SOVIET ECONOMIC PLANS FOR 1976-80: A FIRST LOOK

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP08S01350R000602140003-2
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 39
• Document Creation Date: December 22, 2016
• Document Release Date: March 13, 2012
• Sequence Number: 3
• Publication Date: August 1, 1976
• Content Type: REPORT

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Research Aid
Soviet Economic Plans for 1976-80: A First Look
ER 76-10471
August 1976
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SOVIET ECONOMIC PLANS FOR 1976-80:
A FIRST LOOK
1. After the disappointments of the Ninth Five-Year Plan period
(1971-75), largely caused by two disastrous harvests, the Soviets intend to use the
1976-80 plan period to get back on track and stress quality and efficiency over
quantitative goals. As a result, the new plan is an unusually restrained and realistic
one and will make the 1970s by far the lowest postwar growth decade. Major
economic policy objectives will remain similar to those of the last five year plan
period: industry and defense will be the priority sectors but agriculture and the
consumer will retain a prominent place. Productivity and trade will be stressed as
keys to more rapid growth. If the plan to slow investment growth is achieved, the
long-term trend of a rising share of the gross national product (GNP) going to
investment should be arrested.
2. Prospects for the major sectors are:
Industry-relatively rapid growth similar to that of the last 15 years with
the highest rates achieved by machinery and chemicals.
Agriculture-continued firm resource commitment and ambitious grain
and livestock goals.
Consumer welfare-continued oscillations in consumption caused by
fluctuations in farm output and a subsequent restraint in income growth.
Investment-a program dependent on an unprecedented commitment to
completing old projects and expanding existing facilities.
Manpower-slower growth of the labor force but no acute manpower
shortage until the 1980s.
Foreign Trade-rapid growth of all trade-especially with the West-
although financing will be more difficult.
3. Despite the moderate projected growth, major targets still seem too
ambitious. Another two years of poor harvests, highly possible, would again wreak
havoc on the five-year plan. Failure to achieve productivity targets would also retard
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growth. The fact that the Soviets are planning no major organizational or managerial
schemes bodes ill for a rise in productivity substantially above the rates achieved
over the last ten years. As a result of these and other factors, we estimate that
growth in GNP will proceed at an annual rate of about 4% in 1976-80 compared
with the planned rate of 5%.
4. The Soviet leadership appears to view its economic prospects as
troubling but manageable. They probably rationalize that their major problems-a
large military burden, rising consumer expectations, and declining growth-are those
of many mature economies. Their biggest headache, severe fluctuations in
agricultural output, can be attributed primarily to unfavorable weather and
geography. There will be little pressure for economic change as long as the Soviet
economy has sufficient strength to maintain a formidable military posture, maintain
its industrial might, and gradually improve consumer welfare. However, an
exacerbation of economic problems is in prospect for the 1980s, which may
stimulate greater changes.
5. The "main directions" of the Soviet economy for 1976-80 were first
published in draft form on 14 December 1975. They were adopted on 3 March 1976
by the 25th Party Congress with few substantive changes. The Party instructed the
Council of Ministers to submit the plan to the Supreme Soviet in September. If the
scenario of the last five-year plan period is followed, a book containing plan details
will not be available until mid-1977.
6. The draft plan is a political as well as an economic document and is
therefore long on rhetoric and short on substance. General goals are given but the
means of achieving them are largely missing. Thus, resource allocational policies and
economic priorities are difficult to discern.
7. Soviet planners had to contend with many complex problems while
plotting economic strategy for this five-year period. Some were old ones, almost
endemic to the Soviet system-declining productivity growth, lagging technology,
and unsatisfied consumer demand. Other problems were relatively new or had a new
urgency about them, such as the extreme fluctuations in agricultural output, the
development of Siberia, and continuing large hard currency deficits.
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8. Using the incomplete data released to date, this publication assesses the
new five-year plan goals. Past plans and performance are reviewed in an effort to
weigh the reasonableness of the targets for 1976-80 and as a clue to possible shifts in
priorities. Because of the paucity of data, this assessment should be viewed as
preliminary, subject to revision as more data become available.
Economic Plans and Policies
Background: The Soviet Economy in 1971-75
9. During the Ninth Five-Year Plan period (1971-75), Soviet GNP grew at
an average annual rate of 3.8% (see Table 1). This compares with 5.5% achieved in
USSR: Average Annual Rates of Economic Growth'
GNP
5.5
3.8
5.8
5
Industrial output
6.8
6.0
8.0
6'h
Agricultural output
4.5
-0.6
3.5
5'h
Investment2
6.3
5.5
N.A.
N.A.
New fixed investment
6.8
6.4
6.7
3'h
Consumption
5.1
3.8
5.0
4
Other government expenditures3
5.5
0.6
N.A.
8'h
1. Calculated at factor cost.
2. Includes new fixed investment in machinery and equipment, construction and other capital outlays, net
additions to livestock, and capital repair.
3. Estimated as a residual. Includes administration, R&D, defense, inventory change, and net exports. The rates
of GNP growth shown in this report are based on an aggregation of the rates of growth for individual sectors of
origin (i.e., industry, agriculture, etc.). After projected values for the principal end uses (investment,
consumption) are deducted from the global ruble value for GNP derived from the sector-of-origin side, a residual
for "other government expenditures" remains. Since no capital repair plan for 1976-80 has been published,
"other government expenditures" also includes capital repair.
1966-70 and 5.0% in 1961-65. Set in a world context, however, Soviet GNP growth
in 1971-75 looks relatively good, as it was largely insulated from the effects of
inflation and recession in the West. The Soviet growth rate in 1971-75 compares
with rates of 0.6% in the United States, 1.6% in West Germany, and 2.1% in Italy.
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10. Two extremely poor agricultural years were responsible for slowing
economic growth and causing wide annual fluctuations-from a low growth rate of
1.7% in 1972 to a high of 7.5% in 1973. Industrial growth, the largest contributing
sector to GNP, was also below that achieved in 1966-70, partly a result of the
repercussions of the poor harvests. In 1972, for example, a shortage of agricultural
raw materials and the recruitment of industrial labor and vehicles for farm work
helped reduce industrial growth to the lowest rate since World War II.
11. The stagnation in agricultural output in 1971-75 was largely responsi-
ble for an absolute decline of 0.2% in factor productivity (output per unit of
combined inputs of capital and labor) compared with a growth of 1.5% in 1966-70.
If industry alone is considered, factor productivity grew by 1.5% compared with
1.3% in 1966-70, still not fast enough to compensate for the continuing decline in
the growth of inputs.
12. The decline in economic growth was reflected in a reduced growth in
allocations to the principal resource claimants, consumption and investment. As in
the past, outlays for investment grew at a higher rate than GNP. This led to a further
increase in the share of GNP allocated to investment, from 27% in 1970 to 29% in
1975. In 1975 the relative share of GNP going to consumption was 57%, the
remainder going for other government expenditures, including defense. The slow
growth in other government expenditures during 1971-75 probably reflects
drawdowns in inventories in 1975, largely because of the poor harvest and continued
growth in imports relative to exports.
13. The much-touted emphasis on agricultural and consumer goods output
was frustrated in 1971-75 by the poor harvests. The resource commitment, however,
appears to have remained firm. Inputs into agriculture-investment and deliveries of
mineral fertilizer-grew even more rapidly than the high rates planned. When farm
output fell below requirements, major efforts were made to maintain livestock herds
and meet consumption levels by using scarce foreign exchange to import grain and
meat.
14. Another primary goal of the Ninth Five-Year Plan was to accelerate
technical progress. Toward this end the Soviets imported record amounts of foreign
equipment and technology. These imports contributed to the large hard currency
deficit posted in every year of the plan period. The Soviets also made modest
changes in industrial organization, notably the formation of production associations,
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designed to encourage the quicker introduction and mastery of new technology. The
fact that improved technology remains a shibboleth of the new plan attests to a
continuing weakness in this area.
Policies of the New Plan, 1976-80
15. The Tenth Five-Year Plan, as outlined in the draft directives and in the
speeches to the 25th Party Congress, indicates that major economic policy objectives
(see Figure 1) will be very similar to those of the last five-year plan period.
