JPRS ID: 9447 USSR REPORT ECONOMIC AFFAIRS

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• Document Creation Date: November 1, 2016
• Sequence Number: 28
• Content Type: REPORTS

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JPRS L/9447
16 December 1980
USSR Report
ECONOMIC AFFAIRS
(FOUO 18/80)
FB~~ FOREIGN BROADCAST INFORMATION SERVICE
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JPRS L/9447
16 December 1980
USSR REPORT
ECONOMIC AFFAIRS
(FOUO 18/80)
CONTENTS
ECONOMIC POLICY, ORGANIZATION, AND MANAGEMF'~T
Strengthening of Tateral Economic Ties Advocated
(V. Pavlyuchenko; VOPRASY EKONONIIKC, Oct 80) .....oo..�o�a.�� 1
Kvashats Book on Production Tiine Factor Reviewed
(V. Krasovsidy; VOPROSY EKONOMIKI, Oct 80) ....o.o~.o...o.... 15
PLANNING AND PLAN INPLEMENTATION
Bunich Discusses Stepped-Up'Plans, Incentives
(P. G. Bunich; VESTNIK AKADMI NAIIK SSSR, Oct 80).....o.... 20
- UTILIZATION OF ftESOURCES AND SUPPI,Y
Assessing Economic Value of Natural Resources
(N. Feytellmar; VOPROSY EKONOMIKI, Oct 80) ........o.o...o... 34
INTRODUCTION OF NEW TECHNOLOGY
. Methods of Weighing Benefits of New Technology Reviewed
(L. Kachmazova; VOPROSY EKONOMIRI, Oct 80) .,,...ooooaa...... 48
Better Criteria Sought .for Enaluating Technical Research
- (S. Golosovskiy; VOPROSY EKONOMIKI, Oct 80) ...o..o....oo.oa. 60
- a- ~ III - USSR - 3 FOUOI
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ECONOMIC POLICY, ORGANIZATION, AND MAPIAGEMENT
STRENGTHENING OF LATERAL ECONOMIC TIES ADVOCATID
Moscow VOPROSY EKONOMIKI in Russiar. No 10, Oct 80 pp 14-25
[Article by V. Pavlyuchenko]
[Text] Improvement of lateral economic ties has great importance among the
problems of improving management of the socialist economy. The system of
these relations, which embraces the interaction among organizations of the
same level (sector or industry with sector or industry, enterprise with en-
terprise, manufacturer with consumer, client with construction contractor,
scientific research institute with the manufacturer of new technology, and
so on), guarantees a cooperative effort and an interchange of activities
~ and products produced. These ties take a variety of specific forms, in-
cluding organization of coordinated activity of different departments and
uni[s in organizing the production of new technology and other products,
- fulfillment of intersector pro grams an3 creation of regional industrial
complexes; contract relations among economic entities, distribution of the
benefit to the national economy among manufacturers and consumers, and so
on. Economic accountability of the interacting entities in social produc-
tion is an indispensable element of them.
Ties "along lateral economic lines," which determine the degree of coordi-
nation of the efforts of different entities in the national economy, thereby
have a substantial impact on the balance and efficiency of the economy and
vigorously influence all the qualitative factors in its growth. Their fur-
ther improvement is one of the principal conditions for reinforcing the
orientation of socialist producers toward attainment of final results from
the standpoint of the national economy, a faster rate of scientific-techni-
cal progress, shorter periods for capital construction, improved product -
quality, and more intensive social production as a consequence.
Intensification of the division of social labor and integrational processes
_ in the economy of advanced socialism, hrought about by the scientific-tech-
nical revolution, the rapid increase in the complexity of production and of
the products produced, and the increasing diversity of social needs--all of
this, along with rhe incrzase in the number of ties both in the national
economy as a whole and a7.so ties linking each production cell with its
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a v~� v~ a 1V iC1Li vuaJ V~~LL
"economic environment" is bringing about profound qualitative changes
throughout tne entire system of lateral ties. There is a rapid rise in re-
quirements wi.th respect to stability, reliability and flexibility of these
ties, and their functions are also expanding and becoming more complicated;
they are called upon to promote realization of the potential for higher
economic efficiency thanks to improvement of interaction among sectors and
industries. Ties "along lateral economic lines" have a larger role to play
in performance of such important economic functions as ensuring current
balance between production and consumption in the context of ever greater
diversity and changeability of needs, mutual adjustment of physical and
value proportions, and attainment of smooth and coordinated operation of
all parts of the national ecanomic organism.
The problem of lateral ties is also an urgent one because shortcomings in
the system they comprise have now become one of the principal obstacles to
raising economic efficiency, to speeding up rates of scientific-technical
progress and to improving product quality. In large part it has been the
- oversights in lateral ties that have given rise to "tendencies toward self-
sufficiency and departmental restrictiveness," which, as stressed at the
25th party congress, must be resolutely overcome. The instability and un-
reliability of these ties generate the desire for economic autarky, hold
back development of specialization, and motivate practitioners in the econ-
omy to build up excessive "emergency" inventories in production.
The adverse impact of departmental barriers on scientific-technical prog-
ress, on resolution of intersector problems of the national economy, on
fulfillment of capital construction programs and on activation of produc-
tive potential is well known. As a matter of fact these barriers are a
manifestation of nothing other than disruption of ties "along lateral eco-
nomic lines." Overcoming all departmental separar.:ness is directly re-
lated, then, to making interaction among all economic entities more effec-
tive along "lateral economic lines." A substantial improvemenC in the
functioning of the entire system of lateral economic ties is today one of
the central problems in restructuring the economic mechanism, in bringing
it into conformity with the requirements of a continuously developing na-
tional economy, as called for by the decisions of the 25th CPSU Congress.
In recent years a great deal of work has been donp in the national economy _
to improve lateral ties and to strengthen planning and contract discipline.
For instance, the decree of the CPSU Central Committee and USSR Council of
Ministers entitled "On Improving Planning and Strengthening the Influence
of the Economic Mechanism on Inereasing Production Efficiency and Work
Quality" called for major completion in 1980 of the conversion of produc-
tion associations (enterprises) to direct long-term economic relations; and
it defined the procedure of organizing them on the basis of contracts among
production associations (enterprises) in the industrial sector and also be-
tween those associations (enterprises) and agencies of USSR Gossnab, trans-
port-ation organizations and organizations of state and cooperative trade
embracing the S-year period. The decree calls for a substantial improvement
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in the orderliness of relations between clients and contractors in capital
construction and between scienti�ic-research organizations and industrial
enterprises, as well as for increased accountability of manufacturers to
consumers.
For all the diverslty of the final results of the national economy and the
variety of economic ties among organizations participating in their achieve-
ment, relations between producers and consumers comprise the fundamental
link, a kind of cell of the entire system of lateral ties in the economy,
' a relationship that recurs a million times daily in the national economy.
However many intermediate links there are on the path to attaining the fi-
nal result for the national economy, each preceding link in this chain fig-
ures as a producer, and each succeeding link as a consumer, and the result
� of the activity of the former (intermediate with respect to the final re-
sult) is the point of departure for the latter. Attainment of any final
benefit is always the result of accomplishment of a certain system of ties
between producers and consumers, and each such individual tie is a step on
the path to the end result.
Achievement of high final results from the standpoint of the national econ-
omy is determined not only by the performance of the producer manufacturing
the final product, but also by the "closeness" and "density" of ties among
those who create the intermediate results. It is tharefore indispensable
to guarantee that all participants along the entire chain of production are
motivated to achieve the highest end results regardless of whether they are
located in a distant or nearby segment, in an initial or final segment of
the technological chain. Of course, an enterprise located at the beginning
of the technological chain cannot directly create the end result, but it
must ensure the efficient economic performance of the succeeding link, and
this in turn that of the link which comes after it, and so on along the en-
- tire chain of organizations participating in creation of the final result
from the standpoint of the national economy.
It is a necessity to shape an interreiated system of interests of producers
and consumers, to "link up" their interests. The motivation for each en-
terprise to make economic ties more intensive should be made a function of
how it "works" for consumers. This is a mandatory condition, as pointed
out by L. I. Brezhnev at the 25th CPSU Congress, for "giving the consumer
broader opportunities to influence production whether it is a case of raw
materials and supplies, machines and equipment, or consumer goods."
The meeting of this requirement presupposes that enterprises figuring as
consumers will have a greater role in the very stage of compiling produc-
tion plans. The procedure envisaged by the decree of the CPSU Central Com-
mittee and USSR Council of Ministers entitled "On Improving Planning and
Strengthening the Influence of the Economic Mechanism on Increasing Produc-
tion Efficiency and Work Quality" for shaping plans an the basis.of orders
and long-term contracts with producers of consumers or of trade and supply
organizations representing their interests will help to improve the balance
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baZance of the economy, to overcome shortages, and to bring production into
fuller conformity with the diverse and highly dynamic needs of society.
The machine tool building industry, for example, confronts the task of mak-
- ing the transition from the manufacturing of individual and separate pieces
- of equipment to the manufacturing of entire systems of machine tools and
machines in accordance with technical assignments of consumers; these sys-
tems would be intended for the complete machining of the respective parts,
including all operations from preparation to finishing. The essential
thing is that the plan's impact on strengthening the orientation of eco-
nomic activity of producers toward meeting the needs of consumers is rein-
forced by making associations and enterprises more accountable for fulfill-
ment of obligations to deliver products in the given assortment and for im-
- provement oE product quality.
A new approach to evaluation of the performance of enterprises and associa-
tions is also needed to achieve a system of economic relations that ensure
the consumers will have a greater influence on producers. This system must
take into account not only the efficiency of utilization of the resources
at their disposition, but also the influence they have on the efficiency of
related links in social production. For instance, an enterprise that is
putting into production a new and highly productive technology may at times
even show a lower efficiency of utilization of its "internal" resources,
but at the same time it will in future ensure a substantial rise in the ef-
ficiency of social production thanks to application of the technology that
is created. Or, for example, an enterprise might increase only slightly
the efficiency of utilization of resources, but at the same time, by
strictly fulfilling its contract obligations and by meeting delivery dates,
by maintaining the proper product quality, it may promote the smooth and
efficient operation of those with whom it deals. A situation is also pos-
sible when a particular economic entity is concerned above all about its
own production indicators and violates contract obligations, thereby hold-
ing back the rise of economic efficiency of related entities. Experience
provides evidence that failure to deliver "kopeck" parts has disrupted the
smooth operation of major enterprises and caused sizable losses. All these
numerous interrelations of "local" efficiency, which is manifested at the
level of enterprises, and of national economic efficiency need to be taken
into account in evaluating the performance of economic entities.
