JPRS ID: 8743 EAST EUROPE REPORT SCIENTIFIC AFFAIRS

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• Content Type: REPORTS

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JPRS L/9182
3 July 1980 -
USSR Re ort
p
ECONOMIC AFFAIRS -
CFOUO 1 1 /80~
FBIS FOREIGN BROADCAST INFORMATION SERVICE
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JPRS L/9182 .
3 July 1980
USSR REPO~T
ECONOMIC A~FAIR~
(FOUO 11/80)
CONTENTS -
ECONOMIC POI,ICY, OR.GANIZATION, AND MANAGEMENT
Effective:~ess of Industrial Associations Evaluated
' Nagovitsin; VOPROSY EKONOMIRI, 4pr 80) 1
INVESTMENT, PRICING, F3UDGET, AND FINANCE
Increased Use of Credit Incentives in Investment Expected
(P. Podshivalenko; VOPROSY EKONOMIKI, Apr 80) 15
INDUSTRIAL DEVELOPMENT AND PERFORMANCE
Survey of Current Stage of Soviet Economy
(I. Pogosov; VOPROSY ERONOMIKI, A~r 80) 29
- a ' [III - US5R - 3 FOUO]
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ECONOMZC POLICY, ORGANIZATION, AND ME~NAGEMENT
EFFECTIVENESS OF INDUSTRIAL ASSOCIATIONS EVALUATED
Moscow VOPROSY ERONOMIRI in Russian No 4, Apr 80 pp $3-92
[Article by A. Nagovitsi;i: "The Effectiveness of Al1-Union Industrial
Associations"]
[Text] The Accountability Report of the CPSU Central Cou~ittee to the
25th party congr~ss observed that "the accent on efficiencq is a key
component of all our economic strategy." In conformity with this, the
contemporary theor~ and practice of building co~unism are devoting
more attention tr.? the questions of improving the management system
for indus~ry, in particular to the formation and further development
~f industrial associations. These associations were set up in place
of the former main production admin istrat ions of the sectorial minis-
tries, where they wer~e administrati~ve bodies, a structural element
of the ministry administrative apparatus. These main administra-
tions were not materially accountable for the work of the subsector
because they were budget-financed organizations receiving their money
for various purposes (production development, materi.al incentive, and
the like) in a centralized manner.
Adoptian of the "General Statute on All-Union and RepubYic Industrial
Associationsi1 made it possible to coordinate the process of forming
and refining the activities of industrial associations with ministry
development of master plans for managemeat. In recent years 35 master
plans for management have been introduced in industry.
_ A special section on plannin g improvement in ec~~nomic management has
been included in the national econonsic plan for the first time. This
plan should envision the development of effective forms, structures,
and techniques of management in conformity with the development of pub-
- 1ic production. The introduction of indicators of plannin g for im-
provement of the system of managing sectors of public production,
for example the mmmber of middle-level administrative agencies in-
cluded in a ministry or department system and the number of elements
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in the management structure of a ministry or department system, in the
lOth Five-Year Plan was very timely.
The economic impact from the establishment of all-Union industrial asso-
ciations (VPO's) is linked to the switch to economic accountability '
methods of operation by new organizational structures as compared to
the former main administrations. The main administrations did not in-
sure development of appropriate production specialization and did not
work on questions of utilizing scientific-technical advances, quality
of ouiput, ef~icient use of investment, and the like. Separating out -
an economically accountable organization like the VPO from the ad-
ministrative apparatus of a sectorial ministry increasea material
accountability for subsector w~rk. Tfie formation of new administrative
elements in the form of industrial associa*_ionswill make it possible to
discover new reserves for further ecanomic growth. In this cannection,
the measures envisioned in the decree of the CPSU Central Committee and
USSR Council of Ministers entitled "Improving Planning and Strength-
ening the Impact of the Economic Mechanism on Raising Production
- Efficiency and Work Quality" become important. This decree envisions
"consistent implementation of ineasures toward specialization and coop-
eration in production, and centralization of auxiliary services and
administrative functions at tfie enterprises and organizations being _
joined together."
The work experienc~e of the ministries of the electrical equipment in-
dustry, agricultural machine building, chemical and petroleum machine
building, instrument making, automation equipment, and control systems, '
and heavy and transpoxt machin e building confirms the effectiveness .
of sectorial management based on VPO's. Formation of VPO's in these
sectors and centralization of economic stimulation funds permitted
more operational solutions to problems of development and imple-
"mentation of comprehensive programs, including meseures to develop '
_ capacities and questions of the social development of the basic ele-
ments. This gave stability in fulfillment of plan assignments. It
is simpler for different VPO's to set up direct, long-term ties for
delivpry of output based on contracts, which promote the establiah-
ment of ties between the producer and consumer, making it possible -
to satisfy the need for ~inished products with given parameters at
the necessary time.2
Most of the articles on management review the questions of collectivi-
zation of production, development of the system of economic manage-
ment, improvements in organizational structure, and economic planning
_ methods of management. But the problems of the effectiveness of
settiag up and developing organizational structures for management,
in particular VPO's, do not receive proper attention. Let ua con-
sider the pr:tncipal sources of the effectiveness of VPO's.
An evaluation of the activity of any el~ement of economic management
includes, economic, tectm icai~ and social aspects.
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_ Efficiency (effectiveness) as a category is far broader than the concept
of economic efficiency because it is characterized in noneconomic terms
as we11 ~s by the economic evaluations noted above. But tfie economic
evaluation of the activities of a VPO is expressed in the economic re-
sults of its activity. Witb all the diversity of inethods proposed in
the literature for calculating the efficiency applicable to different
levels of the economy, tne general methodological approach to deter-
mine efficiency as a category that expresses the quality of manage-
- ment and ecanomic results of national economic development is over-
looked. 3
The complexity of calculating the economic impact applicable to a par-
ticular level of the ~conomy, including industrial associations,
_ arises from the need to give a quantitative description when there is ~
no integrated indicator of efficiency.4
In our oninion, to consider production efficiency only as a national
economic category artificially limits the analysis and taking of steps
to raise the efficiency of the particular segmeats. The formation of
multifaceted new structures of the VPO type.demands a study of manage-
ment efficiency in the middle level of management as well. The effi-
ciency of different sectors, subsectors, and so on down to the basic
element (e~terprise and production association) is in a certain sense
a component of nat3onal economic efficiencq. Moreover, determining
efficiency for particular elements of national economic management
is the most thoroughly developed part of the economic theory and
~ practice of developed socialism.5 This is confirmed by the fact that
the "Methodological Instructions" of USSR Gosplan present a complete
system of indicators, whicfi m~ans identical in assortment, structure,
an~3 content, for planning and analysis of production efficiency at
all levels, both for the nationai ecanomy, Union republics, and
- ministri~s or departmeats and for the all--Union and republic indus-
trial associations, production associations, combines, enterprises,
and organizations.
The current situation can be explained by the fact that the economic
- impact of the VPO is a result of the implementation of ineasures that
differ in their orientation and deal witfi both production and manage-
ment. In practice there are no cases of "pure" structural ci~anges
in pxoduction or administration. Both ty~es of structural changes
complement one another. Tfie master plans of management being developed
By the sectorial industrial ministries are a form of reflection of
these structural ciianges. Tfiey ind~cate a system of ineasures that
encompasses production and management. The intertwining of dif--
f erent measures of this sort makes it difficult to conduct a factor
analysis of the component parts. Therefore, the use of a system of
indicators that complement one another permits reaching conclusions ~
on the level of efficiency of VPO's.6
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At the pres~~t time the system of indicators of production efficiency
at any level of management consists of tne indicators that describe
inputs to production, results of production, and impact in production.
The first group of indicators includes one-time inputs (technical and
organi~ational level of production, capital investment and its effi- -
ciency) and production inputs (live labor and material-enery resources,
total inputs for production). The second group includes the produc-
tion and quality of output, sales, and profit. The third group of
indicators characterizes the efficiency of resource use, that is, in-
puts of live labor, fixed capital, and material-energy resources. The
imperfection in this system of indicators with respect to VPO's is
. that it does nr~t correspond to choosing "one's own" efficiency cri-
terion for establishing the middle level of management from the stand-
point of its distinctive functioning characteristics. The system of
efficiency evaluation used for a single enterprise is not suitable
either. In this case the main generalizing indicators are profit,
profitability, and prime cost or efficiency indicators - labor prod-
uctivity, quality of output, and output-capital ratio. This system
of indicators does not reflect the specific characteristics of effi- `
cient operation of an industrial complex as an intricate cambination
of different componen ts, beginning from enterprises and industrial ~ -
organizations and ending witfi scientific and planning institutions.
To evaluate the activities of each of these organizations it is ~
necessary to have "their own" criteria which reflect specif ic and
distinctive features of them.~ But here a number of unresolved prob-
lems arise.
One of the most difficult problems is taking account of the impact
- of the factor of the time during which the changes in the elements
being evaluated take place, for example two, three, or five years. .
~This makes it more difficult to compare results and inputs.
V. I. Lenin observed: "The nature of the organization of any insti-
tution is naturally and inevitably determined by the activities of
this institution.i8 The choice of the indicated efficiency criterion
for our purposes is based on the premise that VPO's function to per-
form tfie following tasks: first of all, those tasks which cannot be
_ accomplished independently by the subordinate enterprises, production
associations, and organizations; secondly, those which should not be
done by the ministries,or the existence of the middle level of indus-
trial management will make no sense. Therefore, the criterion for
evalu~ting the economic efficiency of VPO's is fulfillment of the ,
goals given to the industrial complex and the means necessary to
achieve them in the association. It is necessary to determine goals ~
in order to compare results achieved and degree of approximation to
these goals and to measure the level of use of resources put at the
disposal of the VPO. This approach meets the requirement of corre-
lating the indicators characterizing production results with indicators
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that define production inputs. Therefore, one o� the kej aspects of
_ calculating the efficiency of industrial associations is the method of
shaping the goals.9
The decree of the CPSU Central Committee and USSR Council of Ministers
entitled "Some Steps Toward F~rther Improvement of Industrial Manage-
ment" defined the principal tasks facing the industriaS. associations:
development ~d refinement of production, fuller satisfaction of na-
tional ecanomic and public needs for corresponding types o:' output;
development of optimal plans and fulfillment of assignments for pro-
duction, profit, payments to tIie budget, an3 other state plan indi-
cators; insuring technical progress; prod~icing high-qual3ty output;
= raising labor productivity snd productian efficiency, carrying out
concentration, specialization, cooperation, and collaboration in pro-
duction, maximum u~e of internal. reserves, intensification by pro-
duction of all means, and so~on.
It is distinctive that thsse tasks define the means of achieving the -
goals of industrial associations. However, the above-listed goals are F
important not only for the middle level of management, but also for
any organizat ional structure. Therefore, the efficipn.cy of per-
formance of the goals given to VPO's is characterized by general eco-
no~ic criteria which express the.final results of th3.~ streicture.
- Ia addition to general economic criteri~ each structure has specific
features that ar~ distinctive to it alone. This approach makes it
~ossible to identify the features of specific goals given. to VPO's,
above all from tfie standpoint of distinguishiag industrial associa-
- tions from the foYmer main administrations. The formation of an in-
dustrial association does not by itself signify the formation of a
unified and stably oparating production-managemeat complex. It does
not automatically solve the problem of efficient operations by such
a unit; i~ tT~ese operations sk~ould not deviate from the developmental
parameters assigned by directive. It is precisely at the interface
- between formation of the nev structure and elimination of the old
that spec3fic economic criteria characterizing VPO operations should -
be sougPit. In other words, it is here that we should look for an -
oppo~tunity to distinguish the primary and secondary impacts f~rom ~
creation of the new organizatioual structure af management.