? Industry and the military will maintain their prime claim on the nation's
resources.
? Agriculture will continue to absorb large amounts of industrially produced
materials and one-fourth of total investment.
? Consumers, although set back periodically by poor harvests, will again
enjoy a moderate increase in living levels and will compete on a more
equal footing with other resource claimants.
? Improved technology will continue to be regarded as the key to increased
productivity.
? Trade with the West will post another rapid rise.
16. The new plan, however, differs from its predecessors in two major
ways. First, there is some indication of a shift in the allocation of resources among
the principal claimants. In the past, investment consistently grew at a higher rate
than GNP, increasing its share of total resources. In 1976-80, however, new fixed
investment growth will slow dramatically, growing at a lower rate than that planned
for GNP (see Table 1). The slow growth of investment as well as consumption
relative to GNP planned for 1976-80 implies a substantial rebound in growth for
"other government expenditures." We believe that this reflects unannounced plans
to increase growth in inventory formation, to accelerate the rate of growth of capital
repair, and to promote a better balance between imports and exports.
17. The Soviets hope to compensate for the decline in investment growth
by concentrating on completing projects long underway and on expanding and
modernizing existing facilities rather than constructing new ones. In this way they
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Figure 1
USSR: SELECTED INDICATORS
OF ECONOMIC PERFORMANCE
Average Annual Rate of Growth (Percent)
Gross National Product
1966-70
1971-75
1976-80 Plan
3.8
1 5.5
Continued Steady
Industrial Growth
Ambitious Rebound
in Farm Output
3.8 for the Consumer
6.4 Dramatic Slowdown
in Investment
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plan a relatively large boost in the total stock of plant and equipment with only a
small injection of new fixed investment. Since this is a onetime gain and the growth
of capital stock will fall precariously if this policy is continued, the slowdown in
investment growth probably is a temporary phenomenon.
18. The other major difference from past plans is that the Soviets have
lowered their sights for economic growth (see Table 2). The goals for 1976-80 are
USSR: Average Annual Rates of Growth of GNP,
by Sector of Origin'
Total GNP, by producing sector
5.5
3.8
5.8
5
Industry
6.8
6.0
8.0
6'h
Agriculture2
4.5
-0.6
3.5
5'h
Construction
5.8
5.6
6.33
34
Transportation
6.7
6.3
6.9
4
Communications
8.9
7.2
N.A.
7
Trade
6.5
5.0
7.2
5
Services
4.2
3.6
N.A.
3'h
Other
5.5
3.8
N.A.
N.A.
Nonagricultural sectors of GNP
5.8
5.1
N.A.
5
1. Calculated at factor costs.
2. This measure for agricultural output excludes intra-agricultural use of farm products but does not make an
adjustment for purchases by agriculture from other sectors.
3. Plan for construction-installation work only.
4. Estimated plan for construction-installation work only.
modest compared with past targets. Indeed, the planned GNP and industrial growth
rates are the lowest targets since World War II. The Soviet leadership ascribes this
slowdown to (a) the problems of the last five years, mainly agricultural, which
continue to reverberate throughout the economy, and (b) a new concentration on
quality and efficiency rather than on quantitative targets. They apparently realize
that the traditional emphasis on crude output has been a major reason for the
reluctance of plant managers to introduce new techniques and technology. At this
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stage of development, the Soviets must rely on improved technology and better
management to achieve the productivity gains necessary for future growth. Indeed,
if overall growth targets are to be met with scheduled inputs in 1977-80, factor
productivity must grow 2% per year-a much faster rate than attained in 1971-75.
To achieve the industrial output goal, an annual productivity boost of 3% is needed,
double the 1971-75 rate.'
Economic Output
Industry: Reliable Growth
19. The industrial growth rate of 6-1/2% planned for 1976-80 differs little
from the rates achieved over the last 15 years, but shifts in emphasis reflect two
main themes of the new directives-higher quality and improved technology (see
Table 3 and Figure 2).
USSR: Average Annual Rates of Growth of Industrial Production
Industrial production
6.8
6.0
6.5
Materials
5.9
5.5
5.7
Electric power
7.9
7.0
5.6
Coal products
2.0
2.3
2.8
Petroleum products
and natural gas
7.8
7.1
5.8
Ferrous metals
5.5
4.1
4.8
Nonferrous metals
8.2
5.0
4.6
Forest products
3.5
3.7
4
3
Paper and paperboard
7.2
5.1
.
Construction materials
5.4
5.1
5.4
Chemicals
8.7
8.9
10.2
Machinery
8.6
8.4
9.2
Consumer nondurables
6.2
3.1
4.6
Processed foods
4.7
3.7
4.4
Soft goods
8.0
2.6
4.9
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20. The emphasis on
quality is most evident in industrial
branches such as ferrous metals
where planners are counting on
improvements in quality and as-
sortment to help compensate for a
continued slowdown in the rates of
growth of the physical volume of
output. The high growth rates plan-
ned for machinery and chemicals
reflect the official call for concen-
tration on "those sectors which
determine technical progress to the
greatest extent." In addition, the
high rate projected for the ma-
chinery sector reflects the em-
phasis on technology and the
larger share of investment going to
the installation of equipment and
modernization of existing enter-
prises.
21. The traditionally
rapid-growing chemicals sector is
slated for a 10.2% average annual
growth in 1976-80, about twice the
rate for other industrial materials
(see Table 4). Major attention con-
tinues on production of fertilizers
and synthetic materials (plastics,
rubber, and manmade fibers). The
industry's quantitative goals seem
ambitious as is the task of im-
proving product mix and quality.
The output of newer manmade
fibers, for example, is scheduled to
grow at a much faster rate than the
output of relatively less modern
Figure 2
USSR: GROWTH IN MAJOR SECTORS
OF INDUSTRIAL PRODUCTION
Industrial Materials
5.9 5.5
6.2
1966-70 1971-75 1976-80
Plan
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USSR: Average Annual Rates of Growth in Output
of Important Industrial Products
Total primary energy'
4.9
5.4
5.1
Coal
1.2
2.3
2.6
Crude oil
7.8
6.8
5.1
Gas
9.2
7.9
7.6
Electric power
7.9
7.0
5.6
Metals
Aluminum
11.2
7.1
4.6
Copper
7.4
7.0
4.6
Crude steel
5.0
4.0
3.2
Finished steel
5.5
4.5
3.6
Other materials
Cement
5.6
5.1
3.4
Mineral fertilizer
12.1
10.2
9.6
Chemical fibers
8.9
8.9
9.0
Plastics
15.8
11.2
14.8
1. Midpoint of range.
2. Based on standard fuel equivalents.
rayons. Output of phosphate fertilizers, in chronically short supply, is planned to be
increased by 17% in 1976 alone, compared with the 5% growth rate slated for all
fertilizers.
22. Successful fulfillment of these output goals depends on meeting
construction deadlines for expanding capacity. Efforts to reduce the backlog of
unfinished construction in 1971-75 failed: the backlog rose by 58% from 1971 to
1974 compared with a 45% increase in investment. Unfinished construction now
exceeds annual investment in the whole chemical industry. Ontime completion of
construction is particularly important in the fertilizer industry where the intro-
duction of new capacity in 1976-80 must average 11.2 million tons annually
compared with 7.6 million tons annually in 1971-75.
23. Continued large imports of Western chemical equipment will be
essential if the Soviets are to approach either their quantitative or qualitative
chemical goals. Such imports set records in 1974 and 1975, exceeding $1 billion
each year, spent mostly for complete installations for the production of ammonia,
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plastics, and manmade fibers. The types of equipment purchased also reflect the
priorities of the current five-year plan, and additional orders are imminent.
Increasingly, these purchases are based on compensation agreements, whereby
long-term Western purchases of Soviet chemicals help defray equipment costs. As a
result, substantial quantities of Soviet ammonia, plastics, and intermediates for the
production of polymers will be marketed in the West beginning in the late 1970s.