Consequently, we need a broader base for assessing the operating perfor-
mance of enterprises and associations. This kind of assessment must be
based not only on an evaluation "from above" by superior organizations, but
must also include an evaluation on the part of consumers and must take into
account the impact on the efficiency and quality of operation of related
economic entities. The latter should be a mandatory and thereby weighty
compcnent in the proposed comprehensive assessment of the results of eco-
nomic activity. The basis of such an evaluation is the economic entity's
total contribution to raising the efficiency of the economy (the growth of
tr: benefits of the national economy) accomplished both within the entity
itsElf and also achieved thanks to its impact in other subdivisions of the
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national economy. Fo r any producer, then, the profit to be gained fr4m cre-
ating an economic benefit of a certain magnitude (taking into account the
time factor) on the p remises of consumers must be equal to obtaining an
equal benefit right "on his own premises," within the limits of the enter-
- prise, association or ministry. In the final analysis it is a matter of
indifference from the standpoint of the national economy in which unit of
~ the economy a benefit equal in size was achieved. In the present stage,
because of the objectively increasing intensity of interchange of efforts
and products of labor and the resulting development of ir.tegrational rela-
tions within the national economy, in many cases the economic benefit is
realized--and that means also recorded--not within that particular cell
where it is created, but in other related subdivisions of social produc-
tion. It is therefore indispensable to ensure equal motivation of each
producer to increase the efficiency of production from the standpoint of
the national economy regardless of the place where it is achieved, and not
to allow the situation that has not uncommonly occurred where the benefit
"of its own," obtained, for example, at an enterprise, proves to be consid-
erably "more expensive" for it, since it is correspondingly reflected in
the success indicators and incentive funds, than an equal or even greater
benefit achieved on the premises of consumers in related sections of pro-
duction as a result of its economic activity. For instance, at a machine-
building enterprise, say, 100 jobs are eliminated, which means a saving on
the wage fund, a rise of labor productivity and a corresponding increase in
incentive funds. But if the equipment built at the enterprise makes it
possible to �ree the same or even a far greater number of workerG in other
economic entities, this may not have any effect whatsoever on its economic
position and on the collective's incentives.
The importance of recording the benefit to consumers and of invigorating
its role in the economic mechanism results from the fact that for many in-
dustries and enterprises, especially those producing means of production, a
weighty or even predominant portion of the benefit they achieve for the na-
tional economy is realized outside of their departmental and organizational
boundaries. For instance, the benefit to the national economy of the oper-
ation of enterprises in machinebuilding is mainly manifested in a higher
technical level, higher labor prod;:ctivity, lower capital intensiveness and
improvement of other economic indicators of those industries using the
products of that ind ustry. Improvement of the quality of inetal and expan-
sion of the assortment of rolled products yield a national economic benefit
' outside the industry, tending to increase the coefficient of effective use
- of inetal and reducing materials intensiveness of the products of machine-
builders intending to increase the reliability and durability of machines
and equipment in spheres of ultimaCe use. That is why a judgment should
not be made of the effective performance of enterprises, associations and
other organizations (from the standpoint of the national economy) on the
basis of a system of indicators mainly reflecting internal results of their
economic activity. Nor does strengthening the role of indicators of prod-
uct quality altogether solve the problem of taking into account the contri-
bution an economic entity has made to increasing national economic effi-
ciency. The point is that a substantial portion of the notential benefit
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of technology of even the highest quality can be lost iu the sphere of op-
- eration if ties between producers and consumers have been badly organized:
insufficient assistance in applying the new technology, unsat:[pfactory
_ technical servicing, unavailability of replacement parts, and so on. It is
indispensable, ttien, that the consumers of a product make an additional
evaluation of the performance of each economic entity. In our view this is
the basis for strengthening the compatibility of interests and consequently
the highly efficient performance of both producers and consumers.
In order to streng,:hen integration of economic activity, it would be advis-
able if in assessment of the performance of enterprises and associations a
planned indicator referred to as "benefit to consumers" were introduced; it
should also be made a fund-regulating indicator, provision being made for
rates of transfers to incentive funds tha;: ensure an equal size of reward
for an equal benefit obtained on the premises of the given production unit
and on the premises of related organizations. ThE additional economic ben-
efie occurring thanks to improved cooperation and interaction of the dif-
ferent economic entities would be the sotirce of funds for incentives. In
our opinion provision shou?d also be made for the possibility of redistri-
bution of profit among economic organizations to create economic incentive
funds in cases when the additional economic benefit real.ized by one of the
participants, say, a consumer, is achieved as a result of their joint ac-
tivity.* The procedure for redistribution of profit could be defined in
the contractual obligations. Moreover, there is a need to work out the
rules for adjustment of the profit plan and relations with the state budget
- relative to such cases.
This will make it possible to strengthen the financial motivation of col-
- lec[ives to increase efficiency at related sections of production and on
ttie premises of final consumers of their products and to create economic
_ conditions which would encourage use of every opportunity to increase the
return on resources not only "on one's own premises," but also in other
units of the national economy.**
* We should no*_e that such a possibility for redistribution of profit
among economic organizations has been provided for in the sphere of capital
construction by the decree of the CPSU Central Committee and USSR Council
of Ministers dated 12 July 1979. It thuG points out: "If construction
contractors reduce periods for activation of production capacities relative
to the established allowances, the general contractor shall receive from
the client funds amounting to SO percent of the profit envisaged by the de-
sign for the period by which construction time was reduced, but not to ex-
ceed 0.5 percent of the estimated cost of construction and installation
work for each month for which construction time was reduced. These funds
are to be credited to the economic incentive funds of tha organizations
participating in construction."
A thorough check and final adjustment of the proposed indicator'would,
of course, be required in advance. 6
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In many cases this could elimim
ferred to as "unprofitable" for
consequently by society. If an
requires higher production cost
yields a sizable benefit in the
vorable effect on assessment of
tive's incentives.
3te the problem of producing a product re-
the producer, but needed by consumers and
enterprise is manufacturing a product that
gnd reduces the manufacturer's p rofit, yet
sphere of consumption, this must have a fa-
its economic performance and on the collec-
The very concept of an "unprofitable" product arises when the interests of
individuaY p roducers (enterprises, associations and enterprises) are not
sufficiently aligned with the interests of the national economy. The only
unprofitable product from the standpoint of the national economy would be
' that product which either does not meet the needs of society because of its
low quality, failure to meet demand or other causes, or it is ab le to sat-
isfy them only at an expensive price, that is, it is inefficient. In other
words, there can be unprofitability of a product only for consumers, but
not for manufacturers. A product that is "unprofitable" for the producer
is a kind of economic absurdity, one that reflects the shortcomings of the
economic mechanism. Production of any product that is necessary to the na-
tional economy and that efficiently meets needs must fully correspond to
the interes ts of both those Fnterprises manufacturing it and also its con-
sumers.
Which leads to the need to make incentives of manufacturers dependent on
the full (to tal) benefit to the national Economy of a manufactured product,
in which the benefit realized in consumption constitutes a sizable portion
(if it is ac tually beneficial to society).
Adoption of the "benefit to consLmers" as an indicator would, in our opin-
ion, have a strong stimulative efrect toward strengthening relations be-
tween scienc e and production and toward creating improved and fundamentally
new technolo gy, technology that substantially surpasses in its economic pa-
rameters the technology it is replacing. This will provide a strong eco-
nomic lever for solving the problems stated in the decree of the CPSU Cen-
tral Commit tee and USSR Council of Ministers entitled "On Further Develop-
ment of Mach inebuilding in the Period 1978-1980." It calls for the produc-
tivity of macilines and equipment and also their length of service before
ma,jor overhaul to be increased 1.5-2-fold by 1985 as compared to 1975.
Practical implementation of the principle "work for the consumer" also pre-
supposes fur ther improvement of cost accounting (khozraschet). Objectively
conditioned by the development of the productive forces of society, inten-
sification of economic ties and the process of integration of economic ac-
tivity neces sitate a transition to comprehensive forms of cost accounting.
At present the principal shortcoming in cost accounting is that its opera-
tion is conf ined to a considerable degree to definite limits (enterprises,
associations, and so on) and is only weakly linked to other organizational
units of the economy. For that reason the cost-accounting performance of
enterprises mainly reflects the rise in efficiency of utilization of inter-
nal potential, while the impact of its effort on the production efficiency
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of consumers is not adequately assessed. The rise in production efficiency
owing to the performance of an enterprise's collective, but occurring out-
side it, in related areas of the economy, at enterprises of other indus-
:.ries and sectors, is manffested in improvement of cost-accounting assess-
mentH of the perfermunce aE that unit largely through the price-aetCing
mechanism, that is, when higher prices correspond to the manufacture of a
more efficient product, and on that basis there is a redistribution of ben-
efit betwee:i the producer and the consumers.
But redistribution of the benefit exclusively or predominantly through the
price is not always advisable or practicable. It "hypertrophies" the dis-
tributive function of the price at the expense of its other functions,
above all its accounting function. When price setting is divorced from the
socially necessary expenditures, the price in time becomes less and less an
expression of value, since uuder the conditions of intensification of pro-
duction an ever larger share is assumed by that part of the price which is
called upon to reflect the economic benefit. And divorcing the price from
value means that sooner or later its functions as an incentive will neces-
sarily break down. It is also very important that in the context of whole-
sale prices which remain stable for the 5-year period, as envisaged by the
July (1979) decree of the CPSU Central Committee and USSR Council of Minis-
ters, such a redistribution of the benefit bacomes in many cases impossible
or very diificult for purely technical reasons.
In actual economic practice cases are frequent in which a benefit could ac-
crue to consumers though the price level remained unchanged, and conse-
quently they could not be distributed in the manner indicated above
(through the price).* But even here there should also be an incentive
mechanism in operaCion that would guarantee alignment of interests. More-
over, the cost-accounting assessment of the performance of Llhe enterprise
which is the manufacturer must not suffer even when the prices of its prod-
ucts are reduced in order to attain better end results on the basis of the
interests of ttie state and consumers. The profit which as a consequence
does not accrue to one unit of the national economy may bring a sizable
benefit in other units, and a corresponding amount of compensation should
be made to the producer, and his incentive funds should rise. This would
make it possible to avoid the situation in which a reduction of wholesale
prices on a product already produced has an adverse effect on the cost-
_ accounting results of enterprises, and it would give them stronger motiva-
tion to engage in planned price reduction.
