most models were not displayed until 1973. (It
took the Soviets longer to copy the System/360 than
it took IBM to develop it.) Early Ryad systems were
soon followed by intermediate upgrades in the mid-
1970s. A second generation, called the Ryad-2 and
modeled after the IBM System/370, was introduced
in the late 1970s.
The successful Ryad effort was soon followed by
programs in the development of minicomputers, be-
gun in 1974, and microcomputers, begun in 1976.
Areas of specialization were allotted to different Bloc
countries, but the USSR retained the major role in
developing top-of-the-line processors and memories,
as well as maintaining some capability in all peripher-
al equipment areas. The Ministry of Instrument Mak-
ing, Automation Equipment, and Control Systems is
responsible for producing minicomputers used in con-
trol processes, while the Ministry of Electronics In-
dustry spearheads the development and production of
microprocessors and microcomputers. Figures 3 and 4
illustrate current US intelligence estimates of Soviet
computer technology lags behind the United States,
as well as the accumulation of the world stocks of
large computers
munications technologies.
Telecommunications
Soviet telecommunications have gained momentum
over the past decade but have been outpaced by
Western developments in network and digital trans-
mission technologies (see figures 5 and 6). Although
the Soviets have recognized that telecommunications
are essential for industrial modernization, current
Soviet systems are substantially inferior to those in
the West-roughly equivalent to US capabilities in
the mid-1960s. The 1981-85 Five-Year Plan called for
the creation of the Unified Automated Communica-
tions Network, a standardized system that was to
fully integrate voice, data, facsimile, and video signals
on an interactive carrier, but progress has been slow.
Meanwhile, increased levels of competition in the
Western communications industry-along with rapid
proliferation of computers of all sizes-have spurred
significant development and diffusion of telecom-
Western experts consider that the Soviet telecom-
munications network is relatively spartan, serving
primarily government, the military, and industry. The
system has a backbone of 20 million telephones,
compared with over 150 million in the United States,
and individual satellite transmission capacity of six
video and about 400 voice channels, compared with 28
video and 98,000 voice channels on a single Western
communications satellite. The Soviets are proud of
their television broadcast system, in which signals are
beamed across 11 time zones, covering the entire
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Figure 5
US Lead Over Soviets in Telecommunications
Space Division a
Electronic
Switching
(Number 1 ESS)
Soviet Progress
a Space division switching transmits an electronic signal sequen-
tially through a series of communications links assigned for the
duration of the call.
b Time division switching transmits two or more signals or calls
through a common communications link using successive time
intervals for different calls.
c Fiber optics transmit signals using light waves traveling along
thin glass or plastic fibers, thereby enabling a more complex
signal to be passed more rapidly.
Time Division b
Electronic
Switching
(Number 4 ESS)
Single-Mode d
Fiber Optics
80~----_-
% - - 85 87
d Single-mode fiber optics use glass or plastic fibers so thin that
only a single wavelength of light is transmitted, thereby reducing
signal loss and allowing communications over greater distances
without amplification.
e No Soviet capability.
country, where over three-quarters of the homes have
receivers. At the same time, the automation level of
the existing telephone network-that is, switching of
long-distance calls without the use of an operator-is
only 55 percent, possibly the lowest level in the
industrialized world.
Qualitatively, the Soviet telecommunications network
is poorly suited to support data transmission and
networking because it is based largely on analog
technologies used in the West in the 1960s and suffers
from severe shortages of digital switching, computer,
and software technologies. Although the Soviets pro-
duce most types of hardware required for digital
communications, networks that permit different com-
puters to operate interactively are rare, and a shortage
of computers has forced them to make routine use of
data transmission from remote locations over low-
grade lines. Leading-edge technologies such as pro-
duction of optical fibers, network control programs,
and digital switching are discussed in the Soviet press
in the context of problems that must be solved before
wide-scale use begins.
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Figure 6
United States and USSR:
Number of Telephone Exchanges
production by 1984 and an increase in the NC
machine-tool share from 3 to 7 percent over this
period. In contrast, computer-operated NC machine
tools constitute more than 60 percent of Western
machine-tool production.
The Soviets embarked in the mid-1970s on a program
to develop and produce industrial robots. Production
figures are impressive, with annual production reach-
ing 14,000 in 1984, and plans are to have 120,000
robots in use in the machine-building industries by
1990. Most Soviet industrial robots, however, are akin
to simple manipulators as opposed to Western pro-
grammable robots, which are capable of multiple,
precise, and even machine-vision-guided operations.
70 75
Calendar years
In 1980 the USSR launched the third stage of a drive
toward manufacturing automation. They are pressing
for large-scale production of computer numerical
control machine tools and robots and the production
of flexible manufacturing modules and cells, which
combine one or several NC machine tools with pallets
and robots for material handling, assembly, and
checkout. The first Soviet flexible manufacturing
systems (FMSs) were installed in 1983, roughly a
decade behind their first use in the United States.