The primary effect of the formation of all-Union industrial associa-
tions is a reduct~on in the number of elements in the aianagement
system and size of.the administrative apparatus. The subsequent im-
pact will be expressed in cancentraticn, specialization, and a rise
in the tecf.n�Lcal level of production and in strengthening economic
methods of management. This approach correaponds to the principle
of unity of the historical and logical because the formation of in- -
dustrial associations made it passibl.e to reduce the total number of
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rva vrrl~teiL u~~ ViVLI
middle-level management bodies. For example, the structure of manage-
ment in th~ petroleum industry remained almost without change for 20-
25 years with 6-7 elements, and there were five elements in the coal
and food industries, in the system~ of the Ministry of Fishing and
� elsewhere. Before the master plans of managemeht began to be developed
iz 1972 the industrial ministries had 1,4G7 middle-level management
bodies. i'he master plans eliminated multiple levels of management.
In some cases this affected main administrations, in others trusts,
combines, and administr~tions. There were cases where main adminis-
trations and trusts, main administrations and (standard) administra-
tions= and other combinations were disbanded at the same ~ime. The
number of middle-level management bodies in the industrial minis-
tries was reduced to 514, three-eighta of the former number, and there
were just 92 such bodies for tfie USSR-republic ministries as compared
to 361 before.
Changes also occurred in the primary element of management. In re-
cent time s production associations (PO's) and scien~e-production
associat ions (NPO's) have begun to develop intensively. At the
present time they encompass 20 percent of alJ. enterprises and account
for 45 pe rcent of industrial output. Eighty Yercent of the 3,600
existing PO's and NPO's were formed in the last six years. During the
Nin.th Five-Year Plan 1, 760 associat ions were formed ; in the f irst two
years of tfie lOth Five-'Year Plan more than 1,260 were formed. Ac-
corc~.in g to calculations by the sectorial ministries, the economic
impact from reduction of the administrative apparatus will be about
190 million rubles. But work to cut back the mu~tiple-level structure
of managenent has not been carr{ed through to the end. About 5,000
enterprises today, or 45 percent of those that have ~oined industrial
~ associat ions, still preserve their independence.
Various ministries such as light, food, and meat and dairy industry
and fishing fiave acknowledged the wisdom of tfie four-level system of
management; USSR ministry (department) - Union-Republic ministry
(department} - republic industrial association (ministry of an
- autonomous republic) , administration of th.e executive committee of an -
oblast or kray (Soviet of Peoples Deputies) - product ion association,
combine, enterprise.
The economic impact of the VPO's depends significantly on staps taken
toward concentration and s~ecialization of production, 3oining
science and production, and bringing management closer to produetion.
The decr ee of the CPSU Central Committee and USSR Council of
Ministers entitled "Some Steps Toward Further Improvement of Indus-
_ trial Management" observed tfiat "when improving the organ iz ation of
industYial managemQnt we must begin from the need to raise the level
of concentration in production of the primary types of output ofl the
sector, develop the scientific-technical base, and eatablish -
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specialization and collabo,-ation among the enterprises being ~oined on
the basis of inerging them into unified economic production complexes,
scientific research organizations, and planning-design organizations
to insure a sigaificant rise in labor productivity,.improvement in
product quality, reduction in its prime cost, and improvement in other
technical-economic indicators."
Organizing an efficiently operating VPO requires increased specializa-
tion basec~. on elimination of duplication in production of identical
out~ut, modification of the prnduction profile of the primary elements,
convers~on of small enterprises into narrowly specialized enterprises -
manufacturing a limited assortment of parts and assemblies or having
similar industrial processes, and so on.
During their development the industrial associations are becoming rela-
tively similar specialized subsectors, for example in machine building
, and food and light industries. The advantages of such specialized ~
VPO's are apparent; it is easier to manage them than nonspecialized
ones. The tractor plants su~ordinate to the PO's of the Ministry
of Tractor and Agricultural Machiae Building are more than 90 percent
specialized in production of definite classes of tractors. Ia this
case the average number of articles on tbe products lists of these
enterprises is 3ust 1.5.
Continued development of the VPO's involves rational redistribution of
enterprises among subsectors and sectors with due regard for spe-
cialization. For example, at tfiis point only five enterprises from
otfier departments hade beea turned over to the USS~t Ministry of Light
T~dustry, while more than 5,500 light industry enterprises continue
to be subordinate to other ministries and departments.
Specialization is more diff icult to institute at those VPO's whic:~ have
multiple profiles. At the VPO's of the Minist ry of Machine Building
for Light and Food Industry, for example, up to 58 articles occur on
the products list of each of the 61 enterprises and often these ar~ -
ticles are not similar in design and technology,ll
Production efficiency rises wfien production-management complexes of
optimal size are established ~rl.th specialization of primary production
and centralization of semifinished parts, energy, repair, machine tool,
and other auxiliary facilities~ As tbe result of steps towards spe.-
cialization and formation of production associations and other organi-
zations at the middle management level, the volume of production of
output and value of fixed productive capital per enterprise in the
cfiemical machine building sector have doubled while the number of in-
dustrial production personnel rose 3ust 15 percent.
. Specialization of enterprises subordinate to indust rial associations
of the Ministry of Instrument Making, Automation Equipment, and Control
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_ xux ur~r~tcla~. usE oivr.Y
Systems and the developmesit of production facilities for parts, aggre-
gates, and assemblies to be used in the sector urill make it possible ~
in 1980 to concentrate their production at 17 specialized en~erprises
and in 139 shops whose commodity output volume will be more than 10 per-
cent of total production. At tfie industrial assnciations of this
ministry, specialization togetfier with other projected economic- .
tecfinical measures will provide almost one-half of all growth in produc-
tion capacities pianned for 1980. This will make it possibie to raise
rhe use of production capacities to 97.3 percent and improve the sfiift
coefficient of equipment operations. -
A characteristic feature of the current phase of collectivization of
produr_Lion of the primary management element, industrial enterprises
and production associations, is specialization of VPO's by object.
In the electrical equipment industry, for example, the all-Union iri-
dustrial association "Soyuzelektrokabel"` specializes in cable products,
- VPO Soyuzelektroapparat in low-voltage equipment, "Soyuzelektromash"
in electric motors, "Soyuzelektrotyazhmash" in turbine and hydraulic -
- equipment and large electric machines, while VPO Soy~izelektrotekhnalogya
- insures tfie devel~pment and production of highly productive industrial
equipment and complex fittings for technical re-equipping of enter-
prises of the sector.
The most promising forums of specialization are by part and techn.ology.
These forms involve singling out as separate production facilities, in .
the first case, the manufacture of a~art of particular articles and
assemblies and, in the second place, certain industrial processes.
Favorable conditions occux for the development of this kind of spe- ~
cialization in machine building, in particular for semifinished part, ~
repair, and other auxiliary facilities.
Increasi.ng production efficiency also depends on those industrial com-
plexes wTiich include fewer plants, bu~ have a mor~ limited products
list . Specifically, standardizing yarn numbers and fabric types in
textile production,specializing enterprises in the production of
definite types of output, and organizing processing of low-grade
cotton and waste at one of them to produce nonwoven materials and
wadding will make it possible to raise the productivity o� labor and
' equipment by 15-20 percent. Calculations show that losses from in-
- adequate specialization are more than 10 million rubles each year
from plants producing production machinery alone. The formati~n of
the narrowly specialized VPO's necessary for this association offers
an opportunity to liberate machine building from individual orders
_ and produce intersectorial output.
The impact obtained by enlarging production volume and raising labor `
~roductivity is a factor in the growth of VPO economic efficiency.
This is evidenced by the fact that the indicators of growth in
output in the primary eleme.-~ts of the VPO, the production
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associat~on and science-production association, are usualYy higher after
the formation of tfie industrial complex tfian the average for the sector.
Tfius, tfie growth in volume of industri~l outpst at production and
science-production associations of the gas industry in the second year
of association operations was 21.2 percent compared to the preceding -
year as against 16.9 percent for the industry ~s a whole; the corre-
sponding figuxe3 in inst rument making, production of automation equip -
ment, and control systems were 18.7 ar.d 14.9 percent. A similar
situation has developed in tractor and agxicultural machine bu3lding
and light rind food industry. _
- Growth in labor product ivity at associations of the Ministry of
Instrument Making, Automation Equipment, andl Control Systema was 12.9
percent compared to 10.9 for the industry as a wFrole, while corre-
sponding figures for the Ministry of Tractor and Agricultural Machine
Building were y.6 and 8.2 percent and in ligbt industry the figures _
were 6.2 and 5.3 perc~nt. ,
Wfien determining the efficiencq of VPO's, however, we must consider not
' just the results of production-management activity of the particulzt~
industrial complex, but also the national economic impact.l2 This
follows, in the first place, from the requirements of the ba~sic eco-
nomic law of socialism, in the second place from the conversion of the
� USSR economy "into a single national economic complex that encompasses "
all elements of production, distribution, and exchange within the
country,"13 and in the tbird place, from the need to solve the problem
of quality. Producing output of improved quality is equivalent to pro-
duction growth. The impact fram it may accrue not 3ust to.the pro-
ductioa associations that produce the output, but to the national ~
economy as a whole.
At the Ministry of Tractor and Agricultural Machine Building the na- -
tional economic impact is calculated as the sum of economic results -
obtained in the production of new equipment and in the use of this `
equipment during its service life. 1'he indicators of economic impact
in. this ministry are reflected in norms and standards not only at
VPO's but also for the primary element and the ministry as a whole.
_ This is very important for implementing the decisions of the July
1978 plenum of the CPSU Central Co~nittee, which pointed out to eco-
nomic managers of the machine building ministries that they were
~ "~,rorking slowly and not hard enough on improving the quality of ma- -
chin~s delivered to agriculture. Tractors a~d manq types of machinery
with obsolete designs that do not meet current requirements for
productivity, econ~my, and reliability often continue to be produced."14 -
More than 270 new tractors and farm machines wF?ich meet the growing
needs of consumers will be bui.1_t at industrial associations during the
lOth Five-Y'ear Plan to solve this problem.
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rux urrtt;tEw ua~ uivLZ ,
The indicator of production efficiency at industrial complexes of the
electrical equipment industry is based on the total national er.onomic
impact and consideration of full input. This makes it poesible to use
this indicator to evaluate the level of production-management activity
for all elements of productia~l in the sector, while at the same time
insuring the unity of national economic and economic accountability
_ interests,
In the machine tool industry the national ~conomic impact is achieved
~y reorienting production to equipment that meets customer needs. This
involves a fundamental revision of the production program, For ex-
ample, in the Ninth Five-Year Plan general-purpose machine tools ac-
counted for 88 percent of the output produced at tfie Krasnyy ~
Proletariy Production Association, which belongs to VPO ~
Soyuzstankoprom; by 1980 less than one-quarter of the association's .
output will be such tools. More than two-thirds of its output will t:
machine tools with programmed control and multispindle automatic and -
- semiautomatic machines witfi full adjustnents. This will produce an
economic impact of 75 million rubles for the national economy in 1976-
1980. The reor~anization at VPO Soyuzstankoprom is being carried out
by mobilizing internal reserves, furthering specializatinn of primary
pYOduction sectors, and optimal use of production capacities without
additional investment .
Setting up scientific and planning subdivisions within a single indus-
trial association makes it possible to join science with production '
efficiently, develop, incorporate, and introduce new industrial proc-
esses more rapidly, and follow a uniform technical policy in the
subsector. The Ministry of the Chemical Industry, for example, formed
12 science centers that serve industrial complexes . The science
centers perform reaearcfi proj ects ordered ty their ministry. The eco.-
nomic impact from the activities of each such sector is estimated at
250,000 rubles a year. The Ministry of the Petroleum Industxy j oins
together 28 scientific research and planning institutes; 11 of them
are oriented to solving large-scala general sectorial scientific
problems and 17 are directly subordinate to production asaociations and
work primarily on problems of applied, local significance, This struc-
ture has worked well. The role of the main specialized institutes has
increased, They are res~,onsible for choosing the chief directions of
scientific-technical progress and they determine the sub~ects of re-
search on the most important problems of the sector or subsector. ~
Most of the science-production associations also belong to VPO's and
have a beneficial impact on sfiortening the "research production"
cycle. The experience of many science-production associations shows
that the introduction time for scientific advances is reduced by one-
third-one-half. For example, the length of the "research -
- production" ~ycle before formation of the Pishchepromavtomatika
[Food Tndustry Automation] Science-Productior: Association was 2-3 years,
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and after it was 1-1.5 years; the corresponding figures for the
Pozitron Science-Production Association were three ~d one years and for
the Plastpolimer Association they are tbree and 1,5 years.