* Such situations occur, for example; when there is a rise in the quality
of the product produced, when this increase does not result in its moving
into the superior-quality category, when aggregate deliveries of machines
and processing equipment are made on schedule to construction sites, when
the specific requirements of consumers are taken into account, when the
mankifacturer improves the services he provides for equipment that is in op-
eration, and so on.
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Insufficient reflection of the impact which enterprises have on those with
whom they deal in the cost-accounting results of their performance is one
of the reasons for organizational and departmental divergence. At a time
when increased integration of the activity of socialist producers is one of
the principal prerequisites for increasing economic efficiency, in our view
_ it is becoming ever more urgent to make the transition from cost accounting
in the narrow sense, reflecting mainly relations between society and so-
cialist enterprises and oriented primarily toward evaluation of the inter-
nal performance of the producer, to comprehensive cost accounting conceived
in the broad sense, which should be directly related to the economic unit's
contribution to the rise of production efficiency of consumers and to the
fullest s atisfaction of their requirements. Assessment of fulfillment of
the plan, cost-accounting performance, and the fermation of incentive funds
of producers should be set up so as to depend rather strongly on the kind
of impact their activity has on the performance and economic condition of
consumers. What we are saying is that the consumer should play an active
part in evaluating the economic performance of the producer, should have
the "deciding vote" in determining his contribution to attainment of the
end results from the standpoint of the national economy. The basis for
this coul d be recording the benefit accruing to consumers in evaluating the
performance of each economic entity, which will make it possible to organi-
cally combine the interests of producers and consumers, to make them inter-
related when realization of producPrs' interests is directly dependent upon
serving the interests of consumers.
When this approach is taken, an effective instrument becomes available for
improving relations among sectors and industries. As we know, it is pre-
cisely at the junctions between sectors and industries that the largest po-
tential e xists for increasing the efficiency of social production. For ex-
ample, there is the problem of the interaction of the complex consisting of
"the coal indus try-- transpor tation-- the electric power industry." At pres-
ent suppliers ship coal without prior beneficiation, and sometimes the con-
tent of gangue and water goes as high as 40-45 percenr_. Benef iciation of
the coal at the mine to free it of gangue would make it possible to make
thousands of railroad cars available, to reduce the specific consumption of
fuel at power plants and reduce the cost of generating electric power, and
to guaran tee a sizable benefit to the national economy. Solving this prob-
lem will be far easier and will move far faster if the benefit accruing to
consumers begins to occupy a significant position among the criteria for
evaluatin g the p`rformance of economic entities (and correspondingly in the
system of incen[ives) and if the interests of the sector or industry are
directed toward attainment of the best results in the transportation sector
and electric power industry. The same thing applies to organizing the in-
teraction of other extractive industries with transportation and manufac-
turing industries. In our view this is one of the important ways of opti-
malizing f reight traffic and reducing the load on the transportation system,
of increasing the content of useful components in the raw material and of
boosting the growth rates of efficiency from the standpoint of the national
economy.
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av.% vL'L'lV1[1L vLPa: Vl'ILL
It is not possible in the space cf one article to outline in all detail the
ways j.n which the proposed comprehensive systPm of cost accounting would be
put in practice, the solution of such a problem requires joint efforts of
- many economic experts, bo th scientific and practical. The most important
things are the very posing of the problem and definition of the main out-
lines and general direction of further improvement of cost accounting, so
that it contributes in eve ry way to overcoming the organizational diver-
- gence and thereby to intensification of social production. Thi.s is the ap-
proach (from solving general problems to particular problems) that should
be taken in solving the complex problems of theory and practice, since
"whoever takes up particular problems without first solving the general
ones will inevitably be 'b umping up against' those general problems at ev-
ery step without even knowing it."*
There are various ways op en to solving the problem of setting up the pro-
posed system of cost acco unting; they require f.urther theoretical research
and performance of economic experiments. But it is possible even now to
formulate certain general principles governing the approach to setting it
up.
The indicator referred to as "benefit to the consumer" should be made the
basis vf the system of co st accounting that links the interests of producers
and consumers, equal incentives should be provided for equal benefit "on
one's own premises" and fo r benefit accruing to related production entities,
provision should be made f or the possibility of redistribution of profit
among economic organizations to form incentive funds at enterprises guaran-
teeing a growth of the benefit accruing to related entities. The first
need here is for organization of reliable statistical recordkeeping on the
actual economic benefit ac cruing to consumers of a product and realized
thanks to the performance of the producers. It would be best for the size
oC the ar.ticipated benefit accruing to consumers to be reflected in busi-
ness contracts at the time of their conclusion, but the benefit actually
attained must be confirmed when fulfillment of contractual obligations is
evaluated.
Stimulation of collectives as a function of fulfillment of contractual ob-
ligations to consumers, as envisaged by the decree of the CPSU Central Com-
mittee and USSR Council of Ministers on improvement of the economic mecha-
nism (1979), is importan t to developmer:t of cost accounting along these
lines.
Improved alignment of the interests of collaborating economic entities also
necessir.ates solution of certain other problems which have been little f
studied. One of the most urgent of them is to ensure that evaluations of -
the performance of intera cting organizations and of superior and lower-
level economic en*ities do not contradict one another and are in alignment.
I. Lenin, "Polnoye s obraniye sochineniy" [Complete Works], Vol 15,
p 368.
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At the present time evaluation of the performance of related entities per-
forming a particular economic task iG often based on differing criteria.
For instance, the system of economic indicators and incentives orients con-
struction crews operating on a contract basis to reduce construction time,
to improve the quality of construction, and to make efficient use of man-
power and physical resources; enterprises in the building materials and
fabrication industry supporting their work are evaluated according to the
output of structural fabrications and materials in cubic meters and in
value terms, and the transportation sector is in turn stimulated to fulfill
the plan in ton-kilometers. This discrepancy in criteria used to evaluate
performance and accordingly in determination of incentives makes it more
difficult to coordinate the interests of scientific and production organiza-
tions, material and technical supply agencies and industrial enterprises,
raw materials industries and manufacturing industries, transportation and
trade. Improvement of lateral economxc ties, then, is making it necessary
to conduct thearetical research into the problem of aligning the criteria
used in evaluating the economic performance of related organizations (coop-
erating with one arLother). The result of that research should be develop-
ment of a system of interrelated and compatible "start-to-finish" indica-
tors of interacting economic units and entities that ensure alignment of
their interests in attainment of high final results from the standpoint of
the national economy.
Ties among sectors and industries and among organizations are in need of
substantial improvement. It is high time to improve procedures for align-
ing planning decisions and other economic decisions, for establishing in-
teraction with related secto'rs and industries or enterprises, and the pro-
cedure for settlement of business disputes and mutual claims. The adminis-
trative procedures in effect at present as a rule are extremely complicated,
they involve the participation of a large number of supervisory personnel
and--go through many different levels (which still does not always guarantee
high quality of the decisions taken), and they take a long time. This i..s
one of the principal reasons for.,the overload on management agencies, in-
cluding the upper levels, and it considerably reduces responsiveness and
flexibility of management and complicates the establishment and functioning
of ties along lateral economic lines. It is therefore becoming very urgent
to develop more orderly procedures for taking decisions by agreement among
different organizations and departments that will eliminate excessive re-
straints and clearances and will reduce the number of levels involved,
while unfailingly enhancing the responsibility of those who make those de-
cisions.
One of the most important conditions for improving lateral economic ties is
to strengthen further the economic responsibility of enterprises and asso-
ciations for the fullest and most efficient satisfaction of the require-
ments of consumers. Under the decree of the CPSU Central Committee and
USSR Council of Ministers entitled "On Improving Plazining and Strengthening
the Influence of the Economic Mechanism on Increasing Production Efficiency
and Work Quality" the responsibility of producers to consumers is being
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reinforced--the formation of their material incentive funds is made depen-
dent on fulfillment of the plan for deliveries in accardance with the list
- specified in business contracts (orders), and if these deliveries are not
made, transfers to incentive funds are reduced. The changes the decree en-
visages in the system of economic accountability, which are aimed at
= strengthening the synchronization (proportionality in time) of the activity
of all entities of the national economy, and adoption of strict penalties
for wasting time have great importance to increasing production efficiency
and to improving satisfaction of the needs of production and personal needs.
But the very system of assignment of orders for the production of new prod-
ucts, equipment in particular, is in need of improvement. The sizable and
moreover increasing volwne of orders which are not accepted, which means
that they are not filled, indicates undersatisfaction of the needs of soci-
ety and should have an effect on the overall assessment of performance of
the respective economic entities. Evaluation of the quality of performance
of associations and sectors or industries with respect to the degree of
satisfaction of the needs of the national economy should take into account
not only fulfillment of contractual obligations, but also refusal of cus-
tomers' requests for production of a product they need. In our view it
- would be wise for USSR Gosplan, USSR Gossnab and ministries to keep regular
records and to analyze orders which are not accepted in oz�der to work out
planning decisions aimed at eliminating shortages and disproportions.
There is good reason to enhance the economic accountability of producers
for the products they manufacture. At the present time industrial enter-
prises and associations bear limited responsibility for the products they
produce, an accountability that is operative only during the warranty pe-
riod of the product's use. The accountability of institutes, design and
process engineering organizations for new technology and processes they de-
velop and of construction organizations for the quality of construction ac-
tually ceases at the moment when their products are accepted by consumers.
As a result consumers have difficulties when they are introducing new tech-
nology, the efficiency of its use in the national economy is reduced (be-
cause of idle time of a portion of the machine pool because of below-stand-
ard technical servicing, becausL if a shortage of replacement parts, and~so
on). In the sphere of consumption sizable losses not uncommonly occur
through the fault of manufacturers, yet often they are hardly taken into
- account at all and have no appreciable impact whatsoever on the economic
condition and incentives of those producers. In actuality it is the con-
sumer who pays for designs which have not been perfacted and for equipment
and other products whose quality is inadequate; it is he who incurs the ad-
ditional expenses and losses that are involved. In the final analysis a
portion of the benefit to the national economy is lost.