24. Over the last decade, the rates of growth of metals output in physical
units have been falling, partly because the industry has been struggling to satisfy the
economy's demand for more specialized and sophisticated products. Also, the slow
growth in steelmaking capacity-only about half of that planned was added during
1971-75-has retarded development. For example, the steel industry's program to
add new oxygen converters continues to lag behind schedule, forcing reliance on the
traditional open hearth furnace, long supplanted in the West.
25. The Soviets apparently plan to compensate for the unfulfilled domestic
demand by continuing to import steel from the West. Soviet purchases of Western
steel cost $2.3 billion in 1975. Unlike the chemical industry, little interest has been
shown in massive purchases of Western steelmaking equipment to spur growth.
26. Aluminum and copper rates of growth also have been reduced for the
current plan period. However, the Soviets are seeking Western participation in major
expansion projects that should permit increased exports to the West following
completions in the early 1980s.
27. The plan directives indicate that the production of primary energy will
grow at an average annual rate of 5.1%, about the same rate as the last 10 years and
generally consonant with the rate of growth of GNP. The targets for oil and natural
gas, however, are optimistic and, unless met, could cause a shortfall of 2%-5% in the
target for primary energy output. By 1980 the share of oil and gas in the overall fuel
balance should be about two-thirds compared with about 45% in 1965. Coal's share
should decline to slightly more than one-fourth by 1980 compared with about
two-fifths in 1965.
28. Fulfillment of the oil and gas goals for 1980 depends on rapid
development of West Siberian deposits and substantial improvements in technology,
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neither of which are likely to be achieved to the extent planned. The oil target
presumes that West Siberian output, which is to supply all of the planned increase,
will reach 6.0-6.2 million b/d in 1980. Available data on West Siberian oilfields
suggest, however, that the maximum production capacity will be about 5.7 million
b/d. Even if new fields are discovered, their output will not contribute significantly
by 1980 and may only offset depletion of older fields.
29. To compensate for a possible oil shortfall, the Soviets could curb
consumption, as recently suggested by the Minister of the Petroleum Industry. If
annual increases in oil consumption can be held to about 5% through 1980-instead
of the 7% to 7-1/2% of recent years-the USSR will have adequate oil to meet
domestic needs, increase deliveries to Eastern Europe, and maintain sales to the West
near present levels. In the event that consumption growth cannot be slowed, the
Soviets must either cut oil exports to Eastern or Western Europe or import more
OPEC oil. The USSR is heavily committed to providing the bulk of Eastern Europe's
oil, and the need for hard currency would militate against substantial reductions in
sales to the West. Because large direct purchases would be limited by hard currency
shortages, the USSR probably would seek to get OPEC oil by barter, perhaps for
military equipment.
30. Technical problems, mainly with pipeline construction, continue to
hinder gas industry development. Efforts to provide better equipment and technical
know-how for gas pipeline operations have lagged badly, and no breakthroughs are
in sight. Much of the line pipe, valves, and compressors for pipelines will have to be
imported from the West. We estimate that gas production in 1980 probably will not
exceed 390 billion cubic meters compared with the 400-435 billion planned.
31. The increase in electric power output slated for 1976-80-roughly
5-1/2% per year-is the lowest rate of growth for a five-year period since World War
II. This suggests that some power shortages may occur because
? industrial output is slated to grow at a higher annual rate of 6-1/2%;
? increased mechanization and a reduced share of manual labor in industry,
prescribed by the plan, will require the increased electrification of
industrial processes; and
? the share of electric power allocated to the rural sector is scheduled to
rise.
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Moreover, some regional shortages could develop in the European area because of
limitations in the high-voltage transmission network and the emphasis placed on
building electric power generating capacity in the Eastern regions. In 1976-80, new
nuclear and hydroelectric powerplants will represent a larger share of total
installation of electric generating capacity, with the result that the share of new
conventional thermal powerplants will drop from 77% in 1971-75 to 60% in
1976-80.
32. The continuing failure to commission new capacity on time-14% short
of plan in 1971-75-could frustrate achieving even the low rates of growth targeted.
In his speech to the 25th Party Congress, the Minister of Power and Electrification
expressed concern that in the past few years the annual increment in demand for
electricity has begun to exceed the commissioning of new electric power capacity.
The minister attributed this to the failure to deliver the required machinery and to
the drafting of power construction personnel for major projects such as the Kama
and Volga Motor Vehicle Plants.
Machinery
33. Soviet machinery output-the source of equipment for investment,
military equipment, and consumer durables-is planned to grow more rapidly during
1976-80-an annual average of about 9%-than in 1971-75-8-1/2%. As indicated
above, this reflects the emphasis on new technology and on raising the share of
investment funds spent on equipment rather than construction.Within the machin-
ery category, rapidly growing product groups include computer hardware (about
12%), instruments and automotive equipment (10%-11%), numerically controlled
machine tools (about 9% in physical units and probably much faster in value),
metalforming machine tools (11%), and chemical and petroleum machinery (8-1/2%
to 10%). Some items that were growth leaders in 1971-75 will grow at notably
slower rates in 1976-80, including motor vehicles, tractors, and agricultural
machinery. The dramatic slowdown in growth in the motor vehicle industry-
1.4%-2.3% annually in 1976-80 compared with 16.5% annually in 1971-75-
indicates that near-capacity production has been reached, particularly at Tol'yatti,
and that quality and improved design will be stressed.' For example, trucks and
trailers are to be tailored to the needs of agriculture, construction, mining, and
commercial transportation. Production of tractors and agricultural machinery is
scheduled to grow in the current plan period at about half the rates achieved in
2. These growth rates are for the number of physical units. Presumably, if qualitative improvements are
made, the total value of output will grow at a faster rate.
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1971-75. Here, as in the automobile industry, production capacity limits growth in
the next five years. The reasons for this slowdown also may be greater concentration
on quality.
34. Somewhat puzzling is the difference between the planned rate of
growth of the machinery sector (9.2%) and the planned rate of growth estimated for
the equipment component of gross fixed investment (5.6%). Logic dictates that
these rates of growth should be similar since producers' durables, the largest
component of machinery output, is the source of investment in equipment. This
anomaly was also observed in the previous plan, but when actual performance data
were published, the growth of investment in equipment closely paralleled the output
of producers' durables.
Agriculture: The Spoiler
35. The performance of Soviet agriculture will be crucial to the successful
fulfillment of the five-year plan since this sector contributes about one-fifth of GNP
and is subject to extreme fluctuations in output. During the last five-year plan
period, disastrous harvests in 1972 and 1975 put most of the original plan goals out
of grasp. The continuing repercussions of the 1975 harvest and the possibility of two
poor years again in 1976-80 probably make the new five-year goals too ambitious.
The planned growth in the flow of resources to agriculture, although in keeping with
the investment program for the rest of the economy, has been sharply reduced from
the last five-year plan. Considering the planned increases in output, this change
seems to stress efficiency and productivity gains not warranted by agriculture's
record.
36. The grain target apparently was not scaled down in light of the poor
crop last year (see Table 5). The goal of 215-220 million tons per year appears to be
projected from the 1950-74 trend line of gross harvests, whereas if the 1975 harvest
is included, an annual average of only about 205 million tons is projected.
Statements by the leadership indicate that they are banking heavily on good weather
over the next five years. Kosygin told the 25th Party Congress that the agricultural
output plans "must be regarded as minimal since the material and technical
resources which are being earmarked make it possible to achieve higher indicators,
given favorable weather conditions." If history is repeated, however, one or perhaps
two of the next five years will encounter serious weather problems, making
fulfillment of the grain output plan unlikely. Since grain output constitutes about
15% of net agricultural output, failure to hit the grain target also threatens
fulfillment of the 5-1/2% average annual increase planned for total agricultural
output.
