JPRS ID: 9708 USSR REPORT ECONOMIC AFFAIRS

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JPRS L/9708
= 4 May 1981
= USSR Re ort
_ p :
ECONOMIC AFFAIRS
,
CFOUO 6/81)
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JPRS L/9708
~oi
' 4 May 1981
~ USSR REPORT
' ~CONOMIC AFFAIRS
' (FOtTO 6/81)
CONTENTS
- � ECON~C POZICY, ORGANIZATION AND MANAGEMENT
Development of Ecc~nomic Mechanism Described
- ~ (S. Kam.enitser; VOPROSY EKONqMIKI, Feb 81) 1
~
II~VESTMENT, I~RICES, BUDGET AND FINANCE
Price Policy Versus Production Efficiency Examined
(B. Plyshevskiy; VOPROSY ERON~IIKI, Feb 81) 7
Experts Review New Capital Investment Methodology
(G. Merkina; VOPROSY EKONOMIIff, Feb 81) 21
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J ,
; ECONOMIC POLICY, ORGANIZATION AND MANA~EMENT <
DEVELOPMENT OF ECONOMIC MECHANISM llESCRIBED
Moscow VOPROSY EKONOMIKI in Rnssian No 2, Feb 81 pp 140-143
/Review by S. Kamenitser of the book "Khozyaystvennyy mekhanizm na sovremennom
etape" (The Economic riechanism at the Present Stage) edited by Corresponding Mem-
ber of the USSR Academy of Sciences P. G. Bsnich, Moscow, Izdatel'stvo "Ekonomika",
1980, 232 pages/
- /Text/ The Communist Party and the Soviet Government have always devoted enorm~us
attention to the improvement of the economic mechani~m of the mature socialist so-
ciety. The decree of the CPSU Central Committee and the USSR Council of Ministers
of 12 July 1979, "On Improving Planning and Strengthening the Influence of the Eco-
nomic Mechanism on Increasing Producticn Efficiency and Work Quality," also fully
. conforms to these goals.
The authors of the bock. being revizwedl set as their task to show the objective
-validity of the measures called for by the decree, to reveal the content of the most
- important of them and to state opinions on the further prospects of the improvement
of the economic mechanism of the ~nagement of the Soviet e~conomy. The work can be
conditionally divided into four ser.tions. The theoretical problems connected with
, the development of th~.economic mechanism are examir.Pd in the first sectior.. (Chap-
y ters 1-4). The main blocks of the economic mechani,m are revealed in the szcond
section (Chapters 5-9). The third sectisn (Ch.apter~a 10-12) is devoted to the analy-
~ sis of the organizational questions connf:cted witn the development of the economic
~ mechanism. The trends of the further developma~nt of the economic mechanism in the
CEMA member countries and the means of improving the territorial aspect of *_Iie eco-
- nomic mechanism are examined in the fourth section (Chapters 13-14).
A merit of the monograph is the combination in it of thorough elaborations of polit-
ical economic problems and the characterization of the most important provisions
of *_he decree of the CPSU Central Committee and the USSR Council of Ministers with
the posing of new problems of the further development of the economic mechanism at
: the present stage of the development of the economy.
l. The collective of authors: L. I. Abalkin, A. G. Aganbegyan, V. V. Adamchuk,
P. G. Bunich, A. P, Vavilov, 0. V. Kozlova, A. A. Modin, G. B. Pravotorov,
- A. M. Rumyantsev, V. V. Sitnin, P. A. Skipetrov, T. S. Khachatt:rov, N. P. Fedo-
renko~ A. Kheynman and S. I. Shkurko.
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- Perhaps the main feature of the measur~s now being implementea on improving the
_ economic mechanism is their completen;sss. This feature is revealed in detaj.l in
Chapter 1. Here the continuity of the 4dopted decisions with the principles ad-
_ vanced by V. I. Lenin in a report at the seventh party cor~ress is shown, the es-
senCe of the economic mechanism and ~ts structure are chardcterized. The authors
~ emphasize that, being an objective category and a means of bririging the form of pro-
- duction in line with the s teadily increasing level of the productive forces, the
economic mechanism serves as the most important link of the practical implementa-
, tion of economic policy.
At the same time the assump tion advanced here, in conformity with wh~ch the econom-
ic mechanism can be regarded "as a broader concept thar the management of the econ-
omy" (p 17), arauses doubt. The thesis that the forms of the organizatiun of
social pr~duction are an element of the economic mechanism, also seems very debat-
able to us. The forms of the public organizatioa of production, as is known, are
studied in the system of s ectorial economic sciences, and it is hardly necessary to
include them in the economic mechanism, which is called upon to create favora~le
conditions for implementing the effective specializa~ion, concentration and coopera-
- tion of production. Therefore, having advanced such an assumption, the author
sYiould have attempted to advance more circumstantial arguments for it. On the
whole an original interpretation of many theoretical assumptions on the economic
mechanism is presented in the chapter.
= Further, in Chapter 2 of the work, the use of economic laws in the system of the
economic mechanisn is examined. The essence of economic laws, their system and
~he peculiarities of their effectunder the conditions of socialism are revealed in
detail. The economic mechanism, the author notes, is based on the effect not of
individual economic laws, but of their system, includ~n~ the main economic law, th~e
' law of planned, proportionate development and others.