Currently, at least 35 full-fledged FMSs are now used
a Calls placed on approximately 20 million
telephones that these exchanges serve are
switched using electrical relays similar to those
used in the United States before 1970.
b Since the mid-1970s nearly all calls placed on
the more than 150 million telephones that the
Bell System serves have been switched digitally
under the control of supervising computers.
Machine Tools and Robotics
In 1968 the USSR established a national program for
numerically controlled (NC) machine tools, designat-
ing lead ministries for the civilian and defense indus
tries and a third ministry for the machine control
systems. NC machine-tool production increased by
about 3 percent annually until the mid-1970s, but its
share of total production remained small-about 3
percent. (Relative US and Soviet progress in the
manufacture of advanced machine tools is shown in
figures 7 and 8.) In 1978 the USSR began cutting
back production of general purpose equipment and
expanding output of specialized and automated equip-
ment. This led to a 15-percent decline in machine-tool
The Soviets claimed publicly
in 1984 that they had 60 FMSs in operation, but this
number included less capable, flexible production (FP)
modules, cells, and semiautomated lines that lack the
computer support essential to Western FMSs. The
plan calls for installation of 1,800 FP systems and
30,000 FP modules and cells during the 1986-90
period.'
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Figure 7
US Lead Over Soviets in Numerical Control
(NC) Systems-
1950 55
1950
55
Soviet Progress
Thiree axis
n ;"
ProtQe
opeinterpolating
milliopen-loop
macmill .,rk'
Slow NC
pr
oduction
growth
Five year plan,-
calls for 63
programed tools
Three axis open loop ;,
controller (N 33 series),'.
program for robots started
Prototype'..
machining
Five-axis controller
(N'-55 series); three-axis
simultaneous controller
FMS (IR 320),
Ivanovo,
11 machines
DNC (ASV-20),
14 machines;
CAD/CAM Minsk
a Dashed lines indicate extent of Soviet lag in developing counter- APT-automatically programed tool
part to NC technology in the West-a lag that is gradually declining. CAD/CAM-computer-aided design/manufacturing
Manufacturer or developer shown in parentheses. CNC-computer numerical control
DNC-direct numerical control
Managing Technological Progress in the
United States and the USSR
Moscow has historically chosen to centrally orches-
trate development and application of technologies,
using an approach that has been essentially supply-
oriented and hierarchical. The Soviets have sought to
achieve efficiency gains through economies of scale in
massive, self-contained plants. Because enterprise
manager rewards depend mainly on meeting quantita-
tive output targets on schedule, managers prefer to
reduce their risks through long production runs and
infrequent or minimal product changes (see inset).
Shortfalls in meeting ambitious plan targets frequent-
ly cause a cascade of additional shortages throughout
industry, thus encouraging enterprise managers to
minimize dependence on the remainder of the econo-
my. Western scholars have documented the deadening
impact of these conditions on the development and
diffusion of new technologies."
These systemic factors have particularly frustrated
Soviet development of advanced technologies. These
technologies-and especially information technol-
ogies-have not been well served by the imposition of
campaign-style, top-down management approaches.'
6 See, for example, Joseph Berliner, The Innovation Decision in
Soviet Industry (Cambridge: 1976).F
^lexible
nanufacturi
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Figure 8
United States and USSR: Production
of Numerically Controlled Machine
Tools
Thousands of units
1960 65 70 75 76 77 78 79 80
Sources: Narodnoye khozyaystvo SSSR;
US Department of Commerce Current
Industrial Reports: Metalworking Machinery
Efforts to compensate for shortfalls by buying or
stealing Western technologies have been frustrated by
Western export controls and the difficulty of reverse
engineering.
Although these general Soviet systemic shortcomings
are well understood, little research has been done to
document why managers-particularly in the enter-
prise-have been unable or unwilling to foster greater
technological progress. To analyze the systemic dif-
ferences that underpin technological development, we
compared the priorities and behavior of managers in
operating US corporations with those of Soviet enter-
prise directors. We followed two tracks:
? We reviewed Soviet experience in managing high-
technology industry.
The Important Considerations in US Experience
Analysis of Western literature and business experi-
ence suggests that the many influences on enterprise
development and application of product and manufac-
turing technology can be grouped into eight primary
factors:
? The management process-the organizational struc-
ture, planning philosophies and practices, perfor-
mance reporting and control systems, and the deci-
sionmaking process used within the enterprise.
? Market information (or its equivalent)-availability
and quality of information regarding customer pref-
erences and needs for the enterprise's products or
services.
? Financial resources-the timeliness and extent of
the enterprise's access to capital.
? Technical services-the quality, mix, and level of
sophistication of available plant services, such as
maintenance, engineering, material control, and
support staffs for programing, information han- 25X1
dling, and productivity improvement.