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USSR: Annual Average Output of Important
Agricultural Products
1966-70
1971-75
1976-80 Plan 2
Grain
167.6
181.5
217.5
Sugar beets
81.1
75.9
96.5
Cotton
6.1
7.7
8.5
Meat (carcass weight)
11.6
14.0
15.3
Milk
80.6
87.5
95.0
Eggs (billion units)
35.8
51.5
59.5
1. Unless otherwise indicated.
2. Midpoint of range.
37. The 1980 targets for livestock products apparently had to be reduced
as a result of the distress slaughtering that occurred last year-inventories of hogs
and poultry dropped 20% and 15%, respectively, in 1975. Annual average
production of meat (15.0-15.6 million tons), milk (94-96 million tons), and eggs
(58-61 billion units) are only slightly above the levels achieved in 1975. Even so, the
reduced plans remain tied to an ambitious herd rebuilding program. The 1975
setback probably will not allow 1976 meat production to exceed 12 million tons,
requiring a staggering 12% average annual increase in meat output during the
remainder of the five-year plan period to achieve the mid point of the announced
goal. With domestic feed supplies inadequate, the Soviets will again be forced to
import substantial amounts of grain to meet the plan for livestock products. Moscow
is committed to buy at least 30 million tons of grain from the United States over the
next five years.
38. On the input side, the directives indicate that agriculture continues to
maintain its priority among resource claimants (see Figure 3). More than one-fourth
of total investment will go to this sector in 1976-80, as in the last plan period. On
the other hand, the planned growth in the flow of resources to agriculture, although
in keeping with the investment program for the rest of the economy, has been
sharply reduced from the last five-year plan (see Table 6). Because of this slowdown,
the pattern of growth of inputs into agriculture in 1976-80 will differ somewhat
from the "Brezhnev Agricultural Programs" of 1966-70 and 1971-75. Deliveries of
mineral fertilizer will continue to grow at a high rate, but deliveries of tractors,
trucks, and agricultural machinery to the farms will slow appreciably.
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39. Maintaining the
high rates of growth of mineral
fertilizers is critical if grain
production goals are to be met,
since 55% of the planned in-
crease in grain output is to
come from higher yields. The
chemical industry plans large
increments in fertilizer capaci-
ty in 1976-80 and will empha-
size boosting the output of the
phosphate and complex ferti-
lizers badly needed to increase
grain harvests. Much of the
fertilizer, however, will not be
available until late in the plan
period, and thus the effect on
grain yields during the next five
years will not be steady. More-
over, planned applications to
grain will be difficult to meet
unless losses in transportation
and storage-currently
10%15%-are reduced.
40. The slowdown in
the delivery of equipment, es-
pecially tractors, in part re-
flects the fact that the industry
is approaching its output ca-
pacity. Official policy calls for
farm managers to cope with the
cutback by using existing
equipment more efficiently
and possibly by retiring the
park more slowly. Soviet press
articles indicate that a sheer
increase in numbers is not as
Figure 3
USSR: GROWTH IN AGRICULTURAL INPUTS
Average Annual Rate of Growth (Percent)
11.0
Net Additions of Irrigated
and Drained Land
1976-80
Plan
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USSR: Average Annual Rates of Growth
of Selected Inputs in Agriculture
1966-70'
1971-752
1976-80 Plan
Investment
9.1
9.7
3.4
Tractors
5.2
3.7
0.9
Trucks
10.7
11.5
0.1
Agricultural machinery
7.2
12.2
6.6
Deliveries of mineral fertilizer
11.0
10.6
9.7
Net additions of irrigated and drained land
0.8
5.8
4.6
1. First Brezhnev Program.
2. Second Brezhnev Program.
important as more powerful and specialized equipment and reliable flow of spare
parts to repair the existing park. In this regard, a major US company recently signed
an agreement with the Soviets to improve the design, development, and manufacture
of tractors and other machinery.
41. Efforts to improve the quality of cropland will also be continued. The
area limed is to average 8 to 10 million hectares yearly, compared with the 6 million
hectares averaged during 1971-75. Application of lime will be a key ingredient in the
program to raise productivity in areas such as the Nonblack Soil Zone of European
Russia. The average yearly gross addition to irrigated and drained land during
1976-80 will be smaller than the area added in 1975. If current retirement rates are
maintained, however, the area of improved land will grow by about 7 million
hectares in 1976-80, equal to the net addition in 1971-75. The stock of improved
land would increase even more if the area retired each year could be reduced. These
improvements are noteworthy. While much of this improved land is used for
technical crops such as cotton, a growing share is devoted to grain. Average grain
yields in 1974 were 75% greater on irrigated and drained land than on nonimproved
land. Moreover, year-to-year variation in yields on improved land is less.
Consumer Welfare: Restraint Necessary
42. If all goes according to plan, the Soviet consumer can expect "more of
the same" in 1976-80-that is, a moderate but uneven growth in his level of living.
Per capita consumption is planned to grow by about the same rate, 3.2%, as achieved
in 1971-75 (see Table 7). Because of the repercussions of last year's poor harvest and
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USSR: Average Annual Rates of Growth
in Per Capita Consumption
Total per capita consumption
4.7
3.2
3.2
Food
3.5
2.1
2.1
Soft goods
6.6
2.7
2.8
Durable goods
9.7
9.7
8.7
Personal services
5.4
4.3
4.1
future fluctuations in farm output, however, there will be temporary setbacks,
particularly in food consumption (see Figure 4).
43. The effects of the poor 1972
and 1975 harvests dictated a modest con-
sumer program for 1976-80. The regime's
commitment to the consumer, however,
appears firm. According to the plan di-
rectives and speeches to the recent Party
Congress, the "chief task" continues to be
"raising the people's material and cultural
living standards." Kosygin pointed out that
the traditional emphasis on heavy industry
"does not mean.. .any lessening of attention
toward extending the production of con-
sumer goods in every possible way." Brez-
hnev also stated emphatically that "the
party does not intend to renounce the
course it has adopted. We regard the present
tasks of the plan for Group "B" industries3
as the minimum." Brezhnev was particularly
candid about the reasons for consumer
shortfalls. He blamed the shortage of agri-
cultural raw materials caused by the poor
harvest, slow construction of new capacity,
and an attitude that treats "consumer goods
production as something of secondary
3. By Soviet definition, Group "B" industries produce
largely consumer goods, and Group "A" industries produce
largely producer goods.
Figure 4
USSR: PER CAPITA CONSUMPTION
Average Annual Rate of Growth (Percent)
Total Per Capita Consumption
9
Food
3.5
Livestock Products
3.6
M
1971-75 1976-80
Plan
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importance or as a side issue." Moreover, he seemed to acknowledge that the failure
to supply more consumer goods could damage worker incentives, thereby jeopardizing
plan: "Not everyone has yet grasped that this is an issue of enormous political and
economic significance and is directly linked with fulfilling the aims of the party's
program."
44. The paucity of investment data for the new plan makes it difficult to
determine if resource commitments back up these verbal pledges to the consumer
sector. Available evidence suggests that the status of consumers has not slipped
relative to other resource claimants:
? The agricultural sector continues to receive priority.
? Brezhnev stated at the Party Congress that capital investment in Group
"B" industries and in the trade and services sphere serving these industries
is "continuing to increase."
? The leadership continues to call for the production of consumer goods by
heavy industrial branches.
? A substantial amount of foreign exchange earnings in 1976-80 is already
committed to buy grain via the US-USSR Grain Agreement.
45. The growth of the major categories within the consumer sector-food,
soft goods, consumer durables, and services-shows little variation from the first half
of the decade. The impact of the poor harvests in the recent past will continue to
dampen rates of improvement in the food sector, which makes up about half of total
consumption. The forced slaughter of livestock in 1975 will substantially reduce the
consumption of meat and dairy products in 1976, and consumption may not begin
to grow again until mid-1977. This slowdown probably explains the slight
reduction-from 26%-28% in the December draft directives to 23%-25% in the
February draft directives-in the 1976-80 goals for food industry output. The
output of most other foods is scheduled to grow steadily, with quality
improvements.
46. The consumption of soft goods, about 20% of total consumption, is
slated to grow at a slightly higher rate than in 1971-75, but nowhere near that of
1966-70. In that period, high growth resulted from substantial imports from Eastern
Europe and the West and strong demand from rural consumers whose incomes were
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rapidly increasing. With demand for basic items now largely met, future growth
depends on improving quality and assortment and on producing "fashionable"
goods.4
47. The consumption of durable goods is planned to grow at a high rate,
although somewhat more slowly than in 1971-75. This category will include goods
that the Soviet consumer has never seen before, such as self-defrosting refrigerators,
fully automatic washing machines, air conditioners, and, video tape recorders. In
contrast to the previous five-year plan period, rapidly increasing sales of automobiles
will not play an important role in boosting growth rates of consumer durables.