The political economic principles of the management of the socialist natio~ial econ-
omy are further developed in Chapter 3, in which the unity of the three aspects of
management--the technological, the economic and the legal--is emphasized. In our
opinion, it was also expedient here to distinguish the social aspect of managem~nt,
- having emphasized at the s ame time the primacy of the economic aspect. The peculi-
arities of commodity-money relations under socialism are characterized in detail,
such categories as value and money under socialism and the directive indicators of
the five-year plan, which are stipulated in the decree, are analyzed.
The firs~ section concludes with a chapter on balanced development a~ the objective
basis and universal. form of the economic mechanism of mature socialism. The es-
sPnce of balanced development here is defined as the direct social economic form
of the production relations of producers (see p 51), as "the proletarian... and then
the national regulation of the output and distribution of the natioaal product"
~P 52).
'I'he raising of the questio n of enhancing the role of the consumer in formulating
the programs of production development (the list and quantity of the output being
produced, the period of assimilation of new items, prices and so forth) is timely.
This by no means implies the transition to so-called market socialism, but is aimed
- at the improvement of planning, stimulation, pricing and other elements of the eco-
~ nomic mechanism.
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The system of indicators of the plan is examined in Chapter 5 on a high theoretical
_ level with allowance made for the most important practical tasks. The authors cor-
rectly emphasize that the standard net output is not the only charactF:ristic of
production efficiency. The indicator of product sa.tes and several o'.:.hers have not
yet become obsolete.
-
The need for the further developmer.i of the indapendence of associations in the
formulation of the production program is argued in the book. The recommendations
on establishing a different procedure of allocating assets for the expansion of
capacities placed into operation, which are of local importance, and for the per-
formance of those operations which substantially influence the territorial and sec-
torial proportions, are interesting.
,
The authors also propose to reduce the amount of centrally allocated materials and
to expand whoiesale trade in means of production, to take into account when%estab-
lishing the standards of the determination of the wage fund tt~e state o� the equip-
ment and processing method and the scale of production, to differentiate and in-
crease the interest for credit, to take into account the valuation of land and
other types of natural resources when determining the production cost.
At the same time some of the assumptions advanced here require additional arg~unenta-
tion, particularly the thesis about organizational administrative methods of man-
agement.
Chapter 6 is devoted to the economir_- levers of the management of the increase of
product quality. Such management can be effectively implemented only in close con-
nection with the entire system of the managF~ment of production development. How-
ever, the author did not reveal the forms and methods of this connection. The or-
ganizational measures placed by him in the t~rairont--the development of complete
standardization, the precise determination of the level of quality, the creation of
an extradepartmental commission of experts and others--can yield an impact only
when they are combined with economic measures (wholesale price markups, the,~.ntro-
duction of graduated prices, the differentiation of the conditions of credit exten-
sion subject to the achieved level of product quality, the special-purgose financ-
ing of ineasures aimed at increasing product quality and others).
A special place in the growth of production efficiency and the increase oi its
scale belongs to capital construction. In examining in Chapter 7 the task5 of the
planning and stimulation of capital construction, the author singles out the main
problems facing this sector at the present time: the decrease of the excessive
, amount of unfinished construction, the decrease of the scattering o.f capital invest-
ments among a large n~.imber of projects, the drive against the exceeding of the
estimated cost of many projects, the placement into operation of fully completed
projects and the increase of the quality of consrruction work. The assurance_ of
the stability of the five-year p].an.s, since a change of the assignments in the an-
nual plans in the case of long construction periods leads to the disturbance of i.ts
entire course, and the balance of the plan assignments of construction organizations
with their capacities and with the amount of allocated material resources should
play a most important role in the solution of these problems.
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In the chapter much attention is directed to the new system of estimated indicators
of the work of construction and installation organizations, to the change of the
procedure of turning over and accepting completed projects, the system of the ex-
tension of credit to them and the procedure of paying bonuses to the designers and ,
canstruction workers. But, unfortunately, the questions af improving the structure
. of construction organizations and the system of their management are not touched
upon in the chapter.
The means of improving the organization of wages are examined in detail in the -
hook. Among them are the rejection of the system of the rigid grouping according
to wage rates and of the prevail.ing procedure of revising the norms, t~?e estabtish-
+ mer_t of a direct dependence between the incrzase oi the national income and the .
wage, the decrease of the intersecto;~ial differentiation of the wage. At the same
time it is recoIIanended to increase tne differentiation in the w3ge subject to the
qualitative features of labor. All this is very interesting, but is far rrom a
real possibility, and in some cases also from being advi.sable for implementation.
As to some theoretical stands of the author, the "law of the recovery of expendi- �
tures of manpower," which he advanc~d (p 111), arouses doubt. The assumption, in
- conformity with which "along with considering economic laws when formul.ating the
- principles of the or,ganization of tre wage under the conditions of socialism it is
also necessary to provide for measures on the assurance of the material interest of
workers in the results of labor" (p 113), is also unsuccessfully formulated. Why
does the author write "along" and "a.lso" and thereby separate the material interest
- in the results of labor from the effect of the economic law of distribution accord-
ing t~ labor, which is written about ~n the preceding page? The theses of ttie
author abo~t the measure of lab~r and the measure of its remuneration need, in our
opinion, additio~al clarification.