? Technical knowledge-scientific expertise, efforts to
develop products and processes that utilize what is
known, and R&D programs to solve problems that
restrain technological advances.
? Plant, equipment, and machinery-the quality, mix,
and sophistication of process equipment for fabrica-
tion, process control, assembly, and testing of
products.
? Material inputs-the availability of the suitable-
quality material inputs needed to make the com-
pany's product.
? Personnel resources-the number and mix of em-
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The Traditional Soviet Managerial Environment
Organization. The enterprise-the basic unit of
Soviet industry, roughly equivalent to a medium-
sized US corporation-reports through a two- or
three-layered vertical structure to a ministry, such as
the Ministry of Medium Machine Building or the
Ministry of Electronics Industry. The sources of
much new technology-scientific research institutes
and design bureaus-may or may not report to the
same ministry as the subject enterprise. In any event,
the enterprise usually has little or no leverage on
R&D organizations.
Management Structure. The enterprise is given pro-
duction orders by its ministry, which is given its
orders via the annual plan developed by the state.
The physical quantities to be produced are usually
based on some increment to the actual quantities
produced the previous year, and performance is pri-
marily judged on and rewarded for timely meeting of
monthly quotas. The enterprise is expected to make a
"profit" in an accounting sense, but wages, staffing
levels, prices of capital and materials, and the price
the enterprise must charge for its products are usual-
ly set by the state. From the profits come bonuses
paid to workers for meeting or exceeding quotas,
funds for employee housing and benefits, and some of
the funds to be used for investment. Additional
investment funds are received from the state via the
annual plan.
Production and Support. The annual plan specifies
the inputs and sources of capital and materials an
enterprise is to receive to execute the plan. In prac-
tice, inputs are usually of poor quality, frequently
late, and may not be exactly what the enterprise
needs. The only avenue for assistance in making
suppliers responsive to the needs of the enterprise is
through the bureaucratic chain or by unauthorized,
back-channel approaches, usually involving the ex-
change of personal favors. Once the final product is
out the door, the enterprise has performed its duty to
the state and feels no responsibility for product
performance; thus the service sector of the Soviet
economy is very poorly developed.
Market. The enterprise has to be responsive only to
the plan (but not too responsive, lest next year's quota
be impossible to meet). Through creative accounting,
surreptitious price increases, stockpiling, outright
falsifications, and other well-established practices,
enterprises usually just exceed their quotas. The
goods to be produced are specified by the ministry,
which must also approve any new products, and bear
little relation to market demand. Marketability of
products generally is of little concern, since buyers
generally are forced to-take what they can get. Even if
unsold products accumulate, enterprises are not
forced into bankruptcy.
The relative importance of each of these factors
depends on how managers view trade-offs among such
factor characteristics as quality, quantity, cost, and
timeliness of application.
developing and applying innovative technol-
relative importance of each
timeliness weighed on each factor.
a consistent profile that
tends to group the eight primary factors affecting
enterprise development and assimilation of new tech-
nology by their principal characteristics: information,
infrastructure, and inputs. The values assigned to
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these elements (see figure 9)
suggest that a sustained eve opment and application
of new technologies must be underpinned by a foun-
dation of supply and support that leaves managers
free to concentrate on the most important element-
information:
? Information. "Technical knowledge" and "market
information" together constitute the most important
of Western managers' concerns. Market informa-
tion is considered more important for technology
assimilation, while technical knowledge dominates
for innovation, with this pairing clearly being more
important than the others.
? Infrastructure. "Financial resources" and "person-
nel resources" alternate as the most important
factors for diffusion and innovation, respectively.
Together with "technical services" and the "man-
agement process", they form a stable, middle-level
grouping.
? Inputs. "Plant, material, and equipment" and "ma-
terial inputs" consistently ranked in the same low
range.
tion and technical knowledge as factors in innovation
indicates that feedback and interaction among cus-
tomers, research, and manufacturing is necessar to
support continuing technological development.
knowledge
of the state of the technological art must be married
to awareness of demand or need for new products or
processes that technology advances make possible.
a close relationship between
supplier and customer that sheds light on the utility of
one product relative to another, since better product
utility means better competitive position. Consequent-
ly, US managers aggressively pursue the market
information and technical knowledge that must feed
their decisionmaking structure, viewing this activity
as the largest and most important commitment of
their time.
We sought to identify the source of corporate techni-
cal advance-in-house development or acquisition
from other companies. Although Western executives
largely prefer to foster and control development of
technologies within their own companies
the pressures to respond
rapidly to frequent market changes are forcing them
to rely increasingly on external suppliers for assis-
tance. This in turn bolsters the strength of the
suppliers, who are also available to provide their goods
and services to other competitors in the same market.