In our opinion the responsibility of scientific research institutes, proj-
ect planning and construction organizations, design offices, and so on, for
the quality of work they do up to the stage of attainment of design capac-
ity and the assigned technical-and-economic indicators of projects built
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according to their designs should be extended, and economic accountability
for the qualitv of the product produced should be substantially extended in
time. In the future this kind of accountability should emcompass the entire
period of operation of equipment in the national economy. It should become
obligatory for manufacturers to service the equipment the>> produce on the
premises of the consumer over its entire service life, including furnishing
replacement parts for it. In this case when the quality of the product
manufactured is not sufficiently high, this will sooner or later have an
effect on the economic condition of the producer, since the lower that
quality, the more it will cost him later to service the equipment on the
premises of the consumer. This would substantially enhance the motivation
of encerprises to improve product quality.
Improvement of the system of lateral economic ties is one of the main con-
ditions for speeding up scientific-technical progress, which is expected to
make a decisive contribution to the rise of the efficiency of social pro-
duction. Solution of a considerable portion of the problems related to
creating new technology, to capital construction and to raising the techni-
cal level of operating enterprises is an intersector matter and conse-
quently depends on the orderliness of ties "along lateral economic lines."
As experience indicates, at present many innovations "get hung up" pre-
cisely at interdepartmental ,junctions, when they are making their passage
from science to production; these are the tasks of scientific-technical
progress, which stiould ensure effective interaction of a number of organi-
zations of different ministries, which are being solved most slowly.
Using the benefit accruing to the consumer in order to improve lateral eco-
nomic ties in the sphere of scientific-technical progress has certain spe-
cific features. Not uncommonly in the initial period of application of new
technology the enterprises introducing it incur additional costs and some-
times even losses, and that slows down its application. But the size of
those costs and losses, as well as the time required for economic applica-
tion of new technology depend largely on interaction between its manufac-
turers and consumers; they can be substantially reduced if the producers
extend energetic scientific, technical and other aid to organizations ap-
plying the technology. It is a different matter when the consumer is left
to his own devices and applies technology without the help of the manufac-
turer, on his own responsibility and risk. At the same time new technology
should ensure that a certain benefit to the national economy is obtained
over its entire service life, and the siZe of that benefit reflects the
quality of performance of the enterprise that produces it. All of this
gives rise to the following peculiarities in stimulating manufacturers of
new technology on the basis of the benefit accruing to consumers. First,
the total size of the benefit accruing to the consumer should be defined
as the difference between the benefit to the national economy of applying
the new technology over the entire planned service life and the costs and
losses during the period of introducing it. Second, the payment of incen-
tives to the producer should begin only after the initial period of attain-
ing rated capacity has been completed, when the actual realization of the
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benefit to the national economy begins. This approach will motivate manu-
facturers of new technology to extend effective aid to consumers, thereby
reducing both the time and cost of bringing new technology up to rated ca-
pacity.
In certain cases when new machines and equipment, progressive materials and
high-quality products are being applied, there may be several economic
links between the producer and realization of the economic benefit to the
national economy--it may occur not on the premises of the direct consumers
oE its product, but in other more remote units of the economy. For in-
stance, improvement of the quality of materials used in designs provides
most of its benefit to the national economy not in the production of ma-
chines and equipment, but in tne spheres where they are used because of im-
provement of their technical-and-economic parameters. Here the consumer
"closest" to the producer will figure as a kind of intermediate link to the
unit in which the high benefit to the national economy is actually achieved.
In such cases the benefit at the place wnere it is realized needs to be re-
corded not only on the premises of direct consumers, but also on the prem-
ises of consumers at one or two removes, that is, in subsequent links of
the technological chain.
The author does not claim to have exhaustively covered all aspects and fac-
ets of the problem taken up in this article. Strengthening plan discipline
and introduction of target-program methods of management, improved balance
in production and creation of reserves so that the necessary economic ma-
neuvers can be accomplished, the shaping of progressive organizational
structures of management, eec., have no small role to play in solving it.
The importance of socialist competition is also great--thanks to its broad
scale and further development closer ties are created among competing col-
lectives, and the unity and integrity of the national economic organism is
reinforced. Consequently, we need to take into account the sum total of
factors involved in improving lateral economic ties in our further work on
the theory of the problem and in conducting practical measures in this
area. Only if a comprehensive approach is taken to solving this problem is
it possible to substantially reduce and eventually eliminate departmental
and all other organizational separateness by :,trengthening the unity of in-
[erests of socialist producers in increasing the efficiency of economic ac-
tivity.
Improvement of lateral ties is now o^e of the key problems in perfecting
the economic mechanism. Greater conrormity to plan of the effort to orga-
nize them and to improve their reliability and flexibility is an indispens-
able condition for taking into account those new requirements which, as
L. I. Brezhnev points out, "are being imposed by new technology and pro-
cesses, by the growing interdependence of sectors and industries and pro-
duction entities, and by the entire present-day makeup of our economy."*
* L. I. Brezhnev, "Leninskim kursom" [On Lenin's Course], Politizdat,
Vol b, p 326.
COPYRIGHT: Izdatel'stvo "Pravda," "Voprosy ekonomiki," 1980
7045
CSO: 1820
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ECONOMIC POLICY, ORGANIZATION, AND MANAGEMENT
KVASHA'S BOOK ON PRODUCTION TIME FACTOR REVIEWED
~ Moscow VOPROSY EKONOMIKI in Russian No 10, Oct 80 pp 139-141
- ~ [Review by V. Ysasovskiy of the book "Faktor vremeni v obshchestvennom
proizvodstve. Ekonomiko-statisticheskiye ocherki" by Ya. B. Kvasha,
Izdatel'stvo Statistika, 1979, 152 pp]
[Text] The monograph we are reviewing [The Time Factor in Social Produc-
tion. Essays in Economic Statistics] is Ya. Kvasha's last scholarly work,
completed not long before his death. This book is devoted to an analysis
of L:ie time factor--an exceedingly important characteristic of intensifica-
tion oi social production in the period of advanced socialism. It thor-
oughly examines the multifarious phenomena of economic life related to the
time factor.
As it is rightly remarked in the foreword, all of Ya. Kvasha's attributes
as a scholar are vividly manifested in the book. The author goes further
than to systematize an enormous amount of statistical and factual material,
mastexfully processing the data and scrupulously analyzing it. The mono-
graph is typified by a broad national economic approach to the problem of
production time. It discusses both microeconomic (vnutriproizvodstvennyy)
and also macroeconomic (obshcheekonomicheskiy) factors; the rates at which
new technology is being disseminated and the instruments of labor and all
manufactured products renewed. Consequently, the author sketches abroad
picture of the actual and possible movement of the overall process of so-
cial production, beginning with the conception of new technology and ex-
tending to its widespread use. The analysis of production time in differ-
ent sectors and industries ends with theoretical conclusions on the impact
it has on the value and technical configuration of production, which has
great importance bo[h to sectors and industries as economic entities and
also to the political economy of socialism.
In the present context of the intensification of production there is a par-
ticular urgency in the problems af improving methods of recarding the time
factor in planning and stimulating production and in computations of the
efficiency of capital investments. In the report address of the CPSU Cen-
tral Committee to the 25th congress L. I. Brezhnev pointed out: "In the
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entire effort to improve management the time factor must be fully taken
into account. In the field of planning this means: precise recordkeeping
not only of money and resources, but also of the times necessary to carry
out various projects, and to select the variants which will yield the fast-
est return. In the area of incentives this means tightening up time-saving
and strict penalties for wasting time."
So, the saving of time in all its forms is now the key problem in perform-
ing the tasks of improving the planning and management of the national
economy. An especially large role is played here by development projects
rela[ed ro speeding up the production process, to shortening the turnover
time of physical resources and working capital, to study the obsolescence
of ineans of labor, to reduce the period required to design and build new
projects and to reach rated capacity at them, reduction of the time for
filling orders and making deliveries of products to consumers, etc. In-
creasing the effectiveness of the economic mechanism necessitates adoption
of the methods of economic evaluation of the time factor and a drastic
shortening of production and investment cycles.
Ya. Kvasha's book consists of a foreword and five chapters. The book's
logic is as follows. First the author analyzes the problem of rates of
dissemination of new technology throughout physical production as a whole
and in its principal sectors--agriculture, industry, construction and
transportation. He goes on to discuss ways in which the operating life of
equipment is shortened and the impact this has on intersector proportions.
Retirement coefficients are given both for fixed capital as a whole and
also for buildings, structures and equipment. A study is then made of the
rate of renewal of products and manufacturing processes in physical produc-
tion. By contrast with the first two groups of problems, this is mostly
theoretical subject matter, and the author's attention is turned not so
much to studying statistical data as structural shifts in production, the
dynamic pattern of capital intensiveness and changes in development of cap-
ital goo3s industries. A great deal of space in the book is devoted to a description of production
time in the construction industry and of work times in the industries mak-
ing up the industrial sector. Whereas in capital construction the time re-
quired to build projects and to activate production capacities is regularly
monitored, in the industries making up the industrial sector such an impor-
= tant and comprehensive indicator as production time is not always recorded
and planned by any means. Often it is thus very difficult to analyze the
summary indicators for the industrial sector as a whole and for the indus-
tries making it up.
The book concludes with a presentation of the methods of computing the
value structure of production. At first this subject appears somewhat di-
vorced from the book's principal contents and would seem not to be related
to r.he problem of assessing the time factor. But that is not the case. In
this section the book demonstrates how important it is to correctly record
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the role of the time factor in summary national economic indicators. To be
specific, this requirement should be met by the capital-worker ratio, which
as a rule is calculated for the annual period, whereas it should be deter-
mined for the lengt4 of the production cycle. Likewise in analysis of the
value structure of production a comparison should be made of fixed capital
at residual value plus average annual working capital and work in process
- with the wage fund over the period of the production cycle, rather than for
the year, as is often done. Thus Ya. Kvasha makes a case for revising the
_ method of computing a number of important overall economic indicators so as
to take into account the time factor.
The author completed his study, as A. Notkin, corresponding member of the
USSR Academy of Sciences, remarked in his foreword, at a time when informa-
tion on fulfillment of the Ninth Five-Year Plan (in its last years) was
still lacking, and the lOth Five-Year Plan was only in the drafting stage.
Though definite changes have taken place in the USSR national economy since
that time, the methods of analysis and quantitative study of the time fac-
tor proposed in the book have retained all their importance. Ya. Kvasha
succeeded in formulating a number of very bold and original proposals for
solving this problem.