He asserts later that "the large number of supplementary payments, increments and
bonuses being used at this.time have their own meaning" (p 118). Zt seems to us
that this ldrge number does harm, since it provides the oppor.tunity to choose, by
means of what results in work it is possible to obtain a larger wage without the -
~ proper relationship with the interests of the national economy. At the same time _
the characterization of the measures stipulated by the decree is given in an inter- _
esti.ng way and quite completely.
~ The improvement of the use of manpower resources is one of the most acute problems
at this time. But it is a matter not only of their limitati_on and the decrease of
the influx of new manpower resources, but also of the many social consequences of
- the increase of labor efficiency. The author of Chapter 9 substantiates a number
of interesting assumptions about the means of solving them. In partic.ular, he
recommends the use of indicators which characterize the use of manFower resources,
the change of the system of seniority pay, the introduction of a fee for the use of
manpower resources and others. However, in treating these measures the authcr con-
� fines himself to their cursory listing, without revealing the directions of the
elaboration of if only the most significant of the recommendations made by him. At
the same time he went beyond the analysis of the economic mechanism, also examining
such questions as the reduction of the full-day and intrashift losses, the change
of the system of the training and further training of personnel, the organization
of the work of job placement bureaus and others. The substantiation by the author
- of "the law of the change of labor" (p 145) seems inadequate to us. _
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The increase of production efficiency is closely connected with the efficient use
of all types of production res~urces. ~1t the same time there is an enormous produc- -
tion potential in the national economy of the country. An interesting, though
short analysis of this potential and the specification of the means of its realiza-
tion are given in Chapter 10. As whole these questi~ons are stated correctly and in
a well-reasoned manner. The still inadequate level of the specialization and con-
~ centration of production is the main factor which gave rise to this potential. The
~ 3uthor sho*.~s convincingly the shoi�tcomings in the solution of thp problems of im-
proving the organization of social production. Z'he raising of the question�con- -
- cerning the fact that the concentration of production is justified only with its
- combination with a nigh level of specialization, is unquestionably correct.
At the same time the thesis about the tender~cy toward "the natur.alization of pro-
~ duction" is far from being that unequivocal. It seems to us, and tl~is is confirmed
by the experience of many developod countries, that the pro3uct.ion o.~ special means
(equipment, tools, accessories, dies and so on) should be brought closer to+~he
~ser with the strengthening of the unified technical management of such operations.
And this tendency should hardly be interpreted as "the naturalizati.on of produc -
tion." _
_ The aspiration of managers to oxganize the output of many semimanufactures "at
their own works" is 3ue to the still inadequate discipline of deliveri.es. The
author names several measures which are aimed at the increase of discipline in the
fulfillment of contracts, but it is impossible to limit oneself to this, a system
of ineasures is needed here. -
The improvement of the organi2ation of production and management is an essential
condition of the improvement of the economic mechanism and the assurance of its ef-
- ficient operation. Chapters 11 and 12 of the monograph are devoted to this problem.
The need to create an efficient technical information system, which conforms to the
~ goals of the development of the object being managed, its peculiarities, ~_he state
. and trends of development, is convincingly demonstrated in Chapter 11. The raising ~
of the question concerning the developmetit of an "information industry," the forma-
tion of general-purpose information and computer centers and the introduction of
cost accounting relations between these centers and production economic organiza-
tions is of great interest. The recommendation of the author on "the integration
of information flows on the scale of the national economy and its management organs"
- (p 185) is a].so carrect.
In Chapter 12 on the basis of the analysis of the formation and activity of a num-
ber of production associations the need for a scientific approach to their creation
is correctly demonstrated. The close production relations, which have presently
formed not oi:ly within the sectors of industry, but also between them, dictate the
_ expendiency of the formation of multisectorial ass~ciations. According to the cor- "
rect opinion of the author, it is necessary to reject the department;il approach to
their creation and to proceed from proc~uction expediency, subordinating department- .
al affiliation to it.
The advanced proposal on the more precise division of operations among the manage-�
ment organs of the association as a whole and the production unit.s belonging to it -
is correct. Unfortunately, the principles of implementing this proposal are not
fully revealed in the chapter.
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. The intensifying economic integration of the CEMA countries dictates the vital need ~
for the convergence of the economic mechanism in the different counCries. This
does not rule out the existence of a number of its peculiarities, which are con-
nected with the structure cf production, the degree of development of international -
_ econ~mic relations, the scale of production and other features of preduction in
each of the countries. The author of Chapter 14 was able to ascertain and general- .