The net result is increased competition, which drives
further technology development. Market pressures of
this kind contributed to the explosive growth of the
personal computer (PC), for example. Apple's initia-
tive forced IBM to break with its policy of total
vertical control and to use outside suppliers for many
of its PC components. This made the same compo-
nents available to other potential competitors, who
placed less expensive "clones" on the market, forcing
standardization around architecture of major suppli-
ers and adding to the pressure for more capable and
highly differentiated products.
the importance of the market information-
technical knowledge link by comparing the integrated
circuit with the laser. Both were invented at approxi-
mately the same time, but the IC was the result of a
very specific program to solve a technological problem
that faced the electronics industry. On the other hand,
the laser was the result of theoretical research without
a particular application in mind. The result was rapid
proliferation of the IC into a myriad of applications
within five years, while finding a commercial or
military application for the laser took much longer.
Infrastructure. Financial and personnel resources
clustered together with technical services and the
management process as the second-most important
group of factors, suggesting that these aspects of
business demand considerable amounts of detailed
management attention to make a company responsive
to changing technological conditions. The infrastruc-
ture-the support structure in the economy-supplies
the needed resources to apply information to inputs,
thereby adding utility and value to a product. West-
ern managers must compete for investors and employ-
ees, which develops a mobile resource base.
they spend an
appreciable portion of their time ensuring the acquisi-
tion of these types of resources. For example, both the
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Figure 9
The Relative Importance of Different Factors
to the US Business Executive
Factors Information Technical
knowledge
Market
information
Infrastructure Financial
resources
Personnel
resources
Technical
services
Management
process
Inputs
Plant and
equipment
Material
inputs
Factor
Attrib
t
Q
lit
u
es
ua
y
Ti
li
me
ness
Cost
Quantity
he values shown or each factor and attribute are relative to the
other elements. For example, technical knowledge (26%), is
considered to be about twice as important as personnel resources
(14%) and five times more important than material inputs (5%).
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supercomputer and the microcomputer originated
when innovators left a large company and started a
new company of their own-but only after the inven-
tors succeeded in obtaining venture capital financing.
chinery, and equipment and material inputs reflects
the dependability of supply afforded by a host of
competitors, allowing managers to focus attention on
factors more critical to technology development.
the availability of substitute
suppliers offers Western managers a variety of options
when selecting the most efficient mix of plant and
material inputs. As a result, their
attention only occasionally turns to decisions about
whether to develop such inputs internally or to acquire
Factor Attributes. Quality is the overriding character-
istic that all of the factors other than financial
resources must share, implying that technology devel-
opment is synonymous with quality improvement.
Timeliness cost and quantity follow in descending
order. both quality
and timeliness are the attributes that must be associ-
ated with responsiveness to customers,
How Do the Soviets Measure Up?
The quality and availability of inputs, information,
and infrastructure available to the Soviet manager,
and his control over them, are profoundly different
from the situation prevailing in the West, as are the
performance measures that define success. Conse-
quently, Soviet managers must take a very different
approach to innovation.
the Soviet manager's hierarchy of
manager's in several areas (see figure 10).
(see figure 11) show starkly the importance
of information to the Western manager and of inputs
to the Soviet manager, while infrastructure appears to
receive roughly equal emphasis in both economies.
Inputs. The Soviet manager, driven primarily by the
demand to meet production targets, is forced to
concentrate his effort on the factors that most directly
affect current production. He must devote consider-
able attention to obtaining and protecting the requi-
site materials, plant, equipment, and spare parts-a
challenge made more difficult by the chronic supply
deficiencies in the Soviet economy. In contrast to his
Western counterpart, the Soviet manager is not very
concerned about whether the application of produc-
tion technology or equipment warrants the investment
required. Indeed, the relatively fixed and artificial
character of Soviet prices effectively precludes the
empirical cost-benefit analysis that plays heavily in
the West.
The emphasis on quantity and timeliness frustrates
innovation programs, which operate on quality and
usually take a long time to reach fruition. Quality in
the Soviet Union means state-defined acceptance
criteria, which are frequently artificial and sometimes
arbitrary and do not necessarily reflect product utili-
ty. This absolute and relatively static concept, reflect-
ed by the low ranking of market information
creates difficulty in defining consumer
nee s and, consequently, in sustaining continuous
technology development.