Because automobile production is planned to increase only slightly-about 1% per
year-annual sales to the population are expected to remain at roughly the 1975
level. Nevertheless, at these rates, the stock of privately owned cars will roughly
double, from an estimated 2-1/2 million in 1975 to 5 million in 1980, or nearly 2
cars per 100 people. Such sales could (1) absorb about one-third of the 91 billion
rubles currently held in savings accounts and thus ease inflationary pressure, (2)
boost consumer morale, and (3) drop the waiting period for a car to several months
instead of several years. Recent proposals to initiate installment purchase of cars
would facilitate purchases by lower income families.
48. The supply of personal services will grow at a slightly lower pace than
during the past ten years, although it is this category that needs the greatest
improvement. Housing continues to head the list of unsatisfied demands. If plans are
met, per capita housing space in 1980 will nearly meet the nine square meters
standard promised by the leadership in 1928. The volume of state-provided everyday
services (such as barber shops, public baths, and shoe and clothing repair shops),
although planned to grow by 50%, is still far below Western levels. In 1975, the total
value of such services amounted to 6-1/2 billion rubles or about 26 rubles per
capita-only enough for a woman to have her hair washed and set once a month.
49. Income goals for 1976-80 indicate an even more serious attempt than
during the last plan period to stifle inflationary pressures (see Table 8). The growth
in average money wages per worker at an estimated 3.2% is the lowest rate in the
Brezhnev period and equals the growth rate planned for per capita consumption.
Moreover, there is no "something-for-everyone" welfare package this time as
implemented in 1971-75, perhaps a part of the anti-inflationary policy. Past
attempts to hold incomes in line with the availability of goods and services were
4. In his speech to the 25th Party Congress, Kosygin said, "It is not some restricted circle of consumers
but practically all the urban and rural population who are persistently making demands about the quality,
convenience, and newness of goods."
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USSR: Personal Money Incomes
Total money income
Of which:
Earnings of wage
and salary workers
Wage payments
to collective farm workers
Transfer payments'
State deductions from income2
Disposable money income
Per capita disposable money income
123.43
182.98
247.89
312.04
89.05
132.05
179.30
209.88
9.13
14.04
16.24
20.38
15.01
24.04
35.88
45.17
9.62
16.63
25.99
32.72
113.81
166.35
221.90
279.32
492.90
685.13
871.91
1,045.75
1961-65
1966-70
1971-75
1976-80
Percent
Average annual increase
in per capita disposable income3 5.9 6.8 4.9 3.7
1. Transfer payments include pensions and welfare payments, stipends to students, loan service, and insurance
indemnities.
2. Total state deductions include direct taxes on the population, local taxes, state loans, trade union and party
membership dues, and insurance premiums.
3. Average annual rate of growth during each five-year period with the terminal year as indicated.
frustrated largely because the cost of new welfare measures exceeded estimates. The
only new welfare measures fall into the category of pensions and benefits. Minimum
old age pensions will increase, and women with children will receive various benefits,
including a shorter work day and week and longer paid leave after giving birth.
50. The leadership apparently does not intend to sop up excess purchasing
power by raising the prices of consumer goods. The directives claim that the policy
of "securing stability in state retail prices for basic foodstuffs and nonfood products
is to be continued," with selective price reductions.
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Economic Inputs
Investment: More from Less
51. A striking difference between the current five-year plan and its
predecessors is the low rate of growth projected for capital investment (see
Table 9). The average annual rate of 3-1/2% is only about half that recorded in
USSR: Indicators of Capital Formation
Average Annual Percentage Rate of Growth
1966-70
1971-75
1976-80 Plan
Total new fixed investment'
6.8
6.4
3'
Gross additions of new fixed capital'
8.3
6.5
5 1h
Backlog of unfinished construction3
12.1
8.4
'h
1. Excludes net additions to livestock, capital repair, and changes in inventories.
2. This term differs from "gross fixed investment" in that it counts only those investment projects which were
completed.
3. Some equipment installed in unfinished plants is included in this category.
the three previous five-year plan periods. Planners hope the reduction will force
a more judicious use of investment funds by (1) concentrating on completing
unfinished projects and expanding old facilities, and (2) raising capital productivity
by incorporating the latest technology and employing better managerial techniques.
52. The proliferation of new projects has tied up resources and lengthened
construction times, even by Soviet standards. In 1975 the amount of unfinished
construction equaled 76% of total state capital investment. The new five-year plan
directives pledge that this number will fall to 65% by 1980. Toward this end capital
investment will be concentrated on completing and commissioning new capacity
and on raising the proportion spent on new equipment as opposed to starts of
new buildings. In his speech to the 25th Party Congress Premier Kosygin warned
ministries and departments not to seek "additional capital investment allocations
but to fulfill the planned volume of capital work and commission new production
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capacities in good time in accordance with the plan." In this way the USSR
apparently hopes to obtain an average annual boost of 5-1/2% in gross additions
of new fixed capital in 1976-80 with an annual increase of only 3-1/2% in new
fixed investment, compared with the 6.5% growth in gross additions achieved in
1971-75 backed by a 6.4% rise in investment.
53. Similar campaigns have been waged in the past with mixed results. In
1973, for example, investment growth was targeted at only 1.8% and new
construction starts were to be held to 460 compared with more than 700 planned
for 1972. These efforts were successful; gross additions of new fixed capital in
1973 increased at about three times the previous year's rate, while the increase
in unfinished construction dropped from 12-1/2% to less than 3%. In 1974 and
1975 the restrictions were relaxed somewhat, but 70% of all centralized investment
was still to be concentrated on projects nearing completion. Although fairly good
growth in gross additions of new fixed capital was achieved in 1974 and 1975,
the annual rate of increase in the backlog of unfinished construction each year
shot up to more than double the 1973 rate.
54. The inability to hold down new starts and complete old projects is
inextricably linked to the system of planning and management. Overriding concern
with growth and high investment rates impels ministries and enterprises to press
as many projects as possible on the planning agencies. Project completions are
frustrated by endemic bottlenecks in the distribution system and a lack of incentives
in construction organizations where plan fulfillment is largely based on the value
of work completed. Basic construction work is of high value but finishing work
is not.
55. A concentration on project completions could lead to an imbalance in
the availability of new production capacity. For example, a plant completed now
might depend on inputs from plants whose construction has been postponed.
Moreover, if new starts are limited in those sectors counted on for output growth -
such as fuels and power from Siberia - the Soviet economy could suffer a shortage
of essential materials in the 1980s. This concern was expressed by the Minister
of the Coal Industry at the 25th Party Congress.
The CPSU Central Committee draft for the 25th Congress outlines the
development of the Kansko-Achinsk basin. But the 5-year plan does not
provide for resources for starting the construction of new projects. We
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ask the USSR Gosplan to allocate the necessary material and financial
means, when it amends the 1976-80 plan, bearing in mind that it will
take 10-15 years to create enterprises in new, sparsely inhabited areas.
56. In addition to increasing the capital stock, the emphasis on completing
unfinished projects is aimed at raising its technological level. Currently, construction
takes so long that the embodied technology is already obsolete when production
begins. In 1969, first deputy Chairman of the USSR State Committee on Science
and Technology, V. A. Trapeznikov, identified construction delays as largely
responsible for the Soviets' technological lag behind the West. He advocated cutting
the number of construction projects in half.
57. The new plan also emphasizes the reequiping and modernization of
existing enterprises with a concomitant increase in the rate of retirement of
outdated equipment. Accordingly, in 1976, "the share of expenditures on
equipment in the total volume of capital investment is to be raised," and 64%
of state capital investments in industry will be channeled into existing enterprises.