Among them an important place is taken by the monograph's study of the set
of problems related to renewal of fixed productive capital and above all
its active portion and the allowable length of service. Timely and sys-
tematic renewal of productive plant represents an important potential for
raising the output-capital ratio. The use of outdated and worn-out means
of labor at enterprises is standing in the way of improvement of economic
indicators, is tying up sizable labor resources, and requires disproportion-
ately large outlays for repairs, which often are made at a low technical
level. Calculations which Ya. Kvasha once made demonstrated that in physi-
cal production the average piece of equipment was repaired four times dur-
ing its length of service, and in the industrial sector the average was
three time, and the costs of major repairs after the first time were 460
and 400 rubles per 1,040 rubles of value of the equipment repaired, respec-
tively. It would take into account that the average age of machines in our
industrial sector is 21.5 years, and the operating period up to the first
major overhaul is 6 years, according to the figures of Ya. Kvasha, then
over the remaining 15-16 years the equipment is kept in working condition
only thanks to major repairs which are able to maintain its capacity, but
on the old technical basis. A pattern like this was not of course condu-
cive to technical progress, but held it back.
Under present-day conditions, meanwhile, the task consists of making a
gradual transition from reproduction of assets on the old technical base to
modernization of existing capacities so as to take technical innovations
into account. This should be furthered, for example, by stepping up plant
manufacture of replacement parts and by reducing their primitive production
in small repair shops. These problems are discussed in the second half of
the book, where a scientific set of inethodological procedures are proposed
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for analyzing the length of service of ineans of labor and the rate of their
renewal. The author takes pains to avoid using unreliable indicators in '
determining length of service and rates of renewal of plant and equipment,
calling attentton to the uncomparability of valuations of old and new as-
sets, particularly in connection with the recommendation of the instruc-
_ tions in effect that obsolescence be taken into account in such computa-
tions. Ya. Kvasha also emphasizes the importance of recording the rate at
which new capital is activated.
Voluminous factual material is called upon in the work concerning the prob-
lems of renewing the country's plant and equipment, long-term statistical
series are developed, and shortcomings in the present system of recording
fixed capital are noted, which provide very valuable and new information on
aspects of the process of reinvestment in the Soviet economy. According to
- the data of Ya. Kvasha, the 5ingularity of this process lies in the fact
that over a long period it took pl.ace to a considerable extent by virtue of
repeated major repairs and to a lesser extent by means of replacement of
worn-out equipment (page 91). Moreover, in a number of cases this new
equipment did not have advantages over the equipment replaced with respect
to its level of productivity and the number of workers required to run it.
More productive equipment went mainly to new enterprises. The author em-
phasizes that this pattern of the process of reinvestment is revealing its
adverse aspects more and more: weighing down the stock of machines with
outdated models and adding to the strain on the balance of labor resources,
which in turn tends to reduce the number of shifts of operation of machines,
not only old ones, but new ones as well.
Ya. Kvasha accordingly recommends that obsolete machines be gradually with-
drawn and the tr&~sition be made to a two-shift and, where possible, three-
stiiEt operating schedule, using more productive machines and without hiring
additional workers. At the same time there should be changes not only in
the operating schedule of enterprises, but their output of the more produc-
tive equipment, especially automatic equipment, should also be increased.
T}ie author calls attention to that paragraph of the new instruction on de-
prc:ciation deductions which points to the advisability of charging "expen-
ditures to acquire new equipment to replace outdated equipment whose major
repair is economically inadvisable" to that portion of depreciation deduc-
tions which is earmarked for major repairs (page 93). But he refrains from
the attempt to solve this problem without proper restructuring of machine-
bLiilding, machine tool building in particular, which must reorient itself
toward the needs of reequipping existing enterprises.
_ There are many important and interesting things in the section of the book
- entitled "Production Time in the Construction Industry." Ya. Kvasha
r.ightly observes that by definition construction is the only sector of the
national economy where production time is statistically observed on a regu-
la: basis. This is no accident, since the construction cycle is usually
measured not in days and weeks, but in years. Moreover, the benefit from
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reducing this cycle is also particularly large: for most construction
projects it runs into millions of rubles.
To suit the context of the construction industry Ya. Kvaeha tries to calcu-
late sufficiently aggregated and representative indicators reflecting pro-
duction time not confined to individual projects or subsectors. For in-
stance, he gives average construction times for the entire national economy,
including separate construction times for the production and nonproduction
spheres. In this chapter he studies differentiation of construction times
with respect to a variety of factors, for example, far new construction
pro,jects and reconstruction and expansion projects, for groups of construc-
tion projects as a function of the level of the estimated cost, with re-
spect to the relationship between rated and actual values, etc.
The book calls attention to the discrepancy between the estimated cost
originally approved and the actual cost, emphasizing that setting the con-
struction cost too low has an adverse effect on construction time, since
there is then difficulties in financing construction ;.,.,J^cts, in their ma-
terial and technical supply, etc.
- All of these issues, along with the problen,s oi renewing capital, the rate
of technical progress, etc., which are taken up in the book, have retained
their urgency and topicality up to the present. At the same time, very
precise and original methodological approaches were taken to studying each
of them, extensive factual material was used for verification, and impor-
tant practical recomnendations were drawn from the work. In a sense this
monograph can serve young scholars as a model of a meaningful, creative and
original work devoted to the most crucial problems of capital investment
policy. It is recoumiended for a broad range of specialists--economists,
statisticians, and also teachers.
COPYRIGHT: Izdatel'stvo "Pravda," "Voprosy ekonomiki," 1980
7045
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PLANNING AND PLAN IMPLEMENTATION
UDC 338.981
BUNICH DISCUSSES STEPPED-UP PLANS, INCENTIVES
Moscow VESTNIK AKADEMII NAUK SSSR in Russian No 10, Oct 80 pp 65-77
/Article by Corresponding Member of the USSR Academy of Sciences P. G. Bunich:
"Stepped-Up Plans and Stimuli of the uptimum Development"/
/Text/ The main tasks facing Soviet economic science are speci-
fied by the decisions of the 25th CPSU Congress and the decrees
of the party and the government on the improvement of the eco-
nomic mechanism. Their concrete expression as applied to the
USSR Academy of Sciences is contained in the decree of the ses-
sion of the General Meeting of the USSR Academy of Sciences
(December 1979). The academic institutes are oriented by this
decree, in particular, toward the elaboration of the problems of
planning and cost accounting. Within the framework of these prob-
lems the adoption of those systems of economic management, which,
as was stated at the 25th CPSU Congress, would stimulate enter-
prises to a3opt (and, of course, fulfill) stepped-up plans, to
save resources, to reduce the production cost and at the same
_ txme to assimilate more rapidly new types of items and to pro-
duce products of high quality and in the necessary assortment,
is of great importance.
One of the important conditions of the achievement of high end results in the social-
ist economy is the adoption of stepped-up plans, which predetermine the development
of the country. The economic mechanism, which is being created at enterprises, as-
sociations and in ministries in conformity with the decrees of the CPSU Central
Committee and the USSR Council of Ministers on the improvement of planning and the
perfection of the economic mechanism, is called upon to further this.
These documents mark a historical stage on the path of the formation of an economic
mechanism, which is equal to the economy of mature socialism. The enforceable en-
actments, which were passed in their execution, stipulate a set of ineasures on the
intQrconnec[ed development of planning and economic stimulation, which along with
other components includes the elaboration, as a rule, of uniform standards of wages
and the incentive funds, as well as other elements, which stimulate the interest of
collectives in the optimization of plan assignments.
To set off better the importance of the indicated innovations, let us analyze first
of all the prevailing practice of stimulating collectives from the standpoint of its
influence on the intensity of the preplanning demands from below.
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At present the principle of the fulfillment of the plan is the basis for the evalua-
tion of the activity of labor collectives. This principle is used both at operat-
ing enterprises, with respect to which the planning assignments became obsolete a
long time ago, and at the majority of new constructfon projects, at which the gener-
al principles of operational activity are applied to the rules of planning and stim-
ulation. Only in isolated instances are the plan and evaluation indicators of new
construction projects removed from the approved plans (the Volga Motor Vehicle Plant
and others). After the achievement of these indicators the principle of stimulation
for the fulfillment of the plan regardless of its level also comes into force here.
Serious contradictions are inevitable with such an approach.
According to the results of the fulfillment of the plan during 1978 the Ministry of
Construction, Road and Municipal Machine Building looks better than the Ministry of
Instrument Making, Automation Equipment and Control Sqstems, for the former ministry
fulfilled the plan on the sale. of products by 102 percent, while the latter fulfilled it
by 101 percent. But if we compare these ministries according to the increase of
production, the picture is completely different--the instrument makers provided an
increase of 10 percent, while the Ministry of Construction, Road and Municipal
Machine Building pravided an increase of 3 percent. From the point of view of the
fulfillment of tlie plan on sales the Minister of the Construction Materials Indus-
try surpassed the Ministry of Machine Building for Animal Husbandry and Fodder Pro-
duction (100.6 percent as against 100.5 percent), in the growth of production the
indicators are in favor of the machine builders (3 percent and 9 percent). The Min-
isCry of the Petroleum Industry and the Ministry of the Pulp and Paper Industry ful-
filled the plan on sales by 100.7 percent, but the former ministry provided a
S-percent increase of production, while the latter provided a 3-percent increase.
In 1979 the Ministry of the Chemical Industry exceeded the plan, but the increase
of sold products as compared with 1978 was only 1 percent. The Ministry of the Pulp
and Paper Industry in 1979 also exceeded the plan, but allowed even a decrease of
the production volume as compared with the preceding year by 5 percent. In the
past three years the increase of labor productivity at the plants of the Ministry
of Construction, Road and Municipal Machine Building was about half as great as at
the enterprises of the Ministry of Instrument Making, Automation Equipment and Con-
trol Systems, while the increases of wages in both sectors were approximately the
same.
The gap between the incentive "for the plan" and for the achieved level of efficien-
cy is revealed most distinctly in the case of the payment of bonuses for plan as-
signments, which have been adjusted downward and therefore fulfilled. As a check
in the sutmmer of 1979 showed, the associations of the Ministry of the Machine Tool
and Tool Building Industry tens of times reduced the plans, which enabled them to
receive 4.5 million rubles in bonuses.