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Figure 10
The Relative Importance of Different Factors to the Soviet
Enterprise Manager
Factors Information
Technical
knowledge
Market
information
Infrastructure
Financial
resources
Personnel
resources
Technical
services
Management
process
Inputs
Plant and
equipment
Material
inputs
Factor
Attributes Quality
Timeliness
Cost
Quantity
Note: In contrast to his US counterpart's thirst for information, the
Soviet manager's highest priority is obtaining the equipment and
material needed to meet quantitative production targets on schedule.
a
he values shown tor each actor and attribute are re ative to te
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Figure 11
Differences in the US and Soviet Managers' Perspectives of the Relative
Importance of Key Factors in Technological Innovation
More important
in the USSR
30 20
More important
in the United States
20 30
Factors Information Market
information
Technical
knowledge
Infrastructure Financial
resources
Management
process
Personnel
resources
Technical
services
Inputs
Plant and
equipment
Material
inputs
Factor
Attributes Quality
Cost
Timeliness
Quantity
The factors shown are clustered into three categories
that we characterize as information, infrastructure, and
inputs. In the United States, where advanced technologies
are widely used and well assimilated, managers consider
factors that convey information concerning product
utility decisive in technological advance but take a
supportive infrastructure and dependable supplies of
material and equipment for granted. In the USSR, where
many advanced technologies are scarce at any price,
managers must focus on ensuring adequate supplies of
material and equipment, leaving little time to focus on
information related to product utility. In terms of factor
attributes, quality and cost matter most in the United
States while quantity and timeliness matter most in the
USSR.
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The Soviet reliance on bureaucracies and centralized
planning of resource allocation generally creates an
inhospitable environment for innovation and diffusion
of new technologies:
? The Soviet personal computer program illustrates
the Byzantine complexity of Soviet industry. Soviet
literature indicates that development and produc-
tion of PCs are split among four ministries, three of
them primarily defense-industrial (the ministries of
the electronics, radio, and communications equip-
ment industries) and one primarily civilian (the
Ministry of Instrument Making, Automation Equip-
ment, and Control Systems). Components of PCs
are produced in 30 ministries. The lead organization
coordinating PC development is itself split among
17 organizations in Moscow. Because of the large
number of participants in the program there are
many complaints about the lack of hardware and
software standardization.
? The Soviet system provides little flexibility to man-
agers and stifles producer-consumer interaction. For
example, enter-
prises have experienced severe problems introducing
automated production control systems, which re-
quire that vendors tailor a network of computers,
sensors, and communications links to the enterprise
plant and equipment. Vendors typically show little
interest in being responsive, requiring customers to
resort to bureaucratic arbitration to force compli-
ance with contractual obligations.
? A rigid decisionmaking process has evolved that
effectively discourages initiative from below-the
source of most innovative ideas. For example, one
Soviet industrial concern recently took the initiative
in drawing up its plans to incorporate an automated
process control system. But, because its proposal
was not part of an authorized plan, it had difficulty
finding financial backing-a local construction
bank refused the organization its support-and had
to abandon the project in its planning stage.
? The case of the Ivanovo Machine Tool plant illus-
trates the costs of successful innovation based on
local initiative. In the early 1970s, the plant manag-
er established a long-range plan to manufacture NC
machine tools and machining centers but chose to
avoid the arduous tasks of obtaining complete ap-
proval by its parent ministry and ensuring compli-
ance with all budgetary regulations. Thus, although
the plant accomplished most of its plan and is
widely regarded as the most advanced Soviet ma-
chine tool plant, it lost 2 million rubles in incentive
funds in the last half of the 1970s, and members of
its engineering and technical staff lost 1,800 rubles
each in bonus money. The enormous costs of elec-
tronic components and service, which are not built
into the usual budget for machine tool plants, forced
the plant to underfund housing, vacations, and other
employee benefits and led to an exodus of 50
percent of its staff. Nevertheless, since the late
1970s, Ivanovo has been consistently praised as a
model innovator at the policy level.
? The machinery that is produced is often misdirected
or misapplied. For example, one Soviet industrial
concern received from its ministry a higher alloca-
tion of robots than it could cope with. It had asked
for a third as many robots, consistent with its needs,
engineering resources, and acquisition in previous
years. However, pressure to accelerate moderniza-
tion had led to a higher allocation being imposed by
the ministry.
Infrastructure. The Soviet command economy is able
to marshal financial and personnel resources and to
focus them on a particular project when necessary.
But, in a broad-based modernization campaign, even
targeted industries and technologies become snarled
in red tape. A manager must worry about the uneven
quality and availability of services and the ponderous
centralized system for allocating them. Western man-
agers can independently arrange financing in a few
weeks or months; the Soviet manager must appeal to
central planners and sometimes wait years for funds
to be allocated. Skilled personnel needed for installa-
tion and operation of advanced manufacturing tech-
nologies-software engineers, programers, and elec-
tronics and telecommunications repair technicians-
are in extremely short supply, and Soviet managers
find it difficult to secure employee training. Some
more sophisticated forms of support-such as the
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able.
systems engineering savvy needed for design and
operation of automated factories-are almost unavail-
provide the services.
In a command economy, suppliers feel little sense of
responsibility to customers. For example, the Noril'sk
Mining and Metallurgy Combine won approval to
install a flexible manufacturing system. Backed by a
state resolution, Noril'sk requested the supplying min-
istry to furnish design and installation services, but
the ministry stated that the supplying factories alone
were responsible for individual orders. When chal-
lenged, the ministry decided that it would eventually
ted.