The economic experiments corresponding to the economic strategy of na-
tional economic development deserve special attention. Among them one
can include the experiment with using long-term standards, management
of scientific-technical progress, stimulation of output quality, com-
prehensiye use of inethods that promote satisfaction of customer an~
national economic demand for finisfied products, and new forms of ma-
terial incentive for VPO employees. None of the experiments being
con ducted at Vp0's, however, should be viewed in absolute terms. In
eacfi case the specific features of the subsectors represented by the
middle management level must be taken into account.
Solving the problems associated with improving quality and raising effi-
ciency, for example in the Ministry of tfie Electrical Equipment Tn-
dustry, presupposes among other things imple'mentation of specific
programs to reduce inputs for production of output ustng what is called
fun ctional-cost analysis (FCA), which is expected to identify excess
inputs. T[ie process of conducting an FCA involves four stages: in-
formation (collection and systematization of technicaZ-economic
information on the ob3 ect of analysis), analytic (identification of
the functions , analysis and evaluation of them) , creative (search for
alternate, more efficient variations for performing the functions of
the ob~ect of analysis), and recommendatory (preparation of recom-
mendations to carry out the tecImical proposals) .
The experiment showed that introduction of programs to reduce prime
cost based.on an FCA has a substantial economic impact. For example,
tfie reduction of inputs for the production of A-3160 automatic
switches allowed a savings of 1.18 million rubles (calculated for
annual product output), 120 tons of rolled ferrous metals, 60 tons of
nonferrous metals, 160 tons of pressed material, and three tons of
silver. The first practical steps to formulate the FCA system at the
Ministry of ~he Electrical Equipment Industry were taken in 1974 at
the Ele[ctrosvet Plant imeni A. N. Yablochkov and then later at the -
enterprises of VPO Soyuzelektroapparat. Early in the lOth Five-Year
Plan the board of directors of the ministry decided to develop work -
on the introduction of FCA in all the VPO's by stages. First this
right was granted for VPO's, with tfie remaining industrial associations
covered by FCA later.
The purpose of further refinement of the VPO's is to turn the middle
level of industrial management into a unit that can promote effective
activities by the enterprises and organizations subordinate to it .
The role of the VPO as the middle element in management of industrial
production will grow steadily. In 1980 the volume of commodity
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output per industrial association will reach 90~.6 million rubles as
~ compared to 308,6 million rubles in 1975.
The long-range outlook for development of industrial associations is
clearly reflected in the decree of the CPSU Central Committee and USSR~ ~
Council of Ministers on improving the economic mechanism, envisioning
an improvement in economic accountability methods of work at the all-
Union and republic associations. Beginning with the llth Five-Year Plan
bonus payments to the employees of industrial associations will be made
dependent first of all on fulfillment of quality indicators and obli-
gations for delivery of output in conformity with contracts (orders).
The ministries are receiving the right, based on the amount of profit
remaining at their disposal and considering the distinctive f eatures
of product ion and the level of profitability, to establish appropriate
standards for deductions from prof it for all-Union and republic indus-
trial associations.
To intensify the economic accountability of all-Union and republic
industrial associations for the results of financial management ac-
tivity and give them a greater interest in eff icient use of material
and fin.ancial resources, the decree plans, beginning with the 11th Five-
Year Plan, to give industrial enterprises the right to establish, on
the basis of the assignments ratif ied in the five-year plan, a stable
standard f or deductions from the profit remaining at their disposal
with a breakdown by years. This part of profit will be used to
finance investment, pay back bank loans, pay interest on them, form
the unified fund for developm~nt of science and technology and other
economic stimulation funds, and insure growth in working capital and
otfier planned expenditures for development of the sector. In this
. way, favorable new opporturiities are being created to increase the
efficient operation of the middle level of industrial management.
FOOTNOTES
1. See EKONOMICHESKAYA GAZETA No 14, 1973.
2. "Such coordination of production and consumption at the 'middle
level;"' remarks Yu. Subotskiy, "would be a complementary, hut
important method of balancing many proportions with the chief
one, tfie centralized metho~ of insuring proportionality."
(Yu. V. Subotskiy, "Forms of, Industrial Organizations: New
Phenomena and Problems," SERIYA EKONOMIKI I ORGANIZATSII ;
PRaIZVODSTVA No 6, Zaniye, 1979, pp 60-61). ;
3. See T. S. Khachaturov, "Intensif ikatsiya i Effektivnost' v
Usloviyakh Raz~itogo Sotsializma" [Intensification and Efficiency
Under Conditions of Developed Socialism], Izdatel'stvo Nauka,
1978, p 210; L. I. Abalkin, "Konechnyye Narodnokhozyayatvennyye
Rezul'taty: Sushchnost', Eokazateli, Puti povyshaniya" [Final
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National Economic Results: Substance, Indicators, and Ways to =
Increase Them], Izdatel'stvo Ekonomika, 1978, pp 52-53; Ye. K.
Smirnitskiy, "Pyatiletka Effektivnosti, pyatiletka Kachestva01
[The Five-Year Plan of Efficiency and Quality], Politizdat,
1977, p 80; V. G. Lebedev, "The Economic Efficiency of Socialist
Production as a Category of Political Economy" in "Effektfvnost'
Sotsialisticheskogo Proizvodstva. Kategoriya. Rezervy.
Perspektivy Rosta" [The Efficiency of Socialist Production.
Category. Reserves. Growth Outlook], Izdatel'stvo mysl',
1978, p 9.
4. The efficiency of public production is planned on the basis of
p rinciples that are common to all elements of the national economy
and measured by comparing the results of production {effect) with -
inputs or resources used (see "Metodicheskiye Ukazaniya k
Razrobotke Gosudarstvennykh Planov Razvitiya Narodnogo
Khozyaystva SSSR" [Metbodological Instructions for Deuelopment
of State Plans for Development of thp Ttc~R National Economy],
Izdatel'stvo Ekonomika, 1974, p 33).
5. V. Kuznetsov observes that "the m~easurement, analysis, and planning -
of the economic efficiency of production at tfie level of the sector,
enterprise, and association is the weakest point in the theory and
p ractice of determining economic efficiency" (V. M. Ruznetsov,
"Rollektiv i Effektivnost' Proizvodstva" [The Collective and
Production Efficiency], Politizdat, 1977, p 13).
6. In tfie "Methodological Instructions" ratified by USSR Gosplan, it
is observed in this connection that "the economic efficiency of
public production is not planned according to some one indicator,
but rather by a set of indicators, because production efficiency
is influenced by a number of factors and only a system of indi- -
cators that complement one another wi11 permit correct conclusion
concerning the level of efficiency" (p 33) . -
7. Academician T. Rhachaturov observed that "one need not be em--
barrassed, as some authors are, because different indicators of -
the impact and of inputs must be used at each level. The only
important thing is that these indicators must in any case reflect
tbe direct ion and scale of change in efficiency" (VOPROSY
ERONOMIRI No 6, 1975, p 131).
8. Lenin, V. I., "Polnoye Sobraniye Sochineniy "[Complete Works],
Vol 6, p 99.
9. This aspect of the problem corresponds to the process of manage-
ment of a sector or subsector encompassing stages which~ are ade�-
quate to tfie principal management functions. These include:
establishing goals, forecasting, planning, operational management
and monitoring.
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10. The development and strengthening of VPO's depends on practical
_ utilization of the advantages inherent in the new industrial-
organizational structure. If this is not done the formation of -
_ industrial complexes will be nothing more than a change nf
"signs," which alters very little in the makeup of production
and methods of industrial management. Th~ese demands found reflec-
tion in the USSR Constitution, which reads: "The state insures...
an increase in the efficiency of production and quality of work'~ ~
("Constitution [Basic Law] of the USSR," Politizdat, i977, p 11).
11. "Non-Profiled production does not at all mean non-specialized
and inefficient production. This is illustrated, for example,
by the fact that the prime cost of certain typea of output pro-
duced in non-profiled sectors does not at all exceed the level
of cost in the specialized sectors" (Yu. V. Subotskiy, "Razvitiye
Ob"yedineniy v Promyshlennosti" [Development of Associations in
Industry], Tzdatel'stvo Nauka, 1977, p 127). �
12. Academician T, Khachaturov observes: "These indicators (which
measure the efficiency of public product ion most correctly - .
A. N.) shauld insure a national economic approach to evaluating ~
efficiency, whether we are speaking of the economy as a whole, ~ ,
particular sectors, or individual enterprises. This approach pre-
supposes considerat ion of both tfie direct effect and also the
indirect effect which arises on the basis of production inputs"
(T. S. Khachaturov, "Intensifikatsiya..." op. cit., p 213). ~
13. "Constitution (Basic Law) of the USSR," p 11. ~
14. EKONOMICHLSKAYA GAZETA No 28, 1978, p 9.
COPYRI(~iT: Izdatel'stvo "Pravda", "Voprosy ekonomiki", 1980 ~
11,176 ~
CS0:1820
~
i
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- INVES1i~NT, PRICING, BUDGET, AND FINAN~
INCREASED USE OF CRIDIT INCENTIVES IN INVESTMENT EXPECTF.D
Moscow VOPROSY EKONOMIRI in Russian No 4, Apr 80 pp 61-71
[Article by P. Podshivalenko: "Enhancement of the Role of the Credit-
Financing Mechanism in I3aising the Effi~ciency of Capital Investments"]
[Text] The decree of the CPSU Central Commnittee and USSR Council of Minis-
ters entitled "On Improving Planning and Strengthening the Influence of the
Economic Mechanism on Increasing Production Efficiency and Work Quality"
gives an important place to measures aimed at speeding up the activation of
production capacities and pro3ects, at a sharp reduction of new construc-
tion starts so as to bring the volume of unfinished construction within the
established allowances in coming years, at raising the efficiency of capi-
tal investments, and at guaranteeing a further improvement in the techno-
logical pattern of investment and a rise in the relative share of outlays
for equipment.
In this context we shoiil.d ~iden*_ify a number of new principles in planning
which bear directly on the financing of construction and on control by the
banks. First of all, lists of new construction starts and also lists o~f
enterprises scheduled for reconstruction and e~cpansion will be drafted in
- 5-year plans in order to ensure continuity in the validity of capital con-
struction plans.
Itemized lists (with breakdown of assignments by years) which will not be
altered over the entire period of construction are compiled on the basis of
lists of construction projects, ceiling amounts of capital investments and
of construction and installation work, pro~ ect plans and estimates, and al-
lowed construction times. They are approved in much the same way as the
lists.
Ministries figuring as clients and ministries figuring as contractors are
both imrolved in the procedure to break down by years the amounts of con-
struction and installation work in the drafts of the itemized lists. The
ministries are granted the right to issue the relevant orders to their sub-
ordinate organizations. The amounts will be distributed by years in such a
_ way as to ensure a uniform pace on the part of construction organizations
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and the spadework required by trie technology within the limits of the dead-
lines given in the plan for activation of the capacities and projects and
so as to adhere to the allowed construction time.
Second, the stability of the plan and the realism of fulfilling it are
guaranteed by a number of ineasures which are binding on clients, contrac-
tors and project planning, credit financing and other organizations and in-
stituCions. For instance, the ceiling amounts of capital investments set
forth in the 5-year plan are not subject to revision in annual plans. The
itemized lists are to be unalterable over the entire period of construc-
tion. If in the previous year less work was done on the construction proj-
ect than envisaged in those plans, the construction organization must make
up the lag in the following year. Corrections in the itemized lists are
allowed only when plans are revised in order to accommodate improved equip-
- ment and progressive technology. In these cases the estimated cost can be
revised only within the limits of the ceiling amounts of capital invest-
ments and construction and installation work assigned to the ministry or
union republic for the given year. USSR Gossnab has been issued a recom- .
mendation that in 1981 it complete the conversion of construction sites in-
cluded in the state plan to aggregate supply of materials through regional
material and technical supply agencies on the basis of orders of construc-
tion and installation organizations in accordance with the need for them as
stated in plans and estiniates.