ize the main traits of the economic me~hanism which is functioning in the cooperat-
ing countries. The measures aimed at the development of the economic mechanism in
- the countries are described in the chapter. The new trends which are appearing in
som~e of them are also distinguished. _
Important questions are raised in Chapter 14, which is devoted to the develop~ent
of tYie regions of the North. In it the problems which should be solved with a
breakdown by territories are specified, the effectiveness of such an approach is
shown. The economic effir_iency of the ~'evelopment of the economy of Siberia at a
faster pace than on the average for the country is convincingly demonstrated. The
author proposes to organize the elaboration of programs for scalving major rcbional
problems. Unfortunately, the author does not reveal the questions which are di-
rectly connected with the improvement of the economic mechanism and of the combina-
_ tion of sectorial and regional interests, particularly with the cr.eation of t he
, conditions for stepping up the development of the economy of Siberia. -
The analysis of the contents of the book makes it possible to conclude that the
reader has received an interesting work, the study of which will help to extend
his economic knowledge and will force him to ponder a number of compl:~cated urgent
_ problems of the further improvement of the economic mechanism of mature socialism,
COPYRIGHT: Izdatel'stvo "Pravda", "Voprosy ekunomiki", 1981
- 78~7
C50: 1820
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~
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INVESTMENT, PRICES, BUDGET AND FINANCE
PRICE POLICY VERSUS PRODUCTION EFFICIENCY EXAMINED
� Moscow VOPROSY EKONOMIKI in Russian No 2, Feb 81 pp 14-25
/Article by B. Plyshevskiy: "Production Efficiency and the Price"J
/Text/ The solution of the problems of increasing efficiency a:id quality, which
have been raised by the present ecdn~mic strategy of the party, is di.recting the
attention of economic science toward the elaboration of a number of new theoretica~
problems of the political economy of socialism and the planned management of tae
_ national economy. One of them is the improvement of the methods of the planned
management of the intensification of social production, particularly the strength-
ening of the influence of the price on the economy of expenditures and the in-
crease of the efficiency of the national economy.
Many aspects of this problem have already been examined in the USSR and other so-
cialist countries, but the analysis was based primarily on the :naterials of the
preceding rariod, mainly with reference to the tasks of building socialism. The
results of expanded reproduction during the next period, when the Soviet economy
entered the stage of mat~~re socialism and the previously formed tools of planning
and economic stimulation were changed, have still not been properly ge~neralized.
Meanwhile this is most ul�gent in connection with rhe e~^ergence of new processes and
trends, which stem froia the implementation during the coming llth Five-Year Plan of
the system of ineasures stipulated by the decree of the CPSU Central Committee and
the USSR Council of Ministsrs, "On Improving Planning and Strengthening the Influ-
ence of the Economic Mechanism on Increasing Production Efficier_cy and Work Qual-
ity." In the article some general methodological questions of the theory of prcduc-
tion eFficiency and wholesale prices are analyzed, tl:eir interaction at the most
~ important stages of the developmerit of the Soviet econom~ and under present condi-
'tions is examined.
The Interrelationship of the Change of Efficiency and the Price
_ The price as a value expxession of the socially necessary expenditures of labor
is used for determining the amount of material and manpower resources consumed in
the production processes and the amount of output produced and thereby is a meas-
ur~r of the efficiency of management. The interrelationship of efficiency and the
~ price is of two kinds. A change in production efficiency in the end is reflected
in the level of prices. A lower price, other things being equal, attests to an
increase of production efficiency. A decrease of efficiency usually leads to a
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subsequent increase of prices . But with a change ix~ the conditions of reproduction
the increase of efficiency is often ac~ompanied by an increase of prices. The non-
coincideni:e of their dynamics is caused by the fact that along with factors of ef-
ficiency many other factors, including the ratio of supply and demand ar.d the change
of the purchasing power of money als~o influence the price as a tool of the commodity
economy. This concerns both the production of an individual commodity and the en- _
tire national product.
Marxist-Leninist political economy is based on the fact that the interrelationship
of eff iciency and the price is determined by the production relations prevailing in ~
society and by the specific nature of the objectiye 2conomic laws which operate on
their basis. In bourgeois so ciety this interrelaeionship is govc.rned by the laws
of tr~e creation and private-capital appropriation of the surplus value and of capi- _
talis t competition. Under so cialism the interaction of efficiency and the price
reflects the planned development of social production in the interests of the most
complete satisfaction of public needs.
Whil e emphasizing the decisive influence of the specific economic laws of the his-
toric ally dictate.d mode of production, Marxist-Leninist political er.onomy at the
same time takes into account the existence e~f some common laws of the change of ef- -
ficiency and the price under capitalism and sociai.ism. This is connected with two
groups of reasons. First, th ere are common laws of reproduction, which are inher-
ent in the different socio-ec onomic formations. The laws of ~he propartionality
between the material and value structures of the national product, the means of _
production and consumer goods, the consumption and ~ccumulation funds in the na-
tiona 1 income in the case of simple and expanded reproduction, which were discov- `
ered by K. Marx and were developed by V. I. Lenin, first of all belong to them.
T!ze general economic la~os, which arose on the basis of the development of large-
scale mechanized industry (fo r example, the laws of the increase of labor produc- _
- tivity and the decrease of the cost of the output being produced), are also common.
Second, there is the use in e conomics of commodity-money relations. Since the ef-
fect of the laws named abuve is mediated by value relatinns, specific laws also
aris e in the interaction of production efficiency, the level, structure and corre-
- lations of prices .
Under capitalism of the period of frea competition, an analysis of which is given -
in " Capital," the increase of labor productivity and the decrease of production
costs were accompanied as a whole by the tendency for the level of prices to de-
crease. Hlving revealed the laws which were the basis for the cyclic development
of c apitalist production, K. Marx also showed the laws of the spontaneous movement
of p rices. "The market prices of commodities and the market raees of return follow
these phases, first ciropping lower than their average level, then rising aUove it.