The discrepancy between the indicators of the increase of production, the increase
oF labor productivity, the sum total of which characteriaes the /economic efficiency/
/in italics/ of production (which is understood in the broad sense as the difference
between the results and the paid expenses), and the degree of fulfillment of the
plan assignments is explained by a number of factors. Among them are such factors
as shortcomings in planning locally and at the center, the weak standard base of
the plan, the needlessness of the boosting of the production of individual types of
products, the occasionally inevitable decrease of economic efficiency under the in-
fluence of expenditures on conservation, on the introduction of equipment, which
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increases the creative content of labor, and so on. But it is impossible not to
see as one of the main causes of the understatement of the plans on production, the
profit and prodsictivity the adopted mechanism of stimulating collectives, which
evaluates them for the fulfillment of the plan regardless of the level of its in-
tensity.
In accordance with this mechanism, the higher the level of the plan evaluation indi-
cators (the increase of labor productivity, the increase of the proportion of prod-
ucts of the highest quality category and others), the greater--given the same esti-
mated absolute amounts of the economic stimulation funds, which are released from
above on the basis of the number ot workers and the needs for production development
funds--the incentive is per unit of real labor inputs. Moreover, the lower the
plan is, the more realistic is its overfulfillment which leads to additional stimu-
lation. The collectives, whose plans are more difficult, fulfill them with dif-
ficulty, while they do not even think about exceeding them. All this at times
gives rise to the aspiration to drop to wozse plan indicators, and not to rise to
better ones.
Apart from this, the inadequate intensity of the plan assignments is also governed
by other factors, including the complete deprivation of the management and engineer-
ing and technical personal of enterprises of bonuses in case of the slightest non-
fulfillment of the most important plan directives.
The fulfillment of the plans is a question of state discipline. Their facilitation
acts as unique insurance against failure. The hidden reserves of working time in
= the plan make it possible to have quite unnoticeably a reserve of manpower resources
far overtime. The excesses of manpower resources, which are caused by low planned
output norms, reduce the turnover of personnel. The amounts of above-plan products,
which at times are distributed by the producers more freely than the products pro-
duced according to the main plan, increase owing to the reduction of the production
plans. But the above-plan profit is necessary for converting the saving of the
wage fund into the material incentive fund, for increasing the material incentive
fund in connection with the fulfillment by production associations (enterprises)
for each quarter and the cumulative total since the beginning of the year of the
assignments on deliveries of products in the mix (assortment) and on time in con-
formity with concluded contracts (orders).
The collective, which has received a loan to compensate for the shortage of working
capital, should repay it from the production development funds, and in case of their
insufficiency should use the above-plan profit. Thereby the aspiration to obtain
an above-plan profit and, consequently, the inadequate intensity of the plan assign-
ments are stimulated anew.
The adoption of additional assignments as compared with the control figures of the
five-year plan and of annual counterplans serves as an expression of the creative
initiative of the workers. This advanced form of competition merits economic stimu-
lation. But, while interesting collectives in additional assignments, it is unde-
sirable to decrease the stimuli to draft stepped-up main plans. Meanwhile, if
the ma-n plan is not fulfilled, incenLive funds are formed at the enterprises ac-
cording to reduced standards; if the additional plan, which, like the main plan, is
a state assignment mandatory for fulfillment, is not fulfilled, the standards are
not reduced. Moreover, the bonuses of managerial personnel, engineering and tech-
nical personnel and employees for each percentage of fulfillment of the additional
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plan are tiigher than for the fulfillment of the basic assignments. Therefore it is
economically more advantageous to the collectives of enterprises to include the
maximum production in the additional plan, and not in the main plan.
The equalizing, mechanical distribution from above of additional assignments, which
have to be fulfilled both by those collectives, in which reserves are envisaged,
and by those, which were "imprudent," has a substantial influence on the understate-
ment of plans.
The stimulation of collectives for the fulfillment of the plan, regardless of its
intensity, not only gives rise to the aspiration of individual associations (enter-
prises) to reduce the assignments on production, the profit and so on, but also en-
ables them to overstate in the plan the consumption of resources. For here it is
not the level of expenditures, but only their correlation with the plan that is
taken into account. If excessive resources are incorporated in the plan, the col-
lective does not bear responsibility for this. On the contrary, the collective,
which overstated the consumption of resources, gains, for excessive funds appear
for it, while society loses.
It would seem that the cultivation of respect for the plan might be better for the
planned economy than the stimulation of strict planning discipline. But here is
the paradox: the evaluation of the activity of collectives according to the formal
observation by them of planning directives, while increasing the responsibility for
the fulfillment of the plans, at the same time decreases the interest in stepped-
up plans. Such evaluation, consequently, does not fully conform to the tasks of
the plan itself, if they are regarded from a broad standpoint--as the most important
tool of the observation of the optimal, most effective proportionality, and not the
balancing of production in case of its insufficiently rational level.
The stimulation of collectives for the 3chieved level of efficiency, the actual con-
tribution to the economy of the country and the end result of the work acts as a
possible means of stimulating the drafting of stepped-up plans. The need to take
into account when evaluating the activity of collectives not only the fulfillment
of the plan, but also its level was indicated back in the decree of the CPSU Central
Committee on the further improvement of the organization of socialist competition
(1971). At the 25th CPSU Congress A. N. Kosygin noted that it is necessary to make
the amounts of the economic stimulation funds at every enterprise and association
directly dependent on the achieved results in the matter of increasing the intensi-
fication of production and labor productivity, of im.proving product quality and
technical progress.l "
Thus, it can be said that the orientation toward a high level of production effi-
ciency ftindamen[ally also includes an orientation toward a high level of the plan
assignment5 and develops into the higher synthesis of the level and the plan. It
turns out that these approaches are not antiFodes: the level creates an interest
ici a high plan, stiarulates the mobilization in it of internal reserves; the plan, in
turn, works for the level, comprehensively backing the balance of production with
the necessary economic contacts. All Lhis leads to the fundamental combination of
the merits of the plan and cost accounting.
1. See "Materialy XXV s"yezda KPSS" /Materials of the 25th CPSU Congress/, Moscow,
1976, p 132.
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The drive of cli.ents for a reduction of the cost of the construction of new fixed
capital and the operations on renovation and modernization willbe stimulated under
the conditions oF stimulation for the end results of production. Indeed, if the
, cost of these operations was overstated and as a result the planned amounts of amor-
tization for clients increased and the planned profit decreased, this would not en-
tail [he recognition of the allowed increase in price as a factor which should be
eliminated when evaluating the activity of collectives and giving,them incentives.
Ttie plan on the profit, perhaps, will be fulfilled, but the stimulation funds will
nevertheless not come to the necessary amount. And, on the other hand, if the cost
of new facilities decreases, the planned amounts of the amortization deductions are
retained and the planned profit increases, the fulfillment of the plan according to
this indicator will not lead to the leveling and redistribution of the profit
will not hinder the increase of the stimulation funds.
Today, it is true, such a distant look ahead on the part of the client seems unreal-
istic. In practice the assignment to the balance of the client of practically any =
cost of a construction project predominates, since the latter izi no way influences
tlie amount of the future incentive funds. But if these funds depend an the value
of the construction work, it can be hoped that the collectives will treat the ex-
penditures on construction more ;,trictly and will strive for an increase of the eco-
nomic effectiveness of investments.
A similar situation arises in the area of the expenditures for raw materials, mate-
rials, fuel, power and components. Of course, when expensive raw materials are
used in production, this must be reflected in the plan. However, given the former
parameters of the output and, a:.cordingly, the former wholesale prices for it such
an increase of the embodied labor will inevitably lead to a decrease of the planned
profit. And even though this plan indicator is achieved, the collective will not
_ receive amnesty for the decrease of efficiency. Hence the stimulus to provide in
the plan for the improvement of the economic indicators. It is possible, of course,
th3t there are not enough raw materials with a low cost. Then the use of more ex-
perlsive ones is not ruled out. But it is important that the collectives would be _
interested in ordering comparatively inexpensive raw materials and would attempt
first of all to obtain namely them.
As to the use of manpower resources, their permissible aumber, structure and wage
fund wil.l be determined through the end result of production, and not subject to
t}ie number of people entered in the list of staff inembers.
If the collective begins to produce products of better quality and to update them
rapidly in conformity with the new requirements with rational expenditures, by means
of the aosolutely increased (and relatively decreased) prices it will receive a com-
paratively larger wage fund than the collective, in which the quality of items is
poorer and obsolete products are manufactured, despite the fact that the indicators
of both the form and the latter collective conform to the plan indicators.
The adoption of the level method of evaluating the activity of collectives and
stimulating them will also make it possible to intensify scientific and technical
progre:s:; and specialization, to expedite the concentration of production and to
establish more efficient economic contacts.
Under the new conditions the attitude of customers toward an increase of the prices
of the goods being bought by them should be changed radically. InsCead of the
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partially preserved aspiration of associations (enterprises) for high prices, which
wa5 connected in the past with the mechanism of evaluation according to the gross,
the direct opposite aspiration--for a reduction of prices--will emerge. For an in-
crease of the purchase prices for various goods will reduce the profit of the con-
sumers, while their reduction will increase it. But the aspiration of producers to
introduce high prices, by relying on their monopoly position, which results from the
high concentration of productiort and the lack in a number of iastances of other,
parallel producers, will encounter a real counterforce in its way--in the form of
the economic interests of the consumers.
The principle of level evaluation cannot be consistently implemented, if this level
is taken intu account only when forming the wage, the bonus and other raterial in-
centive funds, and is not taken into account when allocating capital investments,
if the investments, as now, remain for the most part outside cost account3ng financ-
ing. The combination of the level method of stimulation with the cost accounting
financinb of capital investments will ensure a sharp decrease of the deficit--both _
by means of the self-financing of a significant portion of the expenditures on ex-
panded reproduction and by means of the reduction of the cost of the goods being
produced and the outpuC of additional products from the saved resources. The de-
- crease of the demand for means of labor and manpower will eliminate their present
influence on the increase of the deficit.
The f.act that in the case of the level approach the participation of the masses in
the management of production is more fully ensured, production democracy is devel-
oped and the effort of the collective is aimed at the drafting, fulfillment and ex-
ceeding of the stepped-up economic plans, is also significant. And the role of the
managers of enterprises in this case increases, their responsibility for the results
of production and for their own actions, which lead to a decrease or increase of the
level of efficiency, is increased. The orientation toward the cost accounting re-
sults develops the creative forces of labor.