58. The plan directives give scant detail on investment by sector or branch
of industry. As noted above, agriculture will take one-fourth of total investment
funds. Brezhnev indicated to the recent Party Congress that this is a long-term
commitment: "The improvement in the quality of agricultural production requires
time, toil, and huge investment ... we only recently started to allocate large funds
to this sector." Within industry, priority will be placed in those areas that "insure
the acceleration of scientific and technical progress." As in the last plan period,
these are identified as machine-building, the chemical and petrochemical industries,
and electric energy.
Manpower: Slowdown Ahead
59. The new plan directives fail to reveal the planned growth and allocation
of manpower. Nevertheless, sufficient demographic data and secondary information
on Soviet labor intentions permit the construction of estimates believed to be
relatively accurate for the major labor force components. Assuming that labor force
participation rates remain at their current high level, as is likely, the Soviet civilian
labor force will grow by 1.5% annually during 1976-80 compared with about 1.6%
in 1971-75. In 1980, the USSR will employ approximately three-fifths more
workers than the United States, but many of the Soviets will be engaged in unskilled
5. Includes investment in state-owned enterprises and organizations; excludes investment in cooperative
enterprises and organizations, in collective farms, and for construction of private housing.
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activities and assisted by little machinery, resulting in low output per worker
compared with the developed West. For example, in 1980, Soviet agriculture will
still employ more than 30 million workers compared with fewer than 4 million
in the United States.
60. Despite the slight slowdown in growth projected for the labor force
because of fewer youths reaching working age, the USSR will not face an acute
manpower shortage during 1976-80 (see Table 10). Sufficient workers will be
USSR: Average Annual Rates of Growth
of the Labor Force
Total civilian labor force
1.5
1.6
1.5
Agriculture
-1.3
-1.4
-1.5
Nonagriculture
3.0
2.7
2.6
Industry'
2.9
1.5
0.7
available to man all priority endeavors, including Siberian oil development,
construction of the Baikal to Amur railroad, and industrial expansion. If some
shortages occur, they will likely be in the services sector, where employment growth
has been the most rapid and which is labor intensive.
61. The strain on manpower resources will be eased by the anticipated
continuation of the slowdown in the growth of industrial employment. During
the entire five-year period industry is expected to add fewer than 1-1/2 million
new workers. A decade ago, Soviet industry was adding more workers than this
every year. Planners are counting on increased productivity from more and better
machinery, better educated workers, and improved work scheduling. Boosting
productivity will become even more important in the mid-1980s when a very sharp
slowdown in manpower growth is projected. During the 1980s, the labor force
will grow at an estimated rate of only about 1% per year, largely a result of the
sharp decline in birth rates during the 1960s.
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Factor Productivity: The Key to Future Growth
62. In 1976-80 the average annual growth of combined factor inputs -
capital, manhours, and land - is estimated at about 3-1/2%, somewhat slower than
the 4% achieved since 1960 (see Table 11 and Figure 5). Given this growth, if
USSR: Average Annual Rates of Growth of Inputs, Output,
and Factor Productivity in Gross National Product
1961-65
1966-70
1971-75
1971-75
1976-80
Total inputs'
4.1
3.9
4.1
3.5
3'2
Man-hours worked
1.6
2.0
1.9
1.6
1 %
Capital
8.7
7.5
7.9
7.1
6%
Land
0.6
-0.3
0.9
0.0
%
Output
5.0
5.5
3.8
5.8
5
Factor productivity
0.9
1.5
-0.2
2.2
1%
1. Inputs of man-hours, capital, and land are combined using weights of 60.18%, 36.69%, and 3.13%,
respectively, in a Cobb-Doublas (linear homogeneous) production function. These weights represent the
distribution of labor costs, capital costs (depreciation and a 12% charge on gross fixed capital, including
livestock), and land rent in 1970, the base year for all indexes underlying the growth rate calculations.
GNP is to rise by the planned average annual rate of 5% in 1976-80, combined
factor productivity must increase by about 1-1/2% annually - a much faster rate
than attained during the past five years. If industry is to grow by the planned
rate of 6-1/2%, industrial factor productivity must grow by 3%, about double that
achieved in 1971-75 and in 1966-70 (see Table 12).
63. Moscow hopes to achieve the productivity boost mainly by importing
foreign technology and raising the level of domestic technology. Soviet imports
of machinery and equipment have run about 10%-12% of total Soviet investment
in machinery and equipment over the last five years. However, the assimilation
of new technology has been difficult, in part because the managerial incentive
system is geared to quantitative targets. The directives do not indicate that a reform
of incentives is being considered.'
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Figure 5
USSR: GNP, INPUTS,
AND FACTOR PRODUCTIVITY
1976-80
Plan
02=
Inputs of Capital, Labor, and Land
1976-80
Plan
Productivity of Capital, Labor, and Land
1976-80
Plan
-0.2 0 1971-75
0 1.5
Requires a Rebound
in Productivity Growth
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USSR: Average Annual Rates of Growth in Inputs, Output,
and Factor Productivity in Industry
1961-65
1966-70
1971-75
1971-75
1976-80
Total inputs'
6.4
5.5
4.5
4.3
3'/z
Man-hours worked
2.9
3.1
1.5
1.3
'h
Capital
11.2
8.7
8.7
8.4
7
Output
7.0
6.8
6.0
8.0
6'h
Factor productivity
0.6
1.3
1.5
3.5
3
1. Inputs of man-hours and capital are combined using weights of 57.02% and 42.98%, respectively, in a
Cobb-Douglas (linear homogeneous) production function. These weights represent the distribution of labor costs
(wages, other income, and social insurance deductions) and capital costs (depreciation and a 12% charge on gross
fixed capital) in 1970, the base year for all indexes underlying the growth rate calculations.
The Military Burden: Heavy but Manageable
64. Defense requirements have been absorbing an estimated 11%-13% of
Soviet GNP since 1970. More importantly, defense impacts heavily in the
high-technology areas where it exerts a priority claim on manpower and output.
For example, defense still takes the lion's share of high-grade scientific and technical
talent, and in electronics, defense requirements account for most of the total output
of integrated circuits.
65. Public statements by the leadership often reflect concern about the
sacrifices in economic growth and consumer satisfaction that follow from their
defense priorities. This concern, however, has not prevented steady increases in
military programs. Major defense programs have been generously supported even
in periods of economic setbacks, and the followthrough on new programs has been
strong.
66. In the future, the problem of lagging economic growth will make steadily
rising defense costs an even more painful issue for the leadership. The economic
burden, however, will not be the only, or perhaps even the major, consideration
in deciding future defense programs. Other factors will be the leaders' views of
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foreign military threats, the powerful institutional forces which support defense
programs, progress in arms limitations negotiations, and the momentum of
technological advances in the defense sector.
67. The annual increment planned for Soviet GNP seems large enough to
allow for both increases in defense spending and improvement in living levels.
Moreover, the present level of Soviet defense programs is such that modest rates
of growth - or indeed even a constant level of defense spending - will allow
inventories of military equipment to continue to rise.
Foreign Trade: Fastest Growing Sector
68. In 1971-75 foreign trade was one of the most dynamic sectors of the
economy, growing about 2-1/2 times faster than GNP. This trend is expected to
continue for the rest of the decade, since foreign trade will play an important
role in Soviet development plans for 1976-80. Imports of Western technology are
necessary to meet some production goals, and deliveries of foreign grain may be
crucial to restore forward momentum in agriculture and consumption. The Soviets
plan a growth of 30%-35% in the value of foreign trade in 1976-80 but this rate
probably will be exceeded as in the past; the actual growth rate in 1971-75 was
186% compared with the plan of 35%.
69. Eastern Europe will remain Moscow's major trading partner in 1976-80,
but trade with the West should rise rapidly as Moscow continues to import Western
technology and equipment. How much the Soviets are able to import will depend
largely on markets for their export goods, earnings from gold sales, the availability
of Western credits, and the amount of grain needed from the West. The large hard
currency deficits of recent years - $6.3 billion in 1975 and $4-$6 billion projected
for 1976 - will place a new constraint on credits if not on new purchases,
particularly if a huge deficit is repeated in 1977.