Looking at the entire cycle as a whole, you will note that one variation of the _
market price is offset by another 3nd that on the average, withii the entire cycle, �
the market prices of commodities are regulated by their values." _
In the late 19th century and during the following pe~iod in connection with the -
transition to monopoly capitalism the classical type of price change by phases of
the economic cycle began to be modified: the rate of decline of prices slowed dur-
ing periods of. recession and depression, at the same time their increase quickened
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during a recovery and upswir.g. Thus, in the Un?ted States the wholesale price in- -
dex, as a percentage of the base year~ of 1957-1959, for the years of their great-
est decrease and increa~e was equal in 1890 to 30.7 percent, in 1896--25.4 percent,
in 1901--30.2 percent, in 1907--35.7 percent, in 1920--84.5 percent, in 1932--
_ 35.6 percent, in 1937--47.2 percent, in 1941--47.8 percent, in 1948--87.9 percent
ar.d in 1953--92.7 percent.2 From 1890 to 1915 the wholesale price index increased
by approximately one-fouth, by 1920 it had increased 2.2-fold, c~uring 1922-1940 it
_ decreased to one-half. _
After World War II at tlie second stage of the general crisis of capitalism,~which
coincaded in time with the development of the present scientif~c and technical .revo-
lution, the increase of production efficiency began to be accompanied by an in-
crease of the level of prices. The wholesale price index in the United States with
respect to 1950 was in 1955 107 percent, in 1960--116 percent, in 19(5--118 perc~nt,
in 1970--135 percent, in 1975--214 percent and in 1978--238 percent.3 In the 1970's
_ the inflationary processes in the capitalist world quickened, the increase of
pri::,es b~gan to be measured annually in double digits and extended to all the -
phases of the cyc?.e, including the period of recession and depression (the phenome- '
non of so-called stagflation). Since 1890 the wholesale prices 'nave ~.ncreased -
nearly eig?ztfold, the postwar period accounts for about two-thirds of this increaser
and the 1970's account for 60 percent.
The modification of the previously existing interrelationsliip of the increase of ~
~ production efficiency and the change of prices is evident from the following data
for the U.S, economy (thz increases as a percentage on the average for the period) 4
~ 1961-1965 1966-1970 1971-1975
Output of products (in man-hours)
- in the private sector of the eGOnomy. 3.9 2.0 1.6
in the processing industry. . . . . . . . . . . 4.5 1.2 1.9
Wholesale price index. . . . o . . . . . . . . . . 0.4 2.7 9.6
Price index of the gross national product. 1.6 4.2 5.9 =
~ The data of the table show a slowing cf the growth rate of labor productivity with
the increasing acceleration of the increase of prices. In recent years the previ-
ously achieved level of labor productivity in the U.S. pr~cessing industry has de-
clined, while the increase of the wholesale price index on the avera~e during -
1976-1979 was 7.3 percent. An inverse relat:.or? of the change of production effi- `
ciency and the price at present is traced primarily in the sectors which determine
the present directions of scientific and technical progress--electronics, nuclear
power engineering, the prod~iction of computer hardware, new types of chemical raw
materials and materials and others. However, the decrease of prices now extends,
as a rule, to the output of individual sectors, the most efficient types of:prod-
, ucts are not being accompanied by a dectease of their overall level.
~ The classical scheme: the increase of labor productivity--the decrease of the cost
and price of products, was developed by K. Marx as an extension of the labor
theory of value of A. Smith and D. Ricardo as applied to the conditions of a bal-
anced economy. It presumes, in particular, the existence of the proportionality -
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of the physical and value structure of the national product and its realization
_ through prices, the dynamics of which corresp~~ids to the change of the cost of the
. reproduction of individual parts cf this predu~t. If the.se conditions are absent, .
an additional analysis of the factors which caused the imba.lance of reproduction is
- necessary.
The work of K. Marx, "WageS, Price and Profit," in which the most important events
_ of the struggle of the working class for an increase of wages or against their de-
crease are examined, is an example of such an analysis. Along with the increase
and decrease of the cost of manpower the situation is examined, in which the cost
- of ineans of subsistence, labor productivity, supply and demand remain invariable,
while the prices f~r commodities double as a result of a change of tlze value of
money. Then 12 hours of J_abo~, cahich previously tcok the form of 6 shillings, are
now 12 shillings; if the wage of work2rs remains as before (3 shillings), it will
= be equal to only :~alf of the money price or labor (this term is used here to desig-
nate the monetary ~:xpression of the cost of man.power).
"Nothing changes except the monetary /names/ /in italic~/ of these costs, K. Marx
notes in this regard. "To say that in such a case the worker should not seek the
- corresponding increase of wages means saying that the worker should be content
with the factthat he is pai_d with names instead of things."5 This will also occur
to one extent or another with a smaller increase of wages as compared with the de-
preciation of money.