Third, ongoing production and new construction will be planned as an inte-
grated whole. Moreover, priority is not to be given to new construction,
but to retoola.ng and reconstruction, which makes it possible to expand pro- ,
duction capacities in a shorter time and with smaller (by 8-10 percent)
capital investments. It is also important to adhere to the specified esti-
mated cost of enterprises and installations. Implementation of the plan-
ning procedure outlined in the decree should be a formidable obstacle to
the scattering of ~apital investments, to a rise in the estimated cost and
to augmentation of unfinished construction.
Performance of ineasures to improve quality of plans and estimates and to
geC them to construction sites on time is playing a large role in solving
the problem of increasing the efficiency of capital investments.
The decree calls for tightening requirements concerning the technical level
and quality of products of machinebuilding. There are plans to replace
outdated standards pertaining to machines and equipment and to include in
the new standards requirements that guarantee lower product weight, reduced '
fuel and energy consumption in the process of operation, and also standard-
ization of parts, assemblies and instruments. In 1979 and 1980 there must
be an evaluation of the technical level oi the machines, equipment and
other industrial products manufactured by the industrial sector. Thereaf-
ter this reassessment is to be done periodically. Procedure and intervals
are to be established for intradepartmental expert evaluation of the tech-
nical-and-economic indicators of the most impor.tant types of products and
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manufacturing processes in the stage of the technical assignments a~d the
f inal results. In 1979 and 1980 the transition is to be made toward plan-
ning the production of equipment on an expanded list in units of ineasure-
ment that reflect more fully its productivity and other economic attributes.
Indicators in tons can be used only for computational purposes.
Plans for project planning and surveying and for development of the network
and material and technical facilities of pro~ect planning and surveying or-
ganizations are to be drafted and approved in order to speed up the pro3ect
planning and constructioa of pro~ects. The assignments of rhis plan are to
be linked to the capital construction plan.
Design documentation will contain data on the need for materials, fabrica-
tions and components. The estimated construction cost of each phase of the
enterprise is approved within the limits of the overall estimated cost of
construction, wiiich is determined in the technical-and-economic ~ustifica-
tions. Monitoring the adherence to these requirements is to become one of
the elements the banks look for in examining the plans and estimates. Dur-
ing tihe 5-year period estimate prices are to remain stable, which creates a
stable basis for planning capital investments and for strengthening cost
accounting (khozraschet) in construction.
Preparation of standard and individual designs for construction of enter-
prises in the industrial sector and other sectors of the economy and also
- of housing pro~ects and complexes and public works will as a rule be based _
on a competition with the extensive participation of highly qualified spe-
cialists.
Production associations for construction and assembly are becoming the
principal cost-accounting unit in construction work, and this function is
performed only in certain cases by trusts. The creation of production as-
sociations for construction and assemblq will facilitate more elaborate
specialization in construction work. The constructidn organization will as
a rule be a complex of production units, including pilot production opera-
tions and other subdivisions which previously were independent enterprises
and economic entities.
The role of the producer of the end product and the functions of the prin-
cipal cost-accounting unit are passing entirely to the production associa-
tions for construction and assembly, which carry on their activity on the
principles of intraoperational cost accounting. This is a radical trans-
formation of the system for management of construction work, which begin-
ning in 1938 was based on the trusts and had not undergone any appreciable
changes.
Cost accounting is also being introduced into pro~ect planning, scientific
research, planning and designing, and other similar organizations. One of
the preconditions is transition to a contract basis and delivery of the
finished product to the client. The transition of pro3ect planning
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organizations to cost accounting signifies stronger control by the ruble
over fulfillment of targets for commodity output, profit and labor produc-
tivity. This will be a great help in the effort Co get plans and estimates
to conetruction sites on time, to improve their quality and to reduce the
estimated construction cost.
The team job contract will be the principal form of worker organization and
- incentives at enterprises and construction projects. At the present time
740,000 workers in the building trades, 20,000 txuck drivers and nearly
12,000 machine operators are working in teams. In 1975 they did aborst 6
billion rubles of wbrk, and in 1978 approxi.mately 16.5 billion rubZes (30
percent of all contract work). The results of a survey of the activity of
1,000 cost-accounting teams indicate the importance of expanding the team
~ob contract. Project construction times were reduced by 17-20 percent,
labor productivity rose 20-25 percent, and the saving (against the calcu-
lated cost of the work done) was 3-4 percent. Almost all projects were
evaluated at "excellent" or "good'' at the time of acceptance. However, the
share of the team ~ob contract in the productive activity of construction
organizations is still low.
Beginning with the llth Five-Year Plan formation of economic incentive
funds (the material incentive fund, the fund for social welfare and cul-
tural programs and housing construction, and the production development
fund) in productior_ associations (enterprises) will be governed by princi-
ples whose purpose it is to develop the economic initiative of working col-
lectives and to guarantee broader rights to cost-accounting organizations.
Stable rates used in forming the funds are to be the basis for this; their
levels will differ from year to year of the 5-year plan. When production
associations (enterpr.ises) adopt and fu1fi11 counterplans exceeding the
targets of the 5-year plan for the parCicular year, the transfers to the
funds are increased. Should the targets of the 5-year plan not be ful-
filled, the transfers to economic incentive funds are made at lower rates.
The funds may be spent only for the specified purpose, but monies remaining ,
in them may be carried over to the next year and are not sub~ ect to conf is- ,
cation by superior and other authorities.
Production associations and enterprises themselves draft and approve meas-
ures (financed from the production development fund) for mechanization and
automation, for replacement and modernization of equipment, to improve the
_ organization of production and work, as well as other retooling measures.
On the basis of the reports and recommendatione of production associations
(enterprises) outlays for these measures are included in their full amount
in the plan of ministries and departments and are given priority in the al-
location of capital investments, physical resources and amounts of contract ,
- work (within the limits of the ceiling amounts of capital investments,
physical resources and contract work set by ministxies and departments in
5-year plans and the breakdown by years). In order to carry out the meas-
ures which will become necessary during fulfillment of the annual plan, the
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relevant outlays will be made over and above the ceiling amounts of state
capital investments from unused reso~rces of the production development
fund and above-plan transfers to that fund. A similar procedure has beec~ _
- adopted for furnishing capital iavestmente, physical resourcee and amouxits
of contract wnrk to cover outlays made from the resources of the fund for
social welfare and cultural programs and housiug construction.
Before these and other measures were drafted, they were first verified by
experiment. For example, the Belorussian Ministry of Industrial Construc-
tion and Ministry of Installation and Special Construction Work have since
1976 organized their activity so that the economic mechanism tied the in-
tarest of every construction worker with the interests of the team and con-
struction subdivisions, including production associations and ministries.
Every production unit functions on the principles of pay-as-you-go, that
is, covers its own expenses from the income received, achieving thereby a
larger absolute amount of cost-accounting funds and a larger share of
profit becoming a revenue of the state budget. The planning procedure and
contract relations have been altered correspondinglq.
The activitq of the ministry as a whole and of each construcrion subdivi-
siou is evaluated according to results in fulfilling the program for proj-
ect completion, the plan for the commercial output of construction, profit
and the rise of labor productivity. In all cases deductians going into the
budget are an invariable quantity and a~e made regardless of the financial
results of operation.
Now other organizations are also operating after the pattern of enterprises
in Belorussian SSR. The data reflecting the performance of these organiza-
tions confirm that they have the best figures on reduction of construction
time, reduction of the number of projects under construction at the same
time, and the rise of labor productivity and profitability. For instance,
- the number of projects under construction at one time for the Beloruosian ~
Ministry of Industrial Construction dropped 7 percent between 1976 and
1978, and the drop for the Lithuanian Ministry of Construction was 13 per-
cent. To be sure, the mechanism has not fully stimulated the activation of
capacities (though the level of activation was higher than for construction
as a whole), since the indicator of fulfillment of the plan for the comaner- -
cial outgut of construction was not directly related to the indicator o�
acceptance of capacities and projects for operation. In the Belorussian
Ministry of Industrial Construction and Ministry of Installation and Spe-
cial Construction Work and other departments which took over their method,
the commercial output of construction was recorded on the basis of the doc-
uments of state acceptance co~nissions, without waiting for their approval.
But not infrequently the entities whose approval is required submit re-
quirements related to incomplete performance of assignments set forth in
the pro3ect plan. The work not done must be completed within 6-12 months.
It turned out that the plan for the eommercial output of construction--an
_ important success indicator-,was fulfilled even when the assignment for ac-
tivation was not. This has to be taken into account when the new system is
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introduced. Financial and credit instruments are given a large place in
the system of ineasures to strengthen and further develop cost accounting.
The economic accountability of production associations (enxerprises), all-
union (republic) associations and ministries for the results of economic
operations and financial performance ie being strengthened, and at the same
time they will be more motivated to make the most efficient use of physical
and f inancial resources, to improve utilization of productive capital and
to economize on physical resources. The rates of the charge on productive
_ capital have as a rule been set at 6 percent. Moreover, the charge on
above-allowance iuventories not covered by credit financing and uninstalled
equipment must be paid from the profit left to the associations, enter-
prises and organizations. At the same time, when the plan for the volume
of production and profit is fulfilled with a smaller value of capital than
envisaged in the plan, this saving on the charge for capital is left to
their disposition. The amounts of payments into the budget are reduced by
that amount. It is also importsnt that 50 percent of above-plan profit
_ (not counting various premiums) is left at the disposition of ministries,
associations and enterprises. Should the plan for accumulation of profit
be overfulfilled by more than 3 percent, 25 percent of the amount of the
overfulf illment is left at their disposition, while the remainder goes into
the budget.
When there is a shortage of "own" funds to finance capital investments on
projects for productive purposes, provision is made in the 5-year plans of
ministries, associations and enterprises to enlist bank credit and appro-
priations from the budget. The banks are required to furnish continuous
financing of state capital investment pro~ects for productive purposes.
The basis of this procedure are the itemized lists covering the entire pe-
riod of construction. The approved estimated cost is to serve as the ceil-
ing amount on the release of funds. Continuity in financing is achieved by
means of credit.
The f inancing of capital investment pro3ects from the "own" funds of minis-
tries, departments, associations and enterprises, envisaged by the decree,
raakes the size of investments directly dependent on the financial results
of their performance. The use of bank credit when "own" funds are lacking
makes these entities more responsible for the growth of accumulation, for
timely mobilization of funds and for their economical expenditure.
Even now many enterprises and ministries figuring as clients have begun to
make more extensive use of credit. For instance, in 3 years of the lOth _
Five-Year Plan USSR Stroybank has issued long-term credits exceeding by
2.4-fold the a~oount granted over the corresponding period of the Ninth
- Five-Year Plan. Outstanding credit has reached the amount of 26 billion
rubles.
Credit also figures as an incentive measure, a means of stimulating adop-
tion of highly effective measures. It will be granted to cover costs of
developing science and technology not envisaged in the plan, the loans
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- (including interest) to be repaid from the unified fund for development of
science and ~tectmology within 2 years from the date when they were made. -
The credit extended is covered by a guarantee from ministries and depart-
ments or all-union (republic) associations. The baaks may extend credit to
- production associations (enterprises) and organizations to carry out highly
effective measures (over and above the ceiling amount on state capital in-
vestments) to manufacture a new product and to improve the quality of prod-
ucts produced, as well as to espand the production of consume~ goods and to
improve consumer services to the public, if the outlays are repaid from the
additional profit within 2 years. The loans and interest are repaid within
- that same period. Up to 50 percent of the turnover tax on sales of con-
sumer goods manufactured by performing the measures covered by the credit
may be taken into account in determining the period for repayment of the -
costs and as a source from which to repay the credit. -
Introduction of settlements between clients and contractors for enterprises `
entirely completed and put into operation and for complexes, phases and fa-
cilities capable of independent operation that have been prepared for the
manufacturing of products and the rendering of seroices is a typical fea-
ture of the effort to strengthen the role of financial and credit instru-
ments. The following figures indicate the relationship amang the forms for -
gelling the product of the cons truction industry (ia percentage of the to-
tal):
1976 1978 -
For construction and installation work completed on the
project 50.1 60.0
For two stages (substructure, above-ground portion) 9.0 6.0
For three stages (substructure, building, installation
of equipment) 6.4 5.2
For four or more stages of the pro3ect 30.7 26.3
On the basis of percentage of completion (for the gross
amount of work done) 3.8. 2.5
Consequently, more than 71 percent of construction and installation work is
- paid for at the present time for completion of all work on the pro~ect or
in two or three stages (20 percent at the end of the Eighth Five-Year Plan).