Suppliers also are protected-and customers discour-
aged-by a formidable bureaucratic maze. The pyro-
metallurgical facility at the Noril'sk Mining and
Metallurgy Combine won State Planning Committee
approval to install an automated management ac-
counting system. The combine then had to seek
approval from its own ministry and the ministry's
Nickel Industry Association. Following this, the re-
quirements were submitted to the supplier, which at
first refused to accept the job. Only after the combine
secured a joint agreement between its ministry and
the supplier's ministry would the supplier comply,
over a year after the initial justification was submit-
have been removed by censors.
Information. The largest difference between the mar-
ket system and the Soviet system is that the Soviets
have poor access to product information and feedback
from users, and this is perhaps the most severe barrier
to effective automation that a Soviet manager faces.
This is exacerbated by the physical separation of
research, design, and production organizations that
has long been a hallmark of Soviet industry. In the
West, sellers innundate managers with technical in-
formation in the form of advertisements, catalogs,
technical sales representatives, and numerous techni-
cal expositions. In the USSR, managers must depend
on professional house journals controlled by their
parent ministries and intended to further ministerial
objectives. To gain access to Western technical litera-
ture, Soviet managers frequently have to go to cen-
tralized repositories, and even then the advertisements
that Western managers regard as highly informative
The Soviet enterprise manager, moreover, depends
much more heavily on acquisition of technology from
external sources than does his Western counterpart.
enterprises generally do not have the freedom to
obtain financing, materials and equipment, or permis-
sion to undertake risky new projects.
in the "catch-up" mode in which the 25X1
managers frequently find themselves, acquisition of
the technologies is the most efficient way to proceed.
This does not mean that technologies diffuse rapidly.
To the contrary, the sluggishness of the planning and
supply systems creates a paradox: because they usual-
ly cannot obtain the necessary ingredients for new 25X1
technologies, Soviet managers often are forced to be
inventive in their problem solving-yet the system
finds it hard to harness this creativity.
Obstacles to information flow are a particular handi- 25X1
cap to potential users of new technology:
? In the Soviet Union, the burden of determining the
benefits of usin a product rests with the enterprise,
which, must resort to a 25X1
rigidly centralized set of manuals on available prod-
ucts issued by the State Committee of Standards.
The manuals specify technical characteristics and
parameters for industrial items but contain no infor-
mation on the suppliers. It usually takes three to 25X1
four years to register a new product, although some
technological innovations may appear within one to
two years. The 25,000 manuals are updated regular-
ly, and their number grows by more than a 1,000 a
year.
? In the USSR, customer demand for products and
production equipment is supposed to be expressed
and fulfilled through the planning process, but the
complexity of the massive economy drives planners
to compromises and standardization for the sake of
planning efficiency rather than production efficien-
cy. According to Pravda, the Soviet Ministry of
Machine Tool and Tool Building Industry (Minstan-
koprom) is "proceeding at full speed" to produce
flexible manufacturing modules, but they reportedly
are not well suited for incorporation into complex
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manufacturing systems because of difficulty in
linking the machining modules to the automated
conveyor and storage systems (produced by the
Ministry of Heavy and Transport Machine Build-
ing). To circumvent the need to integrate the two
systems, Minstankoprom is trying to create a unit
that can be operated autonomously-that is, using
manual loading.
? Soviet researchers, designers, and manufacturers
are encouraged to communicate and cooperate with
each other to foster useful innovations, but in
practice they make little effort to determine the
needs of the customer. The deputy director of the
USSR State Committee for Inventions and Discov-
eries said in a published interview that, of the
180,000 applications received annually for certifi-
cates of invention, about 80,000 receive certificates,
and only about 24,000 of these find applications in
the economy. Of those adopted by industry, 90
percent are employed in only one or two enterprises.
Only 20 percent yield savings of 100,000 rubles or
more, and three-quarters of the rest yield savings of
fewer than 1,000 rubles.
The Soviet Union trails the West in most advanced
industrial technologies partly because the centrally
planned economy diverts attention from product utili-
ty by focusing on production in a seller's market. The
success criteria used to reward performance ignores
the opinions and needs of the customer-the only
qualified judge of product utility-giving producers
neither the incentive nor the information needed to
change and improve their products. In contrast, the
market system weds information about state-of-the-
art technology to customer perceptions of product
utility-indeed, it makes that information extremely
valuable. In a supply-rich environment where firms
have alternative sources of differentiated products,
producers are constantly motivated to differentiate
their products to provide more utility to their
customers.