In the cited example the increase of prices is explained by the decrease of the
price of gold as a result of th~ discovery of richer mines. This is only one of
the pos~~ible causes of a change ot the value of money. This example is also impor-
_ tant methodologically for the study of other instances of the change of prices
under the influeuce of the change of the value (purchasing power) of money, which
- depends on the factors of the dynamics of the cost of production and production ef-
_ ficiency. The approach developed by K. Marx is also applicable to the paper money
- issued by the central banks of capitalist countries in excess of the normal needs
- of tiie economic turnover to cover the deficits of the state budget and the balance
of paymentso
Consequently, the depreciation of money can occur not only with a constant cost of
goods, but also with its decrease as a result of the increase of labor productivity.
The different direction of the dynamics of prices, the cost of production and pro-
- duc:*_ion efficiency is used by the capitalist states as an additional means of in-
- creasing revenues, boosting profits by means of limiting the wages and consumption
of workers and redistributing the national ii~come through the price mechanism in
" thz interests of the bourgeoisie. The inflationary interr.ational monetary policy
- of the monopolies and the capitalist statPs representing their interests, which
is aimed at changing by price mzthods the proportions of the distribution of the
national income for the necessary and surplus product and consumption and accumula-
' tion funds, in the end is the main cause of the expression of the increasing pro-
duction efficiency in a higher level of prices.
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The Peculiarities of the Increase of Pro3uction Efficiency and the Change of Prices
in tlie USSP. National Economy
The ea~perience of building socialism in our country has shown the optional i~ature
of the combination of the grewth of production effic~ency and the increase of
prices, which is characteristic of the present capitalist economy. Over a number
= of years (during the restoration of the nation,al economy following the civil war,
in the mid-1930's, after the fulfillment of the main tasks of socialist industrial-
, ization, in 1947-1956) the increase of the efficiency of socialist producrion was
combined with a decrease of the overall level of prices. Until the revision of
_ the wholesale prices for industrial products in 1967 their level remained stable.
Since the mid-1950's the overall retail price index for consumer goods has practi- -
cally not changed. Similar trends ocr_urred in the national economy of the ~sropean
socialist CEMA member countries during the first half of their postwar development.
The planned organization of the socialist economy meant the creation of a new mecha-
_ nism of the interrelationship of a high rate of scientific and Cechnical progress,
tr~e decrease of the socially necessary expenditures of labor and the change of
prices, the most important trait of which is their steadiness and stability. The
~ whc~lesale prices for industrial products, transporta~~ion rates and the estim,ite
prices in construction during the postwar years were changed on the average every
10-12 years. During these intervals the prices for the products of individual
sectors and for those types of products, for which especially significant changes
_ of the cost, supply and demand occurred, were revised in part.
At all the ~tages of the building of socialism pricing was actively used as an im-
- portant lever of the implementation of the economic policy of the party; the prob-
lems of increasing the efficiency of socialist production were solved by means of
the price mechanism. The system of prices performs here two main functions: the `
measuY~ement of efficiencv and the econ~mic influence of its increase (stimulation).
Two types of prices--current and comparable--are used in economic calculations.
First of all the indicators of efficiency, which reflect the cost accounting and
financial results of production--the cost, the profit and the profitability--are
expressed in current prices. The calculations of the indicators of effic~ency in
these prices are intended for the analysis of the current results t~f production and
- the determination of the comparative efficiency of the activity of the en~erpris~s
in tlYe sector (mi.nistry). The possibility of using such prices for comparisons of
the dynamics of efficiency is more limited, since during the five-year planning _
period wit:: a stability of the overa.ll level of prices the struct:lre of the output
produced by enterprises and of the nieans of production consumed by them (th~eir up- ~r;'
- dating takes place), the prices of individual items and so on ci~anges. Therefore
in planning and statistical reporting the changes of labor productivity, the out-
put of products per ruble of fixed production capital (the output--capital ratio)t
the ~aterials-output ratio and the indicators of the zffectiveness o~ capital in- �
vestments are determined on the basis of comparab7.e prices.6 Since the Eighth
Five�-Year Plan the ~rofit and the profitability have also been calculated in com-
~arable prices.
Starting in the mid-1960's different correlations of the increase of produc.tion ef-
_ ficiency and the cliange of prices as compared with the preceding period of postwar
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= development began to form in the Soviet economy, whicti is evident from the following ~
data (in percent).~ .
1951- 1966-
~ ~ 1965 19~9 `
National Econo~y . ~
- Average annual increases of:
nroductivity of national labor. . . . . . . . . . . . . . . . 7.9 5.0
net income of society . . . . . , . . . : . . . . . . . . . . . 4.7 6.8
Chan.ge during the period of:
output-capital ratio . . . . . . . . . . . . . . . . . . . . . . -9.5 -23.8
price index of gross national produei. . . . . . . . . . . . 6.4
Industry ~
' Average annual increases af:
labor productivity . . . . . . . . . . . . . . . . . . . . . . . 6.5 5.1
' profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4 8.5
Chan~z during the period of: .
output-capital ratio. . . . . . . . . . . . . . . . . . . . . -6.5 -16.0 '
index of wholesale prices of enterprises. . . . . . . . . . . . -16.0 3.0
The a~erage annual growth rate of the productivity of national labor during
1966-1979 decreased by more than one-~hird, while in industr.y it decreased by one-
fifrh. The accelerated decrease of the output-capital ratio (by a factor of 2.7
for the national economy and 2.6 in industry) also attests to the slowing of th~
increase of the efficiency of social production. lluring 1966-1979 the materials-
- output ratio of the national product increased slfghtly, while prior to this the
growth of the n,ational incom~~ outdistanced the increase of the gross national prod-
uct. At the same time there was an acceleration of the increase of the net in-
come and the profit, which are measured on the basis of the current prices of the
corresponding years. In fndustry the average annual growth rate of the profit in
1966-1979 was 1.24-fold greater than in 1951-1965. Since the increase of efficien-
cy slowed, this acceleration first of all is connected with the changeover of in-
dustr~r and construction during the Eighth Five-Year Plan to the new condi.tions of
planning and economic stimulation and with the establishment of higher wholesale
and estimate prices.