It is evident from the table that a process is taking place in which the
terms realized ontput and finished output of construction organizations are
coming considerably closer ~ogether. But in this case we can speak of the
finished product only provisionaliy, the main reason being that construc-
- tion and installation wark on pro~ects for productive purposes are paid for -
independently of the actual activation of capacities.
Settlement for projects and for major stages of the w~nrk have enhanced the
motivation of contractors and clients to concentrate capital investments on
a narrower front of operations and to speed up fulfillment of the project
completion program. When the contractor changes methods of performing the
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work, substitutes materials with tne client's consent, improves the struc-
- tural eleffients and design features (when this makes construction cheaper
than the estimated cost and does not affect the strength and performance
characterisCics of projects and structures), settlement between client and
cantractor (regardless of the form it takes) is made at their cost as given
in the estimate. The entire saving is credited to the construction organi-
zation for purposes of fulfil].ment of the plan and assignments for reduc-
tion of production cost. The procedure adopted for settlement, along with
other factors, is helping to speed up the turnov~er of capital investments.
This can be judged from tha following figures (projects for productive pur-
poses):
1970 1974 1976 197' 1978
Average time capital remains in the
form of unfinished construction (in
- months) 15.8 14.8 14.2 13.3 13.3
Settlement for the pro~ect as a whole
(in percentages of a11 work paid for) 5.0 24.0 36.0 43.0 47.0
As settlement for the proj ect becomes more common, construction time is re- ~
' duced, and capital spends less time in the form of unfinished construction.
In future work is to be paid for at the estima.ted cost of the commercial
output of construction. This measure strengthens the tendency which has
been outlined and at the same time enhances the accountability of clients
and contractors: af ter all, the project (complex, phase or enterprise ca-
pable of indeperuient operation) must not merely be completed, but must in
fact co~nence productive activity. .
In certain industries it has been seen advisable for a gradual transition
to be made to construction of enterprises (structures) by contractors at
the full cost as set forth in the estimate accepted by the general contrac- -
tor. The client is to be delivered finished enterprises (structures) on ~
what is called a"turnkey" basis.
This kind of settlement has already been in effect for a number of years. -
If work done in essence on a"turnkey" basis, that is, pro~ects, indepen-
dent complexes, phases and enterprises as a whole for which settlement is
made after approval of the certificates of state commissions accepting them
for operation, are identif ied in the total volume of paymenta for pro,jects
as a whole, then we get the following figures (in percentage of the total
amount of work paid for) :
1975 1978
Total paid on a"turnkey" basis 19.6 29.5
Breakdown:
On construction of productive facilities 2.5 7.0
On construction of housing and public works 48.0 65.0
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Thus payments on a"turnkey" basis still represent a negligible amount in
the volume of work paid for in construction of production facilities,
- whereas in construction of housing and public works they are already domi-
naat. Success in fulfillment of assignments for activation of facilities,
for reduction of construction time and for reduction of unfinished opera-
tions has been far greater in construction of housing and public works than
- in construction of production facilities. The complexity of the p~o~ects
involved, the large number of individual designed features, the unreliabil-
ity of the estimated cost and a number of others are usually among the
causes holding back adoption of delivery of products on a"turnkey" basis
for this type of construction. One of the important aspects of the decree
of the CPSU Central Conmittee and IISSR Council of Ministers is that i.mple-
mentation of the measures contained in it wi11 make it possible to elimi- _
nate these causes. Brosd room will thereby be opened up for adoption of
everything progressive which science has accumulated and developed in the
field of improving cost-accounting relations in the construction industry.
But even in the present situation settlement on a"turnkey" basis for pro~-
ects for productive purposes yield a large gain in terms of time. For ex-
- ample, in 1977 an independent power generating complex of the Uglegorskaya -
GES was put on line in 12 months instead of the 18 allowed. In 1978 major
phases were put into production ahea.d of schedule at the llth Poltava and
5th L'vov sugar mi.lls. _
At present installation work is the responsibility not only of specialized
organizations of construction departments, but also of machinebuilding
plants wliich are the suppliers of equipment. 'I'!ze plants figuring as gen-
eral suppliers in the system of aggregate delivery of manufacturing equip-
ment, production lines, installations, and mechanization, automation, con- -
trol and monitoring equipment will be paid for the eretire set of equipment
del ivered or installed. Consequently, a third aspect of contract relations
is emerging--the general supplier, who will also figure as the contractor.
This is an important step foiward in developing the contract method of do-
ing construction.
Adoption of aggregate deliveries of equipment and its installation by the
plants which are the manufacturers are making them more interested in the
end results and are making them mare accountable for scheduled and complete
del ivery of equipment to construction pro~ects. For example, the Ministry
of Chemical and Petroleum Machinebuilding began in the Ninth Five-Year Plan -
to furnish complete production lines to construction sites, performing the
role of a general supplier. The ministry furnishes enterprises under con-
- struction equipment in a high state of factory rea3iness that has been en-
tirelp made up (including apparatus, mechanisms and instruments manufac-
tured by other industries).
There are already organizations applying similar methods of operation on a
broader scale. The reference here is to the complete-unit (blochno-
komplektnyy) method of construction. The complete units referred to are
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finished pumping, compressor or repumping stations, boiler rooms and other
installatione Eor product pipelines, which are entirely manufactured off-
site in unita and sets, including their equipment, and they are then in-
stalled along the line. In T~umen' a l.arge experimental association, Sib-
komplektmontazh, has been created to concern itself exclusively with manu-
facturing these units and with construction based on such units. Its com-
ponents include project planning offices, plants manufacturing the units,
and mobile installation columns. In essence the unit sections produced by
the association are a new variety of a product of machinebuilding. The as-
sociation itself is an improved type of industrial enterpriae producing ma-
chines so as to take into account maximum readiness for installation at the
construction site and then completing aYl the necessary related work on the
spoc.. For example, this was the method used to build the Demyansk pumping
station for repumping petroleum. The station was manufactured at the plant
in Tyumen' in 2 months, it took 8 days to deliver it to the site for in-
stallation, and installation took 3 days. One of the large boiler rooms
- was put into service at the same place in 3.5 months, a job that would or-
dinarily take at least 2 years. Use of this method is making it possible
to raise labor productivity 6-8-fold at construction sites.
In this case the end product of machinebuilding is equipment manufactured
and prepared for installation under off-site c~nditions, installed in the
pro,jects under construction and teated. The spread of the complete-unit -
method will make it possible to considerably expand the scope of activity
of the bank and its institutions.
In recent years cred it has been developing more and more in financing par-
tial performance of construction and installation work. As settlements
have been consolidated more and more and intermediate payments have been
gradually eliminated, the amount of this credit both in absolute and rela-
tive terms has been increasing. For instance, it was 3.2 billion rubles in
1970, 26.2 billion rubles in 1975 and 46.2 billion rubles in 1978. Credits
to cover unfinished construction work represent SO percent of the total -
amount of sllort-term loans issued by Stroybank.
But until recently the overwhelming proportion of construction in process
(up to 85 percent) was financed by advances from clients, which in essence
represent a unique form of commercial credit, whereas the relative share of
bank credit was only sligrtly more than 10 percent.
With the transition to settlement on the basis of the estimated cost of the
commercial output of construction clients no longer issue advances to con-
tractors to cover the cos~, of the unfinished construction and installation
work done. Until the planned ~Qadline for deliv~ry af the enterprises or
independent complexe s, phases and atructures on which construction has been
completed, these expenditures will be financed with bank credit. Funds
which clients have available because of the transition to settlement with-
- out intermediate payments are to be used as a source of this credit financ-
- ing. The standard allowance for expenditures on construction in process
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(in the period between dates for arrangement of credit) is up to 10 percent
of the annual amount of contract work done by the contractors themselves.
_ This allowed amount will be financed with the resources c~ the contractors
_ and with bank credit insofar as those resources are insufficient.
The costs of the contractor oa "turnkey" proj ects--both for construction
and inatallation work and also to pay for equipment which has arrived, are
incurred from commencement of construction of enterprises or pro~ecta and
- until their delivery to the client are reimbursed with bank credit. An ex-
periment with this type of operation has been conducted in the construction
of 30 enterprises and pro~ects in various industries, and 21 contractors
are involved in conducting it. In 6 years (197~-1977) 19 enterprises were
put into operation, 12 of them (63 percent) on schedule or ahead of sched-
ule. Construction of similar enterprises built in the conventional way has
- as a rule run over the allowed period of time. For example, a plant for
the primary processing of raw hides at Ostashkov in Kalininskaya Oblast was
built in 48 months instead of the 12 allowed, whereas the same kind of
plant at Narva in Eston~Lan SSR, whose construction was done as part of the
_ experiment, was put into operation 1 month before the end of the allowed
construction time.
If general suppliers deliver sets of equipment to construction sites, then
bank credit is extended to the supplier of equipment until the planned date
for completion of the delivery of the entire set or its installation. This
is an important addition to the experiment of the Ministry of Chemical and
Petroleum Machinebuilding. The point is that in making up the sets of
equipment this ministry was paid as in the past not for the entire set, but
for each piece of~equipment separately, and it did not assume obligations
for installation.
Enhancement of financial accountability of production enterprises and orga-
nizations for performance of contractual obligations and for punctual de-
livery to consumers of products in the necessary assortment and quality is
,
now taking on particular importance. The penalties envisaged by the law or
contract for violation of conditions under delivery contracts must be in-
voked without mutual clearing; the principal criterion for evaluating the
performance of material and technical supply agencies and the principal in-
dicator for awarding bonuses to the personnel of these organizations is to
be fulfillment of business contracts and delivery plans; transportation or-
ganizations are to be made financially accountable for nonfulfillment of
shipment plans to which they have consented.
A procedure under which banks will extend loans to cover demands for pay-
_ ment a customer has accepted when they come due and he temporarily lacks
funds is being introduced to ensure punctual settlement for products deliv-
ered in accordance with the contracts concluded and to enhance the respon-
sibility of customers for observance of payment discipline. The loans are
extended in the customer's name, who is to repay them within 60 days in the
order of payment established for payment of commodities and materials.
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Interest is char.ged on the loans at 5 percent per annum, which is the same
interest paid the banks on other loans when repayment is delinquent. This
indicates that these loans are irregular, and their extensive use should
attract the attention of superior authorities, ministries and departments
and bank institutions, so that they can discover why associations, enter-
prises and organizations are unable to make payments and what sort of aid
they need. One of the forms of this effort should be a compulsory on-the-
spot audit of the financial activity of contractors, extending them tempo-
rary financi~.l aid, strengthening these organizations by supplying them ma-
terial and technical and other resources, and elimination of the causes
standing in the way of normal operation.
When the planned deadlines for which the loans are issued (to pay for
equipment, to cover costs on conatruction in process, to cover payments,
and so on) are not met, higher interest will be charged on any further
credit f inancing of production associations, enterprises and organizations.
This will 3trengthen sCill more the role of bank credit in ensuring the
continuity of settlements in the national economy and in punctual correc-
tion of shortages causing nonpayment.
What conclusions can be drawn from these radical changes which are being
made in the procedure for budget financing, credit financing and settlement?
Cotitinuity of the construction process is ensured by continuous planning,
supply, budget financing, credit financing and settlement. Budget financ-
ing and credit financing are to be so struct~ired as to stimulate construc-
tion organizations overfulfilling planning targets or to extend aid to them
in cases when they have temporary financial difficulties.