70. Much of the continued growth in trade with Eastern Europe projected
for 1976-80 will come from higher Council for Mutual Economic Assistance
(CEMA) prices. Since raw material prices are expected to rise faster than prices
of manufactured goods at least through 1977, terms of trade with Eastern Europe
should continue to shift in favor of the USSR. Despite the higher prices, the Soviets
remain reluctant to raise the quantities of increasingly scarce raw materials
traditionally supplied to Eastern Europe. Oil exports, for example, are expected
to increase only slightly - from 1.3 million b/d in 1975 to about 1.5 million
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b/d in 1980. Moreover, Moscow has insisted on East European participation in
the development of raw material deposits used for exports to Eastern Europe. A
gas pipeline from Orenburg to Eastern Europe is the largest such project under
way. Other joint development projects include a pulp complex, an asbestos complex,
an oil pipeline, and a fertilizer production facility.
71. Equipment and technology should account for a large share of Soviet
imports from the West in 1976-80. Orders placed with Western firms have been
largely for chemical plants, oil and gas field equipment, wood processing equipment,
motor vehicle manufacturing equipment, and mining and construction equipment.
Ongoing negotiations indicate that Western inputs will continue to be important
in the development of these sectors. Large amounts of Western equipment, as well
as consumer goods, will be particularly important for developing Siberian raw
material deposits and the associated infrastructure.
72. Moscow has sought to make many of the Siberian projects - natural
gas, forestry, chemicals, coal - self-liquidating by obtaining advance commitments
from Western firms to purchase a major portion of the project-associated output.
The Soviets are placing increased importance on such compensation agreements
and will pay for a large share of equipment imports during 1976-80 in this manner
(see Table 13). Negotiations for additional compensation agreements are under way
USSR: Compensation Agreements Under Negotiation
Western Countries
Project
Involved
Description
Hard Currency Cost
Udokan Copper
United States,
Complex to process copper
$1.5 billion
United Kingdom
Sakhalin Offshore Oil
United States,
Offshore oil exploration
$1 billion +
Japan
and development
Aluminum Complex
United States,
Alumina and aluminum
$2 billion
France
plants
Yakutsk LNG
United States,
Natural gas pipeline, LNG
$4 billion +
Japan
plant, LNG ships
Pulp/Paper Plant
Japan, France,
Pulp factory and facilities
$600-$800
at Yeniseysk
United States
to produce newsprint, manila
million
paper, and plywood
North Star LNG
United States,
Natural gas pipeline, LNG
$7 billion +
West Germany,
plant, LNG tankers
France
Kursk Steel Complex
West Germany
Pelletization plant, direct
$1-$1.5 billion
reduction plant
(Phase I only)
30
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and even more should be generated by the recent Soviet decision to speed the
construction of a second trans-Siberian railroad, which will open new raw material
deposits for development.
73. In addition to equipment and technology, the Soviets should continue
to rely on the West for imports of industrial materials. Signed contracts and
continuing negotiations indicate that steel products will remain a large component
of Soviet imports from the West. Beginning in 1974, such imports rose sharply
as increased Soviet demands for specialty and shaped steels could no longer be
met from domestic production and/or imports from Eastern Europe. Soviet
preparation for the 1980 Olympics will also require sizable imports from the West.
To date the Soviets have contracted for the construction of about $400 million
in hotels, bringing total contracts associated with the Olympics to more than $1
billion.
74. The extent to which the Soviets can increase their imports of Western
technology and equipment will depend in part on import requirements for grain
and other agricultural products. In an average weather year, the Soviets probably
will import 10-20 million tons of grain; a poor harvest could double this amount.
75. Soviet exports to the West should recover from the recession-induced
slump, which has aggravated Soviet hard currency trade deficits since late 1974.
Raw materials will continue to be the lion's share of these exports despite a rapid
growth in exports of manufactured goods. Soviet exports to the West will be further
boosted by increased deliveries of natural gas, timber, and coal resulting from
compensation agreements signed earlier. By the end of the decade, the USSR also
will be exporting large quantities of fertilizers and other chemicals produced at
imported plants. Moscow's ability to expand some exports will be constrained by
growing domestic needs and/or declining growth in production. For example, there
appears to be little room for increased oil exports beyond the present 1 million
b/d.
76. Soviet indebtedness to the West has risen rapidly as a result of large
hard currency deficits. Nevertheless, the USSR will probably continue to seek a
large volume of Western credits during 1976-80. Debt service was probably on
the order of 20% of export earnings in 1975, but the structure of the estimated
$7 billion medium- and long-term Soviet debt with its long repayment periods
and grace periods should facilitate its management while export earnings are
recovering. Moscow apparently regards such credits as a relatively low cost means
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of importing Western technology and equipment. Moreover, the growing role of
compensation agreements provides the USSR with greater certainty regarding its
future ability to generate sufficient export earnings to cover the growing debt
service.
77. Western governments probably will remain willing to extend large
amounts of low-interest credits to the USSR. They recognize that credit is a key
to the placement of new orders. Western competition for Soviet business becomes
particularly keen during recessions when large Soviet orders provide a welcome
stimulus to lagging domestic economies. Since mid-1974, the USSR has received
more than $11 billion in credit lines from Western Europe, Japan, and Canada.
78. Heavy borrowing in 1975 from Western commercial banks, however, may
have limited Moscow's ability to borrow from this source in the near future. By
the end of 1975, many Western bankers had reached their self-imposed credit limits
for loans to the USSR or were beginning to insist on higher interest rates. The
Soviet decision to tightly control spending in 1976 rather than to continue
borrowing from commercial banks could stem from a reluctance to increase their
short- and medium-term indebtedness.
79. The Soviets have a large stockpile of gold, and output is increasing. At
current market prices, Moscow could earn about $1 billion annually from sales
just from current production. With Eurocurrency borrowing apparently limited in
1976, the USSR may have to market large amounts of gold and thereby risk driving
down gold prices.
80. The Soviets probably will be forced to take severe measures to bring
their hard currency trade into balance if large deficits occur in 1976 and 1977.
These measures might include diverting easily marketable exports from soft currency
trading partners to Western markets; requesting delays in deliveries of goods not
covered by medium- and long-term credits; or even cancelling contracts outright.
On the financing side, Moscow could expand gold sales even further or insist that
imports financed by government-backed credits be 100% financed. An attempt to
reschedule debts with commercial banks would be unlikely since this would tarnish
the credit rating, which the USSR has worked so hard to achieve.
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Private Activity: Another Swing of the Pendulum
81. Official support apparently will be given to the private sector in 1976-80.'
In the most important area of private activity, farming, the plan directives pledge
"adequate" feed for privately owned livestock and direct collective and state farms
to provide the "necessary assistance" to the cultivation of private plots. This latest
swing toward the private sector follows past practice favoring private farming after
harvest failures; a period of relatively good harvests results in a tightening of the
restrictions on private farming. Private producers still provide about 30% of the
vegetables, meat, and milk, 40% of the eggs, and 65% of the potatoes produced
in the USSR.
82. Press articles and speeches by local officials last fall presaged the high-level
support given in the plan directives. They emphasized the importance of the private
sector as a major reserve for increasing output and expressed concern that many
farmers were abandoning private activity because of higher incomes from the
socialized sector and a desire for more leisure time. The Georgian party boss, for
example, suggested that the government supply more feed, fertilizer, pasture lands,
and machinery to the private farmer. He decried as "abnormal" the fact that "42%
of the rural population do not have cows at all and are being transformed from
a producer of livestock products into consumers of those products." He suggested
that a special commission be established to decide how to increase output in the
private sector and that their recommendations be presented to the Central
Committee and Council of Ministers.
83. The plan directives also indicate that support continues for the
construction of private housing in "small towns, urban settlements, and rural areas"
(private construction has been forbidden in cities of more than 100,000 population
since 1964). For the first time the directives promise that the supply of equipment
for heating and water for individual dwellings will increase. The leadership
recognizes that such construction can help ease the housing shortage. During
1971-75, about one-fourth of all new housing was privately built.
Economic Reform: A Shortage of New Ideas
84. Although no major reform of the Soviet economic system appears
imminent, the 25th Party Congress speeches indicate that some tinkering will
7. The production and marketing of agricultural products and the construction of privately owned family
residences are the primary forms of private activity permitted in the Soviet Union.