, The increase of the profit began to depend to a~.esser extent on the reducti~n of
expenditures in the production process ~nd to reflect more the increase of volumes
of c}-~tput a..nd the higher le~~el of profit,ability, which was incorporated in the new
~ pricES (15 percer..t of the value of the fixed production capital and the standard of
internal working capital as compared with the actual profitability of 13.6 percent
in 1960 and 13.0 percent in 1965). This concZusion is also confirmed by the slow-
i.ng of the dec?-ease of expenciitures per ruble of industrial commo~;ity production8
(see the table on the fo11ow1ng page).
In censtruction the cost of construction and installation work during 1966-1979 de-
creased by only 2.4 percent as com~ared with 21.3 percent during 1951-1965; in
agriculture the cost of the main types of products increased.
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,
1965 as a ~Q70 as a 1975 as a 1979 as a
percentage percentage per~entage percentage -
of 1960 of i965 of 1970 of 1975
Expenditures per rubles of in-
dustrial commodity productiora
in current prices, . . . . . -1.0 -5.5 +2.8 +1.6 -
in prices comparable with -
_ the preceding p~riod . . . . -4.8 -4.9 -3.1 -~~2 _
- Along with the slowed increase of production efficiency the increase of the overall
. level of wholesale pr ices dur3ng tha period in question reflects the change of so- _
- ci~al needs for individual types of industrial prcoducts, the amounts and conditions
of their production, as well as the dis~roportions in the development of some sec-
~ tors. The increase of wholesale prices applied primarily to means of prod~ction
(the output of the fuel and raw materials sectors of industry, agricultural raw
_ materials, capital newly put into operation); the overall retail price index for
- consumer goods, whicr~ is calculated by the USSR Central Statistical Administration,
practically dic~ not change. The increase of prices during the period of industrial--
ization (the First and Second Five-Year Plans), on the contrary, resulted to the _
greatest extent from the increase of retail prices for consumer goods, while whole- -
sale prices c'~~ nged to a relatively smaller extent (with the stability of ttie pro- _
- curement ana .rchase prices for agricultural products). Another distinction of
the process of the increase of [he wholesale prices for industrial engineering
products, which took place during the last three five-year plans, consists in the
fa.ct that it occurred under the conditions of the slower growth of the efficiency -
of social production.
All this attests to the weakening of the link of the dynamics of wholesale prices ~
and the efficier~cy of the economy. The correlation of the measuring and stimulat- -
ing function of wholesale prices changed in favor of the latter. This is confirmed, `
in particular, by the structure of wholesale prices: the proportion of the profit -
in the prices for the products of Lhe sectors of heavy industry was 9.9 percent in =
1959 and 11.6 percent in 1965, while with the establishment in 1967 of new wholesale
prices this prop~rtion increased in 1970 to 18.1 percent and in 1978 was equal to
~ 14.6 per~ent. The proportion of the profit in the wholesale prices of all industry
increased from 7.4 percent in 1958 to 14.2 percent in 1970 and in 1978 was 11.8 per-
cent.9
With the implementation of the latest wholesale price reform along with the produc-
tion cost the amount of the considerably increased economic stimulation funds (the
production development fund, the mat~rial incentive fund of workers and the,fund
~ for sociocultural construction), which are formed on a cost accounting basis, was
taken as one of the criteria of the determination of the profitability and the
level of prices. These funds were intended for increasing the interest of the col-
lectives of enterprises and individual workers in the improvement of the quality in-
- dicator:; of work. However, the practice of fc ~:m.-!;~g the stimulation funds primarily
subject to th~ increase of the volume of product sr!1es and the profit led to their
increase at a leading rate as compared with the increase of production efficiency.
The enhance.ment of the sCim4lating ~ole of prices was inadequately linkad with the
increase of the inCerest of enterprises in increasing efficipncy by r~ducing the
- production outlays. ,
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Pricing policy influences th~ mobilization of reserves of the increase of efticien~~g
in combination with the other t�ools of its planned increase--the planning of scien-
_ tific ~nd technical.progress, *_he sectorial pattern of production and the distribu-
- tion of productive forces, ti~e correlations between the ~ncrease of labor produc-
ti~.vity and the wage and the output of consumer goods. At the same time the i~t-
_ crease of efficiency depends on the peculiarities of the economic levers and stimu-
li, which are used at different t~mes. Cos~t accounting in the form which it
assumed during the years of the prewar five-year plans and at the beginning of the
post,war period, ir~ the mid-1g60's ceased to conform to the new tasks of developing
the Soviet economy. The implementation of the deci.s~~:.~ of the March and September
(1965) C~SU Central Committee Plena, which specified the current agrarian policy of
the party and the changeover of industry and construction to the new conditions of
planning and economic stimulation; ensured during the Eighth Five-Year Plan the ac-
celeration of the grc~wth rate of the national income as compared with the preceding
period ry 1.2-fold and of the per capita real income by 1.9-fold. This was achieved
on the basis of the more rapid increase of the e'rf'iciency ~f social production.