- Everything must be done to adopt progressive forms in settlement for com-
pleted work. One of the important peculiarities of this type of settlement
is that its adoption depends on more extensive use of credit instruments,
which have an impact both on the very system of settlement and also tend to
strengthen their role in shortening construction time and the turnover time
of capital investments. This applies equally to long-term and short-term
credit.
The sphere of application of long-term credit is expanding considerably,
but the role of short-term credit financing is growing particularly. It is
obvious that extension of credit will increase 4-4.5-fold and outstanding
indebtedness 3.5-4-fold, assuming, of course, that the turnover of capital -
investments is speeded up. In this connection we should emphasize the im-
portance of mobilizing resources used for credit financing. The point is
that one of the principal sources of crediC financing is the repayment of
loans issued previously. That makes it indispensable to collect them
strictly on schedule. The funds of clients made avai.lable in connection
with the transition to settlement for the completed co~ercial output of
construction must be enlisted completely and punctually for credit financ-
- ing. The share of the "own" funds of enterprises and organizations will
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increase in the financing of capital investment pro~ects-profit and depre-
ciation. It is therefore impermissible that there be any failures in ful-
fillment of the plan for enlistment of these funds.
There is an evident need to reassess the system for constant offsetting of
mutual indebtedness. Under the new conditions this procedure can be orga-
nized on the basis of the production associations for construction and in-
stallation. Punctual canceling of mutual indebtedness between subdivisivns
of associations will promote mobilization of funds and prevention of non-
payment.
There is also a need to ensure that contractors are given accounts for com-
pleted work in the full amount and punctually so that indebtedness is not
allowed to arise among clients, contractors, subcontractors and their sup-
pliers. Greater attention must be paid to elimination of above-allowance
inveatories of equigment and other comnodities and supplies.
Doing everything to increase the efficiency of operation of the construc-
tion industry is a decisive element in fulfillment of assignments for acti-
vation of capacities and projects, for raising labor productivity and for
increasing profit.
The construction industry is a highly profitable sector of the economy.
Contractors cover their entire production costs and the formation of the
necessary funds from their income. The absolute amount of profit in 1977
was 5.4-fold greater than in 1965, and the volume of contract work was
twice as great, that is, profitability had increased because of improvement
of the qualitative indicators of the performance of contractors.
But in recent years an appreciable deterioration has occurred in the work
of contractors. Between 1975 a~d 1978 the level of profitability dropped
2.5 points for contractors as a whole. Mare than 40 percent of primary or-
ganizations are not fulfilling plans for accumulation of profit, and more
than 25 percent of them are oper^~'_-o ~t a loss. The result of
~ all this is that the construction industry is falling short 400-500 million
rubles of profit every year behind the plan. A substantial portion of the
losses pertain to very small organizations with an annual volume of opera-
tions of less than 10 million rubles. -
The plan for the volume of contract work is being fulfilled and even over-
fulfilled by construction ministries and departments. Large above-allow-
ance stocks of materials, fabrications, and products are lying in the ware-
houses of contractors in an amount exceeding 500 million rubles. Clients
have much unused equipment, and project planning organizations have a great
deal of pro3ect planning documentation. Nevertheless, contractors are not
fulfilling assignments for activation of capacities and pro~ects, by and
large they are not meeting assignments for the project completion program
established for particularly important construction pro~ects, compensation
pro~ects, and also projects being built with complete sets of imported
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rux urr~l~tal. U~~ uNLY
equipment. All this is tending to increase the amount of unfinished con- -
struction. The entire work of the banka to monitor the performance of con-
tractors needs a radical restructuring, and one such way is to make the
most effective use of financial and credit instruments.
- COPYRIGHT: Izdatel'stvo "Pravda," "Voprosy ekonomiki," 1980
7045
CSO: 1820
i
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INDIJSTRIAL DE'VELOPMENT AND PERFORMANGE
SURVEY OF CURRENT STAGE OF SODIET ECONOMY
Moscow VOPROSY ERON~IIRI in Russian No 4, Apr 80 pp 72-82
[I. Pogosov economic survey: "The USSR Economy at the Current Stage"]
[Text] The current stage of the economy's devel~opment is characterized by
the decisive transition to intensive ~ethods and qualitatively new levels
and scales of production enabling us to accomplish the tasks of the crea-
tion of co~unism's material-tectuzical base, insure a continuous growth in
the workixig people's well-being and achieve new successes in the economic
competition with capitalism.
Big successes were scored in 4 years of the lOth Five-Year Plan in the de-
velopment of all sectors of the economy. "It may be noted with satisfaction,"
L. I. Brezhnev said at the CPSU Central Co~mmittee November (1979) Plenum,,
_ "that, implementing the decisions of the 25th CPSU Congress, we have pro-
gressed considerably since the start of the five-year plan in the develop-
ment of the economy, a further upsurge in the people's material and cultural
living standard and the strengthening of our motherland's defense capabilitq."
The gross social product in 1979 was in excess of R1 trillion, and fixed pro-
duction capital at the start of 1980 amounted to R1.1 trillion, including
over R500 billion in industry. In the 4 qears national income used for con- -
sumption and accumulation increased 16.2 percent and industrial output 20
percent, and the average annual agricultural product increased 9 percent
compared with the level of the Ninth Five-Year Plan.
The basic indicators of the USSR's economic development in 1979 are char-
acterized by the following data (in billions of rubles);
[Table on following page]
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~
Increase in 1979 compared with 1975
1979 Total Annual average
National incame used for
cons~ption and accumula- 430.9 58.5 14.6
tion
Industrial output 606 101 25.
Capital investments 130.9 20.1 5 -
Coffinissioning of fixed capital 120.4 12.2 3 ,
Retail commodity turnover 252.2 38.3 9.6
Actual consumer services 7.3 1.8 0.45
In the lOth Five-Year Plan capital investments in the development of the
- economy have exceeded the five-year plan target and have amounted to over
R500 billion, and approximately 1,000 large-scale state industrial enter-
prises have been commissioned. Approximatelq 846U billion of fixed capital
- have been commissioned in this period. More than two-thirds of the fixed
production capital at the country's disposal as of 1980 was created~in the
previous decade. Capacities were introduced in 1976-1979 for the mining of
75 million tons of coal and the production of 7 million tons of finished
rolYed ferrous metal, 29 million tons of mineral fertilizer (in conventional
units), 10 million tons of cem~ent, 1 million tons of s~nthetic resins and
plastics, 127,000 trucks and so forth.
The consistenti implementation of the policy of the creation of communiam's
material-technical base and the upaurge of the people's material and cultur-
al living standard are based on an increase in production efficiency, a reduc-
tion in the socially necessary expenditure on production and an improvement
in the production relations of the mature socialist society. Social labor
productivity increased 13.8 percent in 1979 compared with 1975, including ~
34 percent in industry. The labor productivity growth in 1976-1979 aecured
a labor saving in the national economy of 12.5 million persons, particular-
ly in industry--more than 4 million persons. Some three-fourths of the in-
crease in national income and industrial output were obtained in this period
thanks to labor productiv3.ty growth, and the increase in the amount of
_ construction and installation work constituted 97 percent of this. There
was a reduction in the materials-intensiveness of the social product in
1976-1979, as a result of which the saving of raw material, goods, fuel, .
energy and other subjects of labor amounted to approximately R10 billion.
There was a fall in the output-capital ratio in the said period. But the
increase in the capital-output ratio was compensated by ~he savings thanks
to the growth of social.labor p~oductivity and th e reduction in material
outlays.
The successes in the development of the economy secured an increase in the
consimaption fund not only in absolute terms but also per capita and enabled ~
us to implement the social pr�ogram outlined for these years by the 25th
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CPSU Congress. Real income ~er capita increased 13.8 percent; the average
monthly wage of workers and employees increased 12.l.percent and the
remuneration o~ kolkhoz members 24 percent, and the payments and benefita
to the publ3c from the social consumption funds increased by R19.9 billion
and amounted to R110 billion in 1979. The upgrading of the wage rates and
salat.y-schedules of workers of the nonproduction sphere was campleted in
1979 in accordance with the decisions of the 25th CPSU Congress. The wages
of 31 million workers of these sectors was raised as a result. Measures
were ~lso implemented in the lOth Trive-Year Plan to increase the remunera-
tion of a number of caCegories of workers of the coal and shale industry,
ferrous and nonferrous metallurgy, the textile industry, construction, agri- -
c+~lt�.:re, railroad transport and certain other sectors. Retail co~odity
turnover in comparable prices increased 18 percent, and consumer services
by one-third. Housing was built on a large scale. Some 8.3 million well-
appointed apartments with a total area of 423.3 million square meters w~re
built, 41 million people improved their housing conditions and there was
an extensian of the network of high schools, WZ's and medical and cultural.
establishments.
The CPSU Central Co~ittee November (1979) Plenum emphas3zed the need to in-
sure the dynamic and propottional development of social production and to
increase work efficiency and quality at all levels of the economy. Parti-
cular attention must be given to the growth of labor productivity, an ac- ~
celeration of production intensification on the basis of scientific-tech-
nical progress and an improve~ent in planning and management of the economy.
An increase in social production efficiency depends on an increase in the
technical level of the fixed capital. Accumulation of the means of produc-
tion and their intelligent use is the basis of our econamy's constant pro-
gressive development. With the accumulation norm that has evolved fixed ~
production capital in the USSR will double every 10 years. In industry
80-90 percent of the entire output increase over the five year period will
have been achieved thanks to the introduction of new and the modernization
of oZd enterprises and facilities. Under the conditions of the intensive
development of the economy the gtowth of fixed capital is not a simple in-
crease in the quantity of ineans of labor but the introduction of new, more
- refined fixed production capital which creates conditions for an upgrading
- of the organic structure of production, the capital-worker ratio and labor
productlvity. For this reason a high grawth rate of the economy requires an
acceleration of scientific-technical progress.
Machine building, whose scale and structure determin~ the development of
other sectors of the economy, has a leading role in the practical introduc-
tion of the achievements of science and technology. An appreciable propor-
tion of all industrial-productian personnel is employed and a powerful test-
design and experimental base has been com~issioned in this sector. More
than one-half of the pool of machine tools and forging and pressing ma-
chinery has been created in the last 10 years.
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Inatrument makiFig, machine-tool building, machine building for animal hus-
bandry and fodder production, the radioelectronies industry and others are
developing at a mure rapid rate than industry as a whole. The five-year
plan quotas for the production of agricultural machinery, machinery for
animal husbandry and fodder production, inetruments, means of automation
and computer equipment, 031 industry equipment and a number of ther prod-
ucts for 1979 were exceeded in this year.
In the 4 years of the lOth Five-Year Plan the manufacture of 3,400 new
types of machinery and equipment, instrwnents and goods was assimilated
annually on average compared with 3,300 in the Ninth Five-Year Plan. The
electro-erosion, electrochemical, ultrasonic and electron-beam treatment
of inetals is being introduced at the level of the five-year plan targets in
machine building, and the mechanization and automation of production is in-
creasing. Particular attention is being paid here to the assimilation of
products with a higher productivity, unit capacity, reliability and working
1 ife .
The possibilities of an improvement in production thanks to traditional
methods in metallurgy, power engineering, railroad transport and a number
of other sectors are technicallq limted. For this reason the need arises
for cardinally new solutions based on discoveries and inventions. Thus
converters and installations for the continuous casting of steel are coming
to replace open-hearth furnaces and blooming m311s in ferrous metallurgy.
The conatruction of AES has expanded, work is being performed on the crea-
tion of fast-neutron reactors and problems of superconductivity and magneto-
hydrodynamic generators and so forth are being solved in power engineering.
An increase in the qualitative level of fixed production capital and labor
productivity growth will be even more urgent in the period ~ust ahead of
us. A reduction in manual labor and the comprehensive mechanization and
automatian of production are an {ndispensable condition of economic growth.