The economy of mature socialism has approached the point where it is opportune to
raise the question of the evaluation and stimulation of collecCives in conformity
with ttie end cost accounting results of production. At the same time it is neces-
sary to say with all certainty that the changeover to such a method of evaluation
is among the most complicated socio-economic problems of the day. The point is that
associations (enterprises) differ from each other in the scale of activity, their
nature (custom, series, mass production), technical level, natural and transporta-
tion conditions, the profitability of the products being manufactured, raw material
resources which are different in cost, the shift coefficient, the organization of
labor and so on. Consequently the �results of the labor of the collectives are so
differentiated, that stimulation on the basis of the new principle can cause a mixed
nature of revenues.
_ 'I'he question arises: Is it possible to consider this mixed nature to conform to the
_ difference in labor achievements?
In our opinion, the levels of efficiency only in part reflect the differences in
labor achievements, while in part they are determined by other factors which re-
quire elimination. External factors are usually ascribed to the latter. But far
from all external factors distort the labor results and require elimination. For
example, prices are an external factor (even if the association is the only producer
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of the product), which is governed by the centralized calculation of prices on the
basis of the optimization of the expenditures and results for the entire national
. economy. At the same time the tendency was noted for a change in prices to influ-
ence the evaluation of the activity of collectives, and not to be excluded from it.
The markups (discounts) on the prices for quality supplement the evaluation of col-
lectives, and are not deleted, as ones which ostensibly distort it. This increases
the interest of collectives in the study and controlled formation of demand and in
- its adequate satisfaction, for in this case the prices are at the most acceptable
points for cost accounting.
Mother external factor, which determines the level of efficiency, is centralized
capital investments. They are allocated to associations (enterprises) in accord-
ance with decisions of the state. But if investments are granted to one collec-
tive, but not to another, are given in one instanr.e in agreater amount, while in
another in a smaller amount, it is possible to consider as the first cause the
fact that the collective, which got the advantage in resources, submitted the most
profitable plan and in essence triumphed in the invisible sectorial and intersec- '
torial efficiency contest. The increase of the output of new, more profitable
items and the adoption of a processing method, which decreases the cost of produc-
tion the most, as a rule, are behind the best plan.
In practice, unfortunately, something different also frequently happens, when in-
vestments are allocated not to the most efficient sphere. But this only contra-
dicts the correct principles, requires the combatting of such phenomena and the ap-
propria[e revision of the economic mechanism and the system of responsibility of
superior planning and financial organs and does not change the very nature of the
centralized allocation of capital investments in favor of the best--from the point
of view of society as a whole--places of their application. But as soon as this
happens, the receipt of centralized investments when evaluating the activity of the
collective should be regarded in a similar manner as the updating of items and the
improvement of the technical base, that is, it should not be eliminated, but be re-
flected in the evaluation indicators. This is especially impartant as the financial
sources of the investments are formed mainly from the revenues of the enterprise,
the investments themselves require assimilation, additional work, while the results
obtained by means of them to a considerable extent are centralized by the state.
The marter is not always this way, but in those instances, when it is namely this
way, ir is legitimate to consider centralized investments as an external factor of
work, which does not depend on the collective, but which should not be eliminated.
Alang with the factors, which do not require, or more precisely do not always re-
quire, elimination when evaluating the activity of collectives, there are factors _
_ which indeed do merit a special approach. The task of attaching suppliers to cus-
tocuers is solved centrally, and it is necessary to eliminate the improvement or de-
terioration of ttie local indicators of efficiency, which arises as a result of this,
by fixed payments from some enterprises and to adjust it by state grants in favor of
others. The most important production mix, in which the profitability of individual
items exceeds the average profitability, while in some instances it is, on the con-
trary, much less than the average, is specified from above. And here the local in-
dicators of efficiency can beproperly adjusted downward or upward by means of fixed
payments or state grants, after which these indicators will be identified (accord- .
ing to ths given factor) with the labor achievements of the collective. The amount
of the material incentive fund of production associations (enterprises), which en-
sure the ouCput of consumer goods, which have a relatively low profitability, as
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well as inexpensive goods, can also be increased by means of the reserve for the
material incentive fund, which is created at the levels of industrial associations
and sectorial ministries.
The differences in the profit of associations (enterprises) are caused in part by
the different quality of the minerals being extracted, by the differentiation of the
natural fertility of soils and the assets being additionally invested in the extrac-
tive sectors and by the uniqueness of the location of works with respect to the re-
gions of the acquisition of raw materials and the marketing of finished items. The
neutralization of tne arising fluctuations of the profit is achieved by means of
rent payments, when their amounts correspond to the difference in the objective
factors.
The collectives have productive capital of different amounts and with dissimilar
technical and economic characteristics. In order to eliminate the influence of
these objec[ive differences it is necessary to appraise the fixed capital at the
prices of reproduction, which reflect the obsolescence and wear.of the capital, and
ro exact from this value the full price for it. In order to level the different
scales of credit resources it is required to subtract from the profit the interest
on the loan, having established it with allowance made for the effectiveness of
credits.
After adju5tment of the level of zhe profit by means of fixed rent payments, the
fee for capital and the interest on credits its further adjustment is seen in the
_ contributions to the reserve funds until they are filled up within the limits of
the norm. The standard economic stimulation funds are foimed from the surplus of
the profit. If assets remain in the profit after all the indicated deductions, in
accordance with special uniform standards they must be divided between the incen-
tive and development funds. A progressive tax should be exacted from the amount of
the total incentive funds per worker. The amount of the incentive and development
funds for the association (enterprise) as a whole, which is obtained in the end,
forvns its net profit. This amount also acts as a concrete expression of the level
of production efficiency, as an indicator and source of the stimulation of the col-
lective.
The above-standard portion of the development funds, as well as the reserve funds
serve as centralized sources of state capital investments. Thereby self-financing
is completely coordinated with the observance of national economic proportions (in
case of a shortage of internal capital credit is drawn in an amount which corres-
ponds to the difference between the national economic needs for the scale of de-
velopment of the given works and the cost accounting potentials; the detailerl
characterization of this question goes beyond this article).
Interruptions of supply affect the atnount of the profit. It happens that a collec-
tive works well, but the suppliers disrupt the deliveries of materials and compo-
nents. In order to restore the profit of such a collective to the proper level the
negligent suppliers must be forced to compensate for the harm done through their
fault. Owing to the mechanism of proper sanctions; as well as the system of addi-
tional indicators, the nonfulfillment of which sharply reduces the incentive, the
level evaluation will increase the responsibility of collectives not only for the
adoption of stepped-up plans, but also for their fulfillment. Thus, it once again--
now as viewed from the observance of the plan--will strengthen the principles of
the planned management of the economy and will serve the plan.
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The level of the profit is very sensitive to prices. If these prices are less than
the national economic impact of the products being produced or more than it, their
comparison with the prices of the lower limit, that is, with those prjces, below
which the output of the given product becomes econornically unprofitable to the pro-
ducer, will reveal an understated or overstated profit. In 1978 the profitability
in l(glit industry i.n actually operating shoas was equal to 25.3 percent, in the
petrol.cum refining industry--24.8 percent, in the food industry--20.7 percent, in
electric power engineering--6.7 percent, in the logging industry--1.2 percent; in
the peat industry there was a loss of 0.7 percent, in the coal industry--3.2 per-
cent. A11 this attests to how urgent the adjustment of current prices is, and in
the case of the limitation of the latter the introduction of special correction
f.actor.s. '
Due to adverse weather in a number of regions of the country in 1978 the proper in-
crease of the production of some agricultural products was not achieved. In 1979
as a result of weather difficulties the yield of grain, sugar beets and sunflowers
was less than the average annual year in 1976-1978. Other factors, which it is im-
possible to put down to the credit of or to hold against labor collectives, can al-
so influence the level of the results of production. For example, the worsening of
the external economic conditions of fishing had the result that in 1978 for the
Ministry of the Fish Industry the volume of sold products was 99.4 percent of the
1917 level, but since it was possible to foresee such a result, it was possible to
take it into account in the plan, which as a result was fulfilled and evQn exceeded
by 2 percent. In this specific case the evaluation according to the fulfillment of
the plan reflected more accurately the results o� the labor activity than the evalu-
ation according to the achieved level. But already in 1979 the ministry was able
in part to reorganize its work with allowance made for the new external conditions
~ and increased the production volume with respect to the 1978 indicator by 5 percent.
Under these normalized conditions the opportunity for a level determination of the
results of production was again afforded.
In practice there are frequent instances when associations (enterprises) operate
with a low shift coefficient as a result of a shortage of manpower resources, raw
materials, power, the existence of bottlenecks and so on. At the final stages of
production in a number of sectors--the chemical and light industry--the amount of
material resources being received substantially limits the use of the production
capacities. The level of the profit in such cases is comparatively low, but it is
not always possible to blame the associations (enterprises) for this. Zn these
si[uations and situations similar to tfiem the limitedness of the profit should not
be considered grounds for decreasing the stimulation funds, here an evaluation ac-
cording to the plan, strictly in conformity with the specific conditions and the
iimited term of effect of this principle is again more advisable.
The level approach to the determination of efficiency, as we see, is raising very
pointedly the questions of the breakdown of the labor results of production, the
correctness of standard payments, prices, penalty sanctions and so on. And in this
lies the main difficulty in the way of its adoption. The currently existing proce-
dure in practice gets rid of these difficulties, for in essence it recognizes all
factors as "independent" and owing to this the funds are distributed externally ac-
cording to the most "just" method--in an equalizing manner. It seems that such a
distribution does not offend anyone, but, if we look into it, it offends those who
work well.
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During the initial period of the conversion of enterprises to the system of plan-
ning and economic stimulation, the adoption of which began in 1965, an attempt was
made to use uniform (group, sectorial) standards of the formation of economic stim-
ulation funds, in order to interest collectives in a high level of efficiency, since
identical standards have the result that the resources of stimulation increase and
decrease in direct proportion to the level of the evaluation indicators.
But the uniform standards were not backed by the appropriate system of payments,
contributions. At many enterprises there caare not enough raw materials and mate-
rials, a low shift coefficient of the equipment remained, there were bottlenecks
which prevented the complete utilization of the production capacities. The differ-
ences in the technical level of production, which were far from completely leveled
by the revaluation of the fixed capital, also prevented the use of uniform stand-
ards. For enterprises, whose indicators were inadequately high, the standards had
to be increased. For those enterprises, whose indicators made it possible in the
case of uniform standards to move ahead vigorously, they had to be lowered. Some
standards were increased, while others were lowered until the stimulation funds per
worker for the sector as a whole were equalized. Thereby the amounts of the stimu-
lation funds basically returned to the inifial level, while at the same time many
negative aCtributes, which are characteristic of such an approach to stimulation,
reappeared.