To bring Soviet technology up to world standards,
Gorbachev must create an environment that can
sustain continuous technology development on a broad
front. Past Soviet successes have been achieved in
areas where heavy investment could be applied to
technologies that are independent of other immature
technologies, are relatively simple to reverse engineer,
and are. easily controlled by vertical, restricted, and
autocratic organization structures. In cases where
multiple immature technologies have needed to ad-
vance in concert-such as the automotive or chemical
industries-there have been few notable Soviet ac-
complishments. The growth of the microelectronics-
based advanced technologies that Gorbachev has tar-
geted represents a major challenge to Soviet industry,
because they present a core of several immature
technologies whose potential for application spreads
across a wide range of new and existing technologies.
In addition, these technologies are difficult to reverse
engineer because their keys to growth are embodied in
their own production processes.
To attain Gorbachev's goals, the efficiency and effec-
tiveness of the Soviet planned economy will have to
improve dramatically. The strategy implemented to
date-the traditional approach-contains heavy doses
of administrative fiat and lavish application of re-
sources. Gorbachev's program relies on huge produc-
tion gains in the machine-building complex, the
source of these technologies (see inset). He has an-
nounced a large infusion of resources to support his
demands; 1986-90 investment in the civilian machine-
building complex is to be 80 percent greater than
investment in the 1981-85 period. And on 1 January
1987 he shocked the machine builders by introducing
a quality control system with real teeth, leading to
wholesale rejection of substandard factory production.
This strategy is likely to result in some improvement
in product quality and performance. In 1986 civilian
machine-building production grew by 4.4 percent-
the best showing in a decade. Although still criticized
for shortfalls, machine-building ministries seem to be
weathering the storm, and even meeting some of the
administered quality control challenges.
Nevertheless, official statements and actions reveal a
growing appreciation of the implications of our inter-
views-that sustaining rapid technology development
to keep pace with the West depends critically on
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Forcing the Pace of Technical Renewal
Gorbachev plans to force the pace of technical renew-
al by:
? Doubling retirement rates of capital stock to accel-
erate the replacement of obsolete capital by more
efficient, state-of-the-art machinery and equipment.
? Modernizing the nation's capital stock so that by
1990 a third of it, including up to half of the
machinery portion, is new.
? Increasing output of the machine-building complex
in the 12th Five-Year Plan by 43 percent over that
of the 11th Five-Year Plan.
? Stressing high-technology industry. For example:
- Increasing production of computer equipment by
18 percent annually through 1990.
- Producing in the 1986-90 period 120 percent
more robots, 90 percent more numerically con-
trolled machine tools, and 220 percent more
machine centers than were produced in the
1981-85 period.
? Doubling the proportion of industrial products in
the top-quality category during the 12th Five-Year
Plan.
? Tripling the share of Soviet products that meet
"world standards" in terms of quality, reliability,
and competitiveness during the 1986-90 period.
stimulating local initiative and responsibility, develop-
ing a strong linkage between customers and suppliers,
and enabling managers to rapidly shift resources to
the most productive applications. To date, the Soviets
have adopted several initiatives to realize these
objectives.
On 30 June 1987 the Supreme Soviet approved
guidelines for a set of measures aimed at reforming
how the Soviet economy is managed. These changes
at least suggest movement toward greater enterprise
control over day-to-day decisions with less interfer-
ence from the ministries. As details on how these are
to be implemented take shape, their likely impact will
become clearer. In sum:
? Although the Soviet economy is to continue to be
centrally planned and managed the level of detail
will be reduced. Prime Minister Ryzhkov has stated
that the annual economic plan will no longer require
approval after 1991.
? A new law governing state enterprises slated to be
placed in effect after 1 January 1988 provides for
greater enterprise independence in planning and
contracting with other firms, but also ties wages to
performance and requires more self-financing of
investment and operating outlays.
? In addition to the six new "superministries" created
during 1985 and 1986 to oversee key categories of
economic activity, the ministerial structure in indus-
try is to be streamlined by the elimination of some
intermediate echelons.
? Beginning with industries producing consumer
goods, wholesale trade-whereby firms would be
more able to contract with suppliers and customers
of their choice-is slated to replace the centrally
managed supply system over the next four to five
years except for national-priority items.
? Price and wage reforms of unprecedented scope are
to be introduced during 1987-90 in an effort to
better reflect the higher utility of scarce labor skills
and products.
? To improve the finance system, the number of banks
providing investment financing is to be doubled to
six, and principles of self-finance and economic
accountability encouraged through a system of
incentives.
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? Although the 1986 initiative permitting free enter-
prise activities-by pensioners, handicapped, house-
wives, and moonlighting state employees-was en-
dorsed, the size of such efforts continues to be
limited.
? Although the right to engage in direct trade or joint
ventures with foreign firms-granted to selected
ministries and enterprises on 1 January 1987-was
endorsed, it was not expanded.
These initiatives are aimed at giving more indepen-
dence and incentives to enterprise managers, but none
has proceeded far enough to permit a firm judgment
on how effective they will be. Even some Soviets
expect delays in actually changing the attitude of
workers and managers, and others have voiced con-
cerns that the reforms have not proceeded far enough.