For this it is necessary to introduce the achievements of science and tech-
nology in production more rapidly and abbreviate the period of the develop-
ment and introduction of new equipment, from scientific developments and the
creation of models through the assimilation of mass production. There are
currently frequent instances of long delays:in models of new products being
put into series and mass production. For example, of every 100 models of
new types of machinery, equipment and instruments on which a decision had
been made on their assimilation in series production in 1978, a start on
the manufacture thereof in the year of their creation was made on only 25,
it was planned to put 46 into production in the second year, while the re-
maining 29 were scheduled for the third year or some later date. These de- !
lays are connected to a considerable extent with shortcomings in planning the
introduction of new types of product in production.
Programs of the solution of most important scientific-technical problems !
- should not end, as is frequently the case, with the creation of experimental
models. They must reflect questions of the organization of mass introduction
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and the development of production capacity; and determine the pilot min-
istries and co-effector-tainistries, the volumes and t3me taken to perform
the work, calculations.o.f the eftect on the~economy, the production volumes
necessarp for sat~s~y~ng the country's requirements, capital investments
and material and labor resources.
It is important to determine the mechanism witb which the techuical golicy
and measures to implement it formulated and recorded in the scientific-
technical programs will be embodied in the five-year and annual state plans
of economic and social development. A cr~terion of the determination of
economic policy in a sector might be comparison of the financially autono-
mous results of activity in the sector as a while with the calculations of
_ economic efficiency from the assimilation and introduction of new types of
product and the growth on this basis of the social productive force of
labor. An orientation toward norms of an increase in output per unit of
capital investment and economic effect could contribute to the,solution of
these problems.
A most important direction of production intensification is insuring the
balanced nature of productian and capital construction. The need for the
dpnamic, proportional development of the economy and the removal of bottle-
necks and strain in certain areas of our economy was sharply emphasized at
the CPSU Central Committee November (1979) Plenum.
At the current stage production of the means of labor is outstripping the
production of the sub~ ects of labor, which is contributing to the accelerated
renewal of the active part of fixed production capital, the replacement of
manual labor by machine labor and the intelligent use of raw materials and
goods. The average annual rate of increase in the means of labor in rela-
tion to the subjects of labor in the Eighth and Ninth fine-year plans was
a factor of 1.3 and in the lOth by a factor of 2.2. The average annual rate
of increase in processing industry output exceeded the rate of production
increase in the extractive sectors in the Eighth and Ninth five year plans by
a factor of 1.6-1.7 and in the lOth by a factor of 2.4. The reduction in
the norm of expenditure on materials in the lOth Five-Year Plan compared with
the Ninth Five-Year Plan was somewhat less here. A taut situation came about
- in industry, construction and o ther sectors of the economq in their provi-
sion of power, fue1, metal, chemicals and certain other tppes of raw mater-
ial and goods.
An improvement in the proportions requires an appreciable increase in capital
investments in the development of the fuel-energy sectors, metallurgy,
chemical industry and a number of machine-building sec~ors. Considerable
successes have been scored in this sphere in the last 10 years: the produc-
tion of electric power and oil has increased by a factor of 1.8, that of gas
by a factor of 2.2 and coal ~..2. The increased production of electric power
and the extraction of fuel in the lOth Five Yeai Plan is characterized by
the following data:
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1975 1979 1980 (an- 1980 as a per- -
nual plan) centage of 1975
Electric power (billions of
kilowatt-hours) 1,039 1,239 1,295 125
Coa1 (millions of tons) 701 719 745 106
_ Oil (including gas condensate;
millions of tons) 491 586 606 123
Gas (billions of cubic meters) 289 407 435 150
- The need for fuel and energq is growing rapidly. New large-scale measures
and, primarily, the buildup of the capacities of the fuel-energq complex and
an improvement in its structure are scheduled for the further development
of the fuel-energy complex. The construction of TETs on the basis of the _
inexpensive coals of the Ekibastuz and Kansko-Achinsk deposits is being
~ extended. Prerequisites for the accelerated construction of AES have been
created as a result of the installation of the Volgodonsk "Ato~mnash" Plant.
It is planned to introduce AES with a total capacity of 4.9 million kilo-
watt-hours in 1980. The develop~ment of these power plants will provide an
opportunity of easing the load on the fuel-extracting sectora to a certain
extent. The creation of nuclear TETs could lead to the elimination of sma11
boiler houses operating on gas and mazut. In the last 15 years the incregae
in the generation of electric power has outstipped the growth of the power
plants' installed capacity, which has made it possible to make fuller use
of available capacity. Insuring the reliability of power supplies and
trouble-free operation d~mands an increase in reserve capacity at the cur- -
rent stage.
In 1976-1979 the growth in the volume of industrial production exceeded the
growth in the generation of electric power, which led to a check on the pace .
~ of electrification and the development of techniques connected with electric
power consumption. The buildup of the capacities of the power plants must
insure continuous supplies of electric power to the economy, an increase in
the electric power-~worker ratio and the creation of modern power-conswning
technology and an increase in electric power consumption per ruble of in-
dustrial output. Power consumption in agriculture, construction, the non-
production sphere and other $ectors will also increase simultaneously.
In 1980 it is planned to mine 745 million tons of coal, which is 26 million
tons more than in 1979. The increased scale of construction of new mines will
contribute to the further development of the coal industry. Furthermore,
effective use must be made of the sector's internal potential. Currently
there is no increase in the speed of advance along the breakage face, the
average dialy extraction per comprehensively mechanized face has fallen, ,
and there has been a reduction in the productivity of the mechanized coal
complexes. ,
An increase in oil production demands an improvement in geological-prospec- ~
ting work in the pro~tsing regions, the increased growth of oil reserves ~
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thanks to the involvement of new deposits in act3.ve develo~ment and the
optimum regional distribution o~ oil production. Soaae ~586 million tons of
oil and gas condensate were obtained in 1979, and in 1980 it is planned to
~ produce 606 million tons.
The five-year plan quotas are being auccessfully met in the gas industry.
Some 407 billion cubic meters of gas were recovered in 1979. The main in-
crease in its extraction in 1980 will be secured~thanks to Tyumen'. The
accelerated construction of gas mains and compressor stations will contri-
bute to the development of this sector.
A reduction in fuel and electric pawer expenditure, an increase in the eco-
nomical nature of power engineering inatallations and the utilization of
secondary energy resources are most important directions of an improvement -
in the country's fuel-energy balance sheet. The accelerated development of
the production of economical equiopment and technology, an increase in the
heat-saving properties of industrial and residential buildings and the
insta3.lation of regulators on radiators and gas meters at enterprises and
in apartment houses could contribute to this.
The main direction of the development of ferrous metallurgy together with
an increase in the production volume is an impnovement in the quality and _
assortment of the rolled metal. Work has been performed to expand the
assortment, increase the quality and improve the structure of the manufac-
tured rolled metal in the lOth Five-Year Plan. In the period 1966-1979
the manufacture of inerchan~t bar products increased 67 percent, cold-rolled
sheet twofold, and with hardening ~ieat treatment threefold, and of curved
steel sections sevenfold. The Sovtet Union is the world's leading producer
of steel, rolled products and pipes. Some 103 million tons of inerchant
bar products were produced in 1979, and it is planned to produce 109 mi1-
lion tons in 1980. The production of steel will amount to 157 million tons
and that of steel pipes to 18.5 million tons.
But the country's ferrous metal requirements are not being met in full.
Difficulties in the development of ferraus metallurgy are connected with
delays in introducing capacitq, insufficient supplies of coking coal, inter- _
ruptions in the operation of transport, overexpenditure of inetal and short-
comings in management and planning. Thus the pawerful"2000" rolling mill
in Cherepovets has ended up without raw material owing to the uncoordinated
introduction of capacities, and the development of the reprocessing of scrap
and the iron ore base is lagging behind. Production and supplies of inetal-
lurgical equipment are Iagging behind the sector's requirements. Ferrous
metallurgq's fixed capital is aging. Units which have been in operation
for over 25 years are currently producing 44 percent of the pig iron, 52
percent of open-hearth steel and over 40 percent of inerchant bar products.
An increase in the rate and scale of the introduct3on of the smelting of
steel in powerful converters.and electric furnaces and machinery for the
conitnuous casting of steel~o~ the radial and horizontal type and the ex-
pnas3on of the assortmeat of rolled products are urgently necessary.
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In accordance with the decisions o~ the 25th party congress and the CPSU
Central Committee July (1978) ~lenum, measures are being implemented aimed
at making agriculture a highly ef~icient sector, increasing the dependabil-
ity of the country's provis~.on with agricultural products, improving their -
quality, reducing this sector's dependence on weather conditions and in-
suring the further alinement of living conditions in city and countryside.
To strengthen agriculture's material-technical base capital investments in
this sector were increased in the Ninth and lOth five-year plans. More
than R135 billion of capital investments for a whole complex of operations
were channeled into the development of agriculture in 1976-1979, and their
average annual volume was 3.5 times more than in 1961-1965. Approximately
2.6 million tractors and 715,000 grain-harvesting combines operated in this
sector in 1979. The sector's fixed production capital on I January 1980
was R22 3 billion.
As a result of the reinforcement of the material-technical base the average
annual p roduction of the gross agricultural product in 4 years of the lOth
Five-Year Plan increased by more than R10 billion or 9 percent compared with
the Ninth Five-Year Plan. The average annual grain harvest in the current
five-year plan constituted 209 million tons compared with 182 million tons
in the Ninth Five-Year Plan, and cotton procurements in 1979 reached 9.16
million tons; the number of cattle on all categories of farm on 1 January
1980 was 115 million head compared with 111 million head at the start of
the five-year plan. Production of the main animal husbandry products--milk,
meat, eggs and wool--increased. Tn 1980 the increase in the gross animal
husbandry product is to constitute 10 percent, and production of the main
types of plant-growing products is envisaged at the five-year plan quota
level.
Huge re s ources are being invested in the development of agriculture. "At
the same time we have a right to be," L. I. Brezhnev observed at the CPSU
Central Committee November (1979) Plenum, "and must be more demanding with
respect to the intelligent use of resources and equipment and to insuring
that the reinforcement of the material-technical base in the countryside be
reflect e d more perceptibly in th e level of the country's provision with
food."
A decis ive factor of an increase in agricultural products is an improvement
in soil fertility and an increase in the yield of the fields and the pro-
ductiveness of animal husbandry.
i
The development of plant growing is connected with a further expansion o~f
the areas sown to new high-yield varieties and an increase in the quality
and improvement in the structure of all sown areas. A large amount of
improved land is commissioned in the USSR every year. In 1979 the total
area of irrigable and drained agricultural land constituted 29 million
hectares. The increased efficiency of their use represents considerable
potential for stable big harvests. An increase in yield also depends on
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an improvement in fertilizer use. The tendency to cake of ammophos and
potassium and certain nitrogenous fertil~.zers produced in granulated form
leads to big losses and~complicates their.shipment and mechanized handl3ng.
Work is being performed consistently on increasing fodder production. The -
pmduction of grain for Peed purposes is increasing, and the mixed-feed
industry is being developed. The efficiency of work in this area largely
depends on the fodder being balanced with albumin. However, the mixed-
feed industry's need for albwnin additives, amino acids, vitamins and other
components essential for the production of full-value mixed feed is not be3ng
satisfied in full.
An impartant condition of the steady development of animal husbandry which
excludes the forced slaughter of livestock in years with a poor harvest is
the creation of insurance fodder stocks, particularly thanks to a consider-
able reduction in losses of coarse and succulent fooder. For this it is
necessary to build depositories and increase the production and supply to
- agriculture of conservatories and synthetic film to cover silage and haylage
trenches.
End results of agricultural production largely depend on the preservation
of the products. Losses thereof are still great. The development of capaci-
tiea for the primary processing of agricultural raw material (canning,
pickling, cleaning, sorting and so forth) and its storage is an important
factor of an increase in fond reaources.