Strictly speaking, uniform standards of stimulation are not the ideal. At highly
profitable enterprises the conditions may form for stimulation in excess of the level
dictated by the uniform standards. In reference to enterprises with a low profit-
ability the uniform standards are high, lower ones are required there. In the end
it is necessary to strive not for uniform standards, but for higher ones for lead-
ing collecCives and lower ones for collectives which work relatively worse, then
the achieved results and standards will be precisely adjusted. Since, however, when
giving incentives for the plan the standards are in inverse proportion to the level,
as compared with such a svstem uniform standards are a major step ahead. They make
the stimulation funds directly dependent on the achievements, aithough sumawhat
rigidly, with some discrepancy. In last place in stimulating effect are those indi-
vidual standards, which in contrast to the evaluation, which corresponds completely
or basically to the results, do not conform at all to them.
Although it is difficult to introduce stimulation for the level, life urgently re-
quires the ctiangeover to it. The beginning of this process was marked by the Model
Method of Determining the Economic Effectiveness of Capital Investments and its de-
development in the form of the Method (Main Principles) of Determining the Economic
Effectiveness of the Use in the National Economy of New Equipment, Inventions and
Rationalization Proposals, which require of designers the observance of the standards
of efficiency, which are thereby transformed into the minimum permissible levels of
return. But the principles of determining the economic efficiency of production
at the stage of designing are realized by using analogous indicators at the stages
oi the construction and industrial operation of the built facilities--otherwise the
consiste.nt realization of these principles is impossible, disruptions of the unified
cycle of obtaining the impact and dislocations between its phases, which are caused
by the use of autonomous, uncoordinated criteria, are inevitable. Moreover, due to
the metamorphosis of design indicators into planning indicators the clients relax
- the control over the work of the designers, who obtain an opportunity to show the
impact with a great dioptric correction.
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In conformity with the Temporary Methods Instructions on the Changeover as an Ex-
periment of Desig.n and Survey Organizations to the New System of Planning and Eco-
nomic Stimulation the designers receive bonuses for shortening the period of as-
similation of the rated capacities, but here the assimilation of the technical and
economic indicators is not taken into account. Therefore in the Method (Main Prin-
ciples) of Determining the Economic Effectiveness of the Use in the National Econ-
omy of New Equipment, Inventions and R.ationalization Proposals it is recognized as
necessary that the indicators of the design effectiveness be carried over complete-
ly to cost accounting practice.
In connection with the use in cost accounting uf incentives for the level of effi-
- ciency it is necessary to indicate the system of stimulation of the output of new
goods for cultural and personal purposes and household use, in accordance with which
during the first year of their series production the profit in the amount of up to
25 percent of the profitability remains at the disposal of the enterprises. The
level principle of evaluation found expression here in the fact that uniform norms
of stimulation depending on the level ot profitability are set for all enterprises,
regardless of the differences in their plan assignments.
A major milestone in the dissemination of the methods of stimulating collectives for
the achieved level of efficiency was the granting to them in 1977 of the right to
establish markups on the wholesale prices of practically all industrial consumer
goods with the symbol "N" (novelty). Up to 15 percent of the temporary markups on
the fixed wholesale and retail prices for high quality consumer goods are con-
tributed to the material incentive fund of the workers, who took a direct part in
developing the items of improved quality.
The markups for greater efficiency of new equipment, which gradually began to be
applied to all highly efficient products for production engineering purposes were
a further development of the price markups for quality. /The new decisions of the
- party and the government on the improvement of the economic mechanism envisage the
extension of the price markups (reductions) for efficiency and quality to all goods
for production engineering purposes/ /in italics/, which according to their param-
eters merit additional stimulation (penalization).
Since a soecific proportion of the wholesale and retail prices is calculated with
allowance made for the consumer impact, while the expenditures of enterprises should,
as a rule, be incorporated in these prices, the very fact of an effect of the
prices, which reflect the impact of the use of the goods, can with some conditional-
ity be regarded as a level limiter of cost accounting expenditures. This is cor-
rect, in particular, with respect to the prices of the world market, which take the
form of the upper limit of acceptability of internal production costs. Therefore,
the greater the proportion of foreign trade is in the economy of a country, the more
urgent the use of level criteria is for it. ^_herwise too many export and import
subsidies, for the payment of which there are not enough assets, will be needed.
In this case individual state grants are used only at the first stage of foreign
trade, then they are replaced by average ones, as a result of which the best enter-
prises gain advantages, while economic pressure is exerted on the worse ones. In
Hungary since 1971 the differentiation of markups by enterprises has been replaced
by their differentiation by subsectors. From what has been said it is evident that today there are both incentives for the
plan and incentives for the level. Stimulation for the plan predominates. At the
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same time analysis shows that the sphere of stimulation for the level is increasing,
while the sphere of stimulation for the plan is decreased. In the future the con-
tinuation of the same trend is seen due to the adoption of the already mentioned
uniform, as a rule, sectorial standards of pay and sectorial (subsectorial) or group
standards of the formation of incentive funds. But much work still has to be done
to adopt these standards. A transition period is required, during which the col-
lectives will create for themselves the technical and other prerequisites of the
use of uniform standards. It is necessary to envisage a system of temporary bene-
fits in some instances and withdrawals of excessive revenues in others.
I[ is no less important to overcome the inertia of the individualized methods of
stimulatian. For even in the enforceable enactments, which set forth the procedure
of planning wages and incentive funds for 1981-1985, the ministries are permitted
to differentiate the standards of wages by associations, while the collectives,
which are not approaching the conditions of groups, are permitted to use individual
standards of the formation of incentive funds. Since the conditions, which permit
differentiation, the methods of strict quantitative accounting of these conditions
and the periods of their effect are not stipu.lated here, there is the real danger
that the scope of the use of individualized standards of wages and the formation of
incentive funds may be too broad and will be transformed from exceptions into the
rule, which is reminiscent af the system, the improvement of which is stipulated by
the new decisions.
For the purposes of stimulating stepped-up plans and high end results in the econ-
omy, apart from incentives for the level of efficiency, other methods are also being
used. In order to aim collectives at the inclusion of reserves in the plan, and not
at their above-plan mobilization, in 1965 it was established that the fulfillment of
plan assignments is stimulated at the full standard, while the overfulfillment of
ttiem is stimulated at a reduced standard. In practice it turned out that those who
adopted a stepped-up plan excceded it by little and received incentives on the basis
of a l.ow plaiining standard (the higher the plan is, the lower--given the same amount
of the incentive--the standard of its ratio is to the high planning indicator);
those who adopted an unintensive plan, first, exceeded it greatly and, second, re-
ceived incentives on the basis of a higher planning standard (in both instances the
planning sCandard when the plan is exceeded, as was indicated above, was decreased).
!~s we see, all the advantages were on the side of the latter.
Whereas the pluses from less stimulation of above-plan achievements are quite prob-
lematic, the minuses are clear. Hence it follows that it is hardly correct to stim-
ulate any exceeding of the plan at reduced standards. Qverfulfillment, which con-
cerns little needed products, takes place, it really does not merit special stimula-
tion. But overfulfillment of another type also takes place--for scarce products
which society needs, the decisions of the party and the government are oriented
toward such overfulfillment. Although the overfulfillment of the plan in this case
is necessary, an obstacle arises here--a reduced incentive. The rate of overful-
fillment of the plan is being checked, some useful measures are not being imple-
mented immediately and are being postponed to the following year.
Let us note that, in accordance with the new decisions, the gap between the stimula-
tion for the fulfillment and the overfulfillment of the plan indicators is being
decreased. With the overfulfillment of the plans on the profit by up to 3 percent
half of the above-plan profit is left to the disposal of the industrial ministry
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(association, enterprise): beyond the indicated mark the proportion of the profit
left to the producers is decreased to 25 percent.
The principle of planning according to the base has been used for a long time for
defeating tiie attempts of some collectives to set too low the plans on production
anJ the profit and to set to high the wage funds, the capital investments, the ex-
penditures on raw materials, materials and others. For this purpose the dynamics
for recent years of the main economic i.ndicators are determined for each associa-
tion (enterprise), the corresponding average annual value is arrived at, which then,
with adjustments for the conditions of the planning year, is transformed into a new
assigr,ment, below which the plan is not approved. Such a technology of planning
provldes plan assignments at a level no worse than the base period and performs the
role of the minimum compulsory "press," but it also has its weak points. Those
collectives, which retained concealed reserves during the base period and did not
include them in the new plan, are under better conditions than those collecti�ves
which did not have such reserves or adopted a stepped-up assignment.
In trying to interest associations (enterprises) and ministries in stepped-up
plans, some economists suggested that economic stimulation funds should increase
in a certain proportion to each percentage of the increase of the evaluation indica-
tors, for example, should increase with each percentage of the growth of sales or
labor productivity. However, a large increase of sales can also be obtained by
_ means of the excessive outlay of investments and the enlistment of significant num-
bers oE workers. As a result its increase will be combined not with an increase,
but with a decrease of the intensity of the plan. There is also no identity between
the intensity and the increase of labor productivity. This indicator does not re-
flect the degree of utilization of production capacities and, moreover, objectively
prompts collectives toward a low rate of development. For instance, a plant planned
to increase production by only 2 percent--this can be achieved without increasing
the number of workers, and then the indicator of the proportion of the increase of
production due to the increase of labor productivity will approach 100 percent. If
an increase of pr.oduction b~ 20 percent is planned, the collective cannot do with-
out new workers, and then the proportion of the increase of production due to the
increase of labor productivity will decrease, in which the collective is not at all
interested, although this solution conforms to national economic interests. Such
difficulties arise in the process of the improvement of product quality, which re-
quires an increase of the labor-intensity.
There is the opinion that the intensity of the plan should be determined according
to the utilization ratio of the production capacities. If we agree with this opin-
ion, the collectives with old capacities, which were assimilated long ago, will be
the leaders. This will stimulate plants to reject renovation, the construction of
new shops and the adoption of an advanced manufacturing method, which initially de-
crc