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continue. The new plan directives endorse further implementation of administrative
reforms in the industrial and agricultural sectors aimed at promoting greater
efficiency. In the industrial sector, this involves mainly completing the formation
of production associations. In the agricultural sector, work will continue on the
development of "interkolkhoz, kolkhoz-sovkhoz and state-cooperative associations,
and agrarian-industrial complexes for the production, processing, and marketing
of agricultural output."
85. Production associations - groups of enterprises that use similar
production technology or manufacture similar products - were first formed in the
USSR in 1961. They grew out of a need for "branch" management under
Khrushchev's regionally run "Sovnarkhoz" system. With the reintroduction of
ministerial management and the economic reform in 1965, the production
association was deemphasized. During the last plan period it was revived as a way
to streamline the bureaucracy and hasten technological progress. Its formation often
allows the abolition of one bureaucratic layer, the glavk, which traditionally stood
between the enterprise and ministry. The association's size and ability to combine
research and production organizations is touted as a way to encourage the mastery
of new technology.
86. Brezhnev called for making the production association the basic unit of
industrial organization at the 24th Party Congress in 1971. This was finally decreed
in March 1973, and the regulations governing the associations' administration and
functions were adopted by the Council of Ministers in March 1974. Ministries were
to submit general plans for implementation by the fall of 1973 with the complete
changeover to take place in 1973-75. Kosygin admitted at the recent Party Congress
that production associations now account for only 24% of total industrial output
and that the transition will not be completed before the end of the current five-year
plan period. Progress has been slow because of bureaucratic inertia and resistance
from those that stand to lose power to the production association, mainly the
small enterprise and ministry.
87. Reorganization of the agricultural sector generally parallels the formation
of production associations in industry; that is, the emphasis is on concentration
and specialization to increase efficiency. As far back as 1961 Khrushchev
encouraged interfarm associations, but change was slow. It was not until 1973
that Brezhnev breathed new life into the movement. In an address to the Central
Committee he stated that "the time has now come for a step-by-step transition
from small labor units to large-scale specialized production, using industrial methods
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and the achievements of science and technology." Progress now is being made but
not fast enough to suit Brezhnev. At the 25th Party Congress he demanded that
"this line must be pursued more actively." Accordingly, a June decree of the Central
Committee ordered party and government organs to accelerate the creation of
interfarm associations and agro-industrial complexes.
88. Some local leaders, however, believe that the reorganization has been
too rapid, on both administrative and economic grounds. A party secretary from
the Volga region complained to the recent Party Congress that the formation of
new farm organizations has gotten ahead of the legal norms and regulations. He
called for the Ministry of Agriculture and planning organs to formulate model
statutes for agriculture similar to those for the industrial production associations
in 1974. The Belorussian first party secretary told a local plenum last November
that large livestock complexes were being formed before the feed base was assured.
He called for "review" of the agricultural construction program and even proposed
scrapping the program to build large complexes and directing investment instead
to fodder production. The Georgian party chief took a similar line last September,
noting that "we have been excessively fascinated with the construction of large
complexes - everyone wants to have his own economic giant."
89. At the 25th Party Congress, national and local officials agreed that new
initiatives need to be taken in the management and planning of "intersectoral"
and "territorial" areas: that is, where economic activity crosses either branch of
industry or republic lines.
90. Brezhnev cited three cross-sectoral areas that need cooperative effort -
fuels and power, transportation, and the production and processing of agricultural
products. He claimed, for example, that "considerable losses" in agriculture stem
from this "lack of coordination among departments and miscalculations in
planning." He suggested a "dovetailing" of the farm sector "with the industries
which supply the village with equipment, fertilizers, combined feeds as well as
the construction industry, and with those industries which are responsible for
procurement, receiving, storage and processing of agricultural produce."
91. Brezhnev cited the development of Western Siberia as an area ripe for
the territorial principle of planning and management. He complained that Siberian
development is "essentially a single task," but it is currently directed by four
departmental river fleets, numerous construction and supply organizations, and at
least ten ministries and departments in Moscow - "plenty of wet nurses but still
a great deal of shortages." He suggested "a united, centralized program" to cover
"all stages or work, from planning to realization."
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92. In typical Soviet fashion, the exact form and timing of such reforms
remain murky. One regional leader, Belorussian party chief Masherov, went so far
as to suggest that a new structural subdivision under the Council of Ministers might
be necessary. Brezhnev, however, demurred on the specifics and threw the
responsibility for drafting solutions to the Council of Ministers and Gosplan.
Kosygin, the chief spokesman for these components, directed Gosplan to take
intersectoral and territorial matters into consideration when "elaborating
comprehensive programs." He also promised that "in the immediate future" new
organizational forms must be developed.
93. The Soviets consistently fail to come to grips with the fact that their
refusal to change the basic operating principles of the Soviet economic system
seriously limits the success of any economic reform. To be effective, the reform
should be accompanied by more rational and flexible prices, less central control
over the allocation of materials, and relief from excessive demand for most
materials. The current emphasis on improving quality and assortment will be
particularly hard to achieve without a change in managerial incentives. Without
such incentives, plant managers will be loathe to bear the reduction in quantity
of output that generally accompanies production of better items. The leadership
has given no indication that the radical changes necessary to improve matters in
these areas will be introduced.
94. Although the tenth Five-Year Plan represents a step toward more realistic
planning, it is doubtful that major targets can be met.
95. Agriculture. Two unfavorable weather years would put the grain target
and consequently the goal for agricultural output out of reach.
96. Consumption. Meat output - one of the most important consumer
goals - is unlikely to grow at the unprecedented rates projected for 1977-80. This
shortfall and others likely in the consumer sector again will open a gap between
money incomes and supplies, adding to inflationary pressures.
97. Investment. Based on past experience, it is unlikely that the investment
strategy will pay off as planned. The basic Soviet incentive system will conspire
against the project completions that are necessary to yield the planned boost in
capital stock.
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98. Productivity. Achieving the higher rate of productivity growth projected
will require the adoption of bold new strategies for the introduction of new
technology and for raising the efficiency of investment in industry and agriculture.
None seem forthcoming. If productivity fails to rise above the average annual rate
achieved during the last two five-year plan periods, GNP growth could be held
to about 4% instead of the planned rate of 5%.
99. If major five-year plan goals are frustrated, as seems likely, Moscow has
several policy options that could limit the decline in economic growth. The most
effective measures would focus on the major sources of growth, increases in
investment and manpower. If the Soviets are unable to meet the target for
expanding the stock of plant and equipment by reducing unfinished construction,
they could (a) boost investment at the expense of consumer welfare goals and/or
(b) default on planned rates of retirement on older plant and equipment, as has
happened in the past. Although the latter measure exacerbates the problem of
meeting productivity goals, it permits the attainment of quantitative targets. On
the manpower side, the Soviets could adopt a variety of policies to boost the
rate of growth of manhours. The number of older workers could be raised by
reducing pension ages and lifting penalties for part-time work after retirement. More
young workers could be brought into the labor force by reducing the size of the
armed forces and changing education policies to restrict the number of full-time
students.
100. Even if its growth rate is disappointing during the next five years, the
Soviet economy should show sufficient strength to support a strong military posture
and gradually raise the level of consumption of the Soviet populace. The present
leadership probably believes that as long as the economy satisfactorily performs
these tasks, major economic reforms can be postponed.
101. The problems awaiting the Soviet economy in the 1980s, however, may
well force the leadership to reassess the need for systemic reform. The most serious
problems will affect manpower, investment, and productivity, the very sources of
growth. The rate of growth of the labor force is estimated to drop markedly to
an average annual rate of less than 1% in the 1980s compared with 1.6% in the
1970s. Investment will bring smaller returns as a larger share is allocated to
capital-expensive development in Siberia, environmental programs, and projects for
the consumer, such as the infrastructure for the auto age. Competition from other
resource claimants may preclude allocating a larger share of GNP to growth-oriented
investment to compensate for the lower returns. If nothing is done to boost
productivity, such as a major reform of the incentive system, the average annual
rate of economic growth in the 1980s could fall substantially.
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