Total capital investments in the national economy over the five-year plan
with consideration of the 1980 plan will constitute R636 billion. The in-
telligent use of these resources will largely determine the scale and pace
of expanded reproduction. To increase the efficiency of construction mea-
sures are being implemented to augment proportional expenditure on the re-
tooling and modernization of operating enterprises, reduce the costs of
construction and transfer it to the continuous process of the comprehensive
mechanized assembly of buildings and installations. The technical level of
construction is growing sqstematically on the basis of the introduction
of efficient materials and structures and progressive work methods. Struc-
tures from light concrete and economical types of rolled metal are being
employed more extensively. The volume of fully prefabricated construction _
and large-panel apartment houses with imporved layout and comfortable apart-
ments is growing.
In the current five-year plan the volume of cap3tal investments and the na-
tional income have grown at an approximately identical rate. The proportion
of the accumulation fund 3n national income has remained virtually unchanged.
At the same time the nonfulfillment of the plan for the introduction of
fixed capital has engendered an increase in the resources in incomplete
construction and exerted a negative influence on the development of social
production and its balanced nature. The delay in connnissioning new fixed
capital and production capacity has led to the economy experiencing a
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shortfall. in a considerable quanti.tp o~ products . The lagging is also con- ~
nected with the dispersal of cap3,ta1 investments on numerous construction
proj ects and a failure to observe construct3on deadlines. There are fre-
quent instances o~ tnaterial and labor resources being diverted from prior-
ity projects and channeled into construction pro~ects of local significance.
The decisions of the CPSU Centr3l Committee November (1979) Plenum pointed
to the need "to decisively improve the state of affairs in capital constiuc-
tion, increase the effectiveness o~ capital investments, reduce the number
of newly begun construction pro~ects, concentrate forces and resources on
- projects nearing completion and also on the m~dernization and retooling of
operating enterprisc~s and enhance the quality of construction in all sectors
of the econom~~."
The intelligent use of construction materials could contribute to an improve-
ment in the state of affairs in conatruction. Many construction trusts ex-
pend more metal, cement and other materials than the amount to which they
are entitled in accordance with the production norms for the actual amount
of work done. There is also incomplete allocation of resources for the con-
_ struction program envisaged by the plan. An improvement in norm-setting and
the establishment of strict control over the expenditure of material re-
sources would make it possible to balance the constructfon program with its
material backup .
The acceleration of ttie retooling o� production demands a reduction in the
time taken to plan and construct new enterprises. Tardiness in planning
and construction sometimes leads to the technical-economic parameters of the
enterprises being commissioned proving to be 8-10 years old, and they can
be considered new only formally. The equipment is obsolescent even before
it begins to function, which is reflected in the social labor productivity.
Transport exerts a direct influence on the economy. The freight turnover of
all types of transport in 4 years of the five-year plan increased 14 percent,
including 24 percent in motor vehicle transport, 71 percent in pipeline and
3.5 percent in railroad. A great deal of work was performed on the creation
of the Baykal-Amur Main Railroad--a line which is bringing to life new re-
gions and involving new natural resources in the economic turnover. More
~ than 1,50~ kilometers of railroad track have been Iaid here. However, at
the pesent time transport is not catering for the economy's freight and
passenger transportation needs in full. Transportation requirements are
growing not only in connection with the growth in the production volume in
industry, agriculture and other sectors but also as the result of the rapid
development of industry in the eastera regions and the extension of special- ~
ization and cooperation. Railroad transport is operating under great strain.
Inefficient use is being made o�tHerailroad's rolling stock: in 1~79 there
w3s a drop in car productivity, a reduction in the traffic speed of the
freight trains and an increase in car idling during handling. Instances of
the extraplan overhaul of locomotives and cars, which became more frequent,
had a negative effect on the operation of the railroads. An increase in ,
the fleet of locomotives and cars, the construction of new line and secondary
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tracks in intensive regions, the development o~ station facilities, the
fuller use of ava3,lable t~Psources, particularly a reduction in car turn,
around time, a xeduction .?n the number of empty runs and the strengthening -
of product3on discipline wlll contribute to the normal operation of trans-
port. In 1980 it is planr~~~ to commission 680 kilometers of new railroad
lines and to Guild secondary tracks in sections with a length of over 1,100
kilometers. Tt is essent3al to incresse the responsibility of industrial,
construction and trad3ng enterprises for the timely handling of the cars
and adopt measures to put an end to irrational transportation. A long-term
comprehensive program should be formulated together with the priority measures
to improve the operation of transport. As L. I. Brezhnev pointed out at the
CPSU Central Committee November (1979) Plenum, this program "should aim at
the modernization of the railroads, the preferential rate of growth of
pipeline, river and motor vehicle transportation and the mechanization of
loading-unloading operations."
Under the conditions of developed socialism there is an increase in the
role of the social factors of an 3.ncrease in efficiency and the formation
of the proportions of social production. The increase i.n the regulating
function of the basic law of socialism is manifested in the rapprochement
_ of the growth rates of groups "A" and "B" of industrp, the improvement of
the egrgrian-industrial complex and the intensified development of agricul-
tural machine building, machine building for light and food industry and the
_ mixed-feed and microbiological industry, the production of mineral fertili-
zers and the expansion of work on land melioration. These measuresy which
are being implemented in accordance with the decis ions of the 25th CPSU
Congress, are contributing to an increase in consumer goods production and
the growth of Soviet people's well-being. The output of gxoup "B" of in-
dustry increased:l7 percent 3n the 4 years of the lOth Five-Year Plan, and a
growth of 4.5 percent is envisaged for 1980, as for group "A.'.'
Sectors of light and food industrq were further developed in the period of
the lOth Five-Year Plan which has elapsed. Light industry output in 1979
increased 14 percent comp ared with 1975. The increase in output at enter-
prises of the USSR Ministry of Food Industry and Ministry of Meat and Dairy
Industry were 8.3 percent and 3.5 percent respectively in this period. The
_ production of children's foods and meat convenience foods enjoyed consider-
able development. The production of cultural-everyday commodities and house-
hold appliances increased particularly rapidly. Their manufacture increased
~ by a factor of 1.3 i.n the p~riod 1976-1979.
Measures to increase consumer goods production have been for milated and
implemented in the course of the lOth Five--Year Plan. Ti'urniture was manu- ~
factured i.n 1979 in the amount of over R5 billion, which was 23 percent
more than in 1975. The quality of household appliances is improving.
Technical documentation was drawn up in 1976--1978 for the production of
42 new types of goods in mas,s demand, and the series production of 27 types
was assimilated. Over 12,000 video recorders were produced in 1979. This
- is a qualitativ~lp new product with extensive use prospecte in everyday _
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life, the academic procesQ and ao ~vrth. The production of portable small
televis:ion receivers was assim3.laLed. Some 714,000 of them were produced
in 1979. Electronic and electronic-u,echanical watches have won recognition.
The task of organizing the production of automatic washing machines which
reduce manual labor to the minimum has been set. The quality of domestic
refrigerators in improving, the manufacture of largp-capacity refrigerators
is increasing, and the production of two-compartment refrigerators has begun.
Production is now oriented toward the customers' higher demands in respect
of assortment, comfort, reliability and so Porth. However, there is still
an inadequate state of affairs in the production of fashionable and standard
footware and the quality of a number of types of cloth and garments and knit-
wear. There is a poor assortment of raincoats cloth, there are insufficient
nonwoven materials, and synthetic detergents with biological additives and
also ager,ts for starching, brightening, bluing and disinfecting and with an
antistatic effect are not being manufactured. The public's growing demand
for cotton cloth, furniture and animal husbandry products is not being met
in full. The sales organizations' demand f~r fur headgear, galvanometric
elements, photographic paper and certain other products is not being satis-
f ied in fu11. Additional measures are being implemented in the course of
fulfillment of the five-year plan to increase the production of individual
goods in mass demand which are in short supply.
The new conditions require of trade workers great flexibility and curr~nt-
b asis efficiency in the sale of goods in mass demand. The development of
consumer goods production and the growth of retail commodity turnover and
the services rendered the public insure the stability of money circulation
in our country on the basis of the balanced nature of supply and demand
and the stability of the prices of basic foodstuffs and industrial commo-
dities. An imbalance between effective demand and commodity supply and
available services leads to the growth of money accumulations among the
population.
The main path of insuring the balanced nature of supply and demand is an in- _
crease in consumer goods production both thanks to an'increase in production
and an improvement in the quality of traditional light and food industry
commodities and thanks to the creation and development of the mass produc-
tion of new cultural-everyday cammodities and household appliances. An in-
_ crease in the production of mass consumer goods is connected to a consider-
- able extent with the development of the appropriate heavy industry produc-
tion facilities, whose share of the total manufacture of products of group _
"B" of industry is over one~fourth. A certain redistribution of capital ,
investments in favor of these production facilities might contribute to an -
increase in market stocks of consumer goods and an 3ncrease in the degree
of balance of the population's cash income and expenditure. It is also
necessary to expand sales to the public of timber and construction mater-
ials, standard greenhouses, horticultural-truck garden implements, instru-
ments and so forth.
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The evolved ~ractice of an incxease in the population's real income with _
the maintenance o~ the stability o~ the retail prices ~or basic foodstuffs
and industrial comanodities is ~ustiYying itsei~ on the~whole. It insures
the posaibility of a growth in the people's well~being on the basis of an
increase in produc~ion ef~iciency and is contributing to an increase in the
working people's financial interest in the growth of production and labor
praduc:tivity.
_ The development of the economy at the current stage is occurring under con-
ditions where more than nine-tenths of the able-bodied population is already
employed in social production or is studying, and labor resources are in-
creasing mainly thanks to young people coming of able-bodied age. The solu-
tion of the problem of labor resources sha.uld provide for: measures to in-
crease labor productivity on the basis of new equipment and technology and
the replacement of manual labor by machine labor; the scientific organization
of labor and the intensification of labor processes; the fuller use of
available labor resources with regard for territorial peculiarities; the
opt3mum distribution of labor resources between sectors of material produc-
tion and the nonproduction sphere; and an improvement in planning and the
stimulating role of wages.
An increase in labor productivity is primarily connected with the higher
technical level of new and modernized enterprises, at which output per work-
er is 1.7 times higher than at old enterprises. More than two-thirds of
the total i:~crease in labor productivity in industry may be attributed to
an increase in the technical level of production. The cemprehensive mechan-
ization and automation of production and, in particular, of the labor of
auxiliary workers represents most important potential for labor productivity -
growth. Activating it demands a considerable increase in the production
of mater~a~-handling equipment and means of inechanization of intrashop and
interoperatlonal transportation and warehous~ing.
A number of progressive forms of labor organization has become prevalent
- in recent years in industry, construction and agriculture: an acceleration
of labor productivity growth and an xncrease in the manufacture of output
with fewer personnel (the Shchekino method), the ~comprehensive system of
the organ~~ation of production, labor, management and wages according to
the experience of the Volga Auto Plant in industry; paymen* by the job and
the brigade contract in construction; harvesting~transportation complexes
and brigades with ti.me-rate (nonscheduled) remuneration in agriculture and
others. The further dissemination of this experience is an important
factor of labor productivity growth. As an analysis shows, employment of
the Shchekino method makes it possible to release a certain percentage of
industrial-production personnel with a simultaneous increase in the produc-
tion volume. The labor pxoduct~vity growth rate at these enterprises is
higher than in industry as a whole.
41
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In the solution of urgent problems of the development of the economy an
important role belonps to the ~ormulation and implementation of ineasures to
raise the 1eve1 a~ management and planning and increase the influence of
the economic mechanism on an increase in productican efficten~y and work qual-
ity. It is essential to continue to re3nforce the centralized principle in
planning and management wh31e providing for due initiative in the operation
- of enterprises, associat3ons and other organizations. It will be necessary
in Che 11th Five-Xear Plan to implement large-scale measures aimed at an
improvement in the management of soCial production. The accomplishment of
the national economic tasks of the final year of the lOth Five-Year Plan
will insure a reliable foundation for the further development of all social
production.
COPYRIGHT: Izdatel'stvo "Pravda", "Voprosy ekonomj.ki", 1980 `
8850
CSO: 1820
END
~
42
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APPROVED FOR RELEASE: 2007/02/08: CIA-RDP82-00850R000200100012-5