In any case, the environment for innovation is unlikely
to change substantially over the next several years:
? The fluid industrial environment characteristic of a
Silicon Valley has no counterpart in the Soviet
Union. In March 1987, for example, Izvestiya
extolled a daring new initiative-the independent
technical consultant-but bankruptcies are virtually
nonexistent, and decisions are still made in bureau-
cratic compartments.
? The Soviet solution for energizing the sluggish R&D
establishment maintains the thrust of "pushing"
technology onto the industry, rather than giving
industry much incentive for "pulling" technology
from science. The Soviets have come up with yet
another organizational solution-the Interbranch
Scientific-Technical Complex-to bridge the gap
between science and production, but have given the
leadership of most of them to Academy of Sciences
organizations.
? Industrialists may be under pressure to meet quality
standards, but the standards are set by committee,
not the test of the marketplace. Soviet enterprises
remain insulated from real domestic and foreign
competition. The Soviet economy remains a seller's
market.
Negotiations between a Western firm and a Soviet
industrial ministry for one of the joint ventures that
the USSR has been seeking illustrate the different
approaches of Soviet and Western managers. Soviet
officials have no precedent nor any body of regula-
tions to tell them how to handle questions raised by
their capitalist counterparts. The officials are neither
well organized to deal with the questions nor well
informed on basic commercial factors that affect the
25X1
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Under these conditions, the Soviets have yet to change
the economic environment to the point that innovation
affords more benefits than costs to the local manager.
The Soviets are likely to duplicate Western successes
in large-volume production of standarized equipment
but will probably fall short in developing the type of
efficient, flexible manufacturing capability that takes
full advantage of the benefits of advanced technol-
ogies. Consequently, rates of return on costly high-
technology investments may be substantially lower
than originally expected. The centralized Soviet ap-
proach to technology development will serve better in
areas where standardization provides some advan-
tages-such as telecommunications and computer
equipment-than in machine tools and microelectron-
ics, where the compromises of standardization may
directly affect performance. Further, Gorbachev's ini-
tiatives do little to affect the ability of the economy to
respond to the industrial needs that will change as
technology evolves, nor is it likely that the system will
become efficient at eliminating unproductive efforts
that could otherwise be focused on more productive
innovations.
Technological Progress
On balance, the strategy the Soviets are pursuing is
likely to complicate their efforts to narrow the tech-
nology gap with the West. The Soviets have opted to
plan and centrally manage progress in critical target
technologies rather than create more supportive con-
ditions for technological progress to build momentum.
They are striving to allocate resources to follow paths
of development in selected technology areas blazed in
the West as much as a decade before. Meanwhile, the
pace of technological progress outside the USSR is
picking up and its unpredictability is increasing, as
more competitors enter into the global high-technol-
ogy race.
The risks in the follower strategy the Soviets are
pursuing are twofold. First, the rate of progress
among these interdependent technologies may be very
uneven, and such uneven progress could result in
serious misallocation of critically scarce resources.
Second, the Soviets are committed to a long-term and
relatively fixed path of technology developments with
a point of departure as much as a decade behind
current Western practice. Therefore, the USSR will
be less able to pursue alternative solutions or opportu-
nities that appear unexpectedly in the West
Military Modernization
The Soviets will be hard pressed to address the
escalating technology demands of economic and mili-
tary modernization-particularly if a full-fledged US
SDI overturns the basis of military and technological
competition. In the 1970s the more leisurely pace of
US military modernization dictated by the resource
dislocations resulting from Vietnam and its aftermath
enabled the Soviets to gain ground. Through a mas-
sive and sustained effort to develop guidance, propul-
sion, radar, and nuclear technologies and by.translat-
ing them relatively quickly into hardware, the Soviets
were able to reduce or eliminate lags in performance
of their strategic and conventional weapons. Although
some of the technology initiatives-microelectronics,
for example-also helped the civil economy, much of
the effort was specialized. To the extent that the
Soviets choose to emulate such Western initiatives as
precision-guided conventional weapons or SDI, they
will need to accelerate development and military
application of microelectronics, computers, software,
electro-optics, radars, guidance, and composite mate-
rials technologies. Several of these technologies are at
the heart of Gorbachev's industrial modernization
program.
The Economic System and Society
Clearly, the centrally directed agenda for technologi-
cal progress the Soviets are now pursuing limits their
ability to adjust to radical shifts in the thrust of
technology development. Prospects for more flexible
and efficient development and use of advanced tech-
nologies would improve with structural reforms tar-
geted at the free flow of information, labor, and
investment resources and more decentralized manage-
ment. Such changes would challenge the leadership's
preference for central political, social, and economic
control, but sticking to the current blueprint for
technological progress may cause the Soviets to lose
ground to the industrialized West and perhaps even to
newly industrialized nations.
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