'Phe main cause of the slowing of the growth rate of efficiency in recent years, as
was noted ~at the November (1979) CPSU Central Committee Plenum, consists in the
failure to fulfill the plan assignments on the indicators of efficiency and in the
_ fact that the ministries and departments were able far from everywhere to overcome
the force of inertia and to resolutely reorganize the work for the purpose of in-
creasing the quality and productivity of labor and achieving better end results.
An important role in solving these problems belongs to the assurance of the optimum
interaction of the increase of production efficiency and the change of prices. Dur-
ing the coming llth Five-Year Plan the next revision of wholesale prices and rates
in industry will be carried out. The main principles and directions of this revi-
- sion have been convered in adequate detail in economic literature.l~ Let us exam-
ir.e several theoretical aspects of t"t?e problem of the interrelationship of effi-
r,:iency and prices, which have a bearing on the imFZementation during the new five-
~ year plan of the outlined measures on the improvement of the economic mechanism.
. The Strengthening of the Influence of the Economic Mechanism on th~ Intensification
of Production
The experience of bu~lding socialism in the Soviet Union and other countries shows
that the methods of ~ncreasing production efficiency, which are notable for the de-
gree of centralizata.on of management and the independence of the cost accounting
units, the composition of the indicators being planned and the approach to whole-
sale pricing policy, are used in the mechanism of planning and economic management
which is employed by them. In particular, since the mid-1960's in one group of
socialist countries (the USSR, the GDR) the problems of increasing efficiency and
_ quality have been sol~ved within the framework of a stable level of wholesale prices
or with their negligible increase, while in another group (Hungary, Yugoslavia,
- Poland) the considerably greater flexibility and increase of prices have been al-
lowed for the same purposes.ll
Consequently, it is possible to speak of the existence oi two basic approaches to
wholesale pricing policy as a tool of economic influence on production effi~iency--
the assurance of their stability and the aim at their continuing increase. Before
,
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judging L?ie preferableness of ~ne approach or the other, it is necessary to,ascer-
f tain the causes and motives of the increase of wholesale and retail prices, w'~ich
is occurring in a number of socialist countries. As a rule, this occurs in coun-
- tries with limited fuel, energy and raw material resources, a comparaCively small _
population and domestic market, which have stable trade, scientific and technical
relatians with industrially developed capitalist states.
With respect to all these attributes the Soviet economy is under more favorable con-
ditions. The Soviet Union has adequate sources of energy and reserves of practical-
ly all min.eral resources. The scale of the domestic market makes it possible to
establish spec.i.alized sectors and large enterprises, which are inefficient for
small countries. The proportion of foreign trade in the USSR national econom}~, in
- spite of the tendency for it to increase, henceforth will apparently remain smaller
_ than in other sociali~t and the industrially developed capitalist countries.
The indicated factors are responsible for the do~inant influence on the level of
wiiolesale prices of the conditions of reproduction within the country and the
limited effect on them of the world capitalist market. Therefore in the USSR
there are far more opportunities than in any other socialist country to pursue a
policy of stable wholesale prices and to ensure the mobility and flexibility of
piices, which is necessary for the stimulation of technical progress and th~ in-
crease of production efficiency, without increasing their overa.ll level.
In man;~ respects it is more difficul~ to develop production and organize th.e ful-
- fillment of plans under the conditions of a stable level of wholesale pri:es (a11
the mo~e so with their de~rease) than with an increase of prices, even th~~ugh it
occurs not constantly, but periodically. Any failure to fulfill the plan assign-
ment on the volum~s of output and production efficiency (labor productivity~, pro-
duction costs and other qualitative indicators) leads under these conditions to the =
decrease of the profit and other accumulations, which are necessary ror financing
the outlined measures on the development of the sectors of the national economy and -
the increase of the well-being of the people. The additional redistribution of the _
=1~, national income by price methods between consumption and accumulation and of t_he
- accumulation fund itself between individual sectors and economic regions, which was
not stipulated by the previously approved five-year plans, is eliminated or re-
duced to a minimum here.
Such ar. economic mechanism, by ensuring the stability and increase of the purchas-
ing power of money, guarantees a realistic level of accumulations of socialist
enterprises and income of the state and the population and creates the conditions _
; for increasing the effectiveness of the entire system of economic levers and stimu- -
. li. An important advantage of the policy of stable and decreasing wholesale prices
_ consists in the fact that it directs the economic operations of enterprises to a _
� greater extent toward the implementation of a policy of econony by redu~,ing the ex-
penditures in the production process. Owing to this the change of the profit ex-
presses mare accurately the achievements of cost accounting enLerprises in increas~-
ing the e.fficiency of their work. It is not by chance, apparently, that the high-
est growi:h rate of labor productivity and the decrease of the p�roduction cost was
achieved during the years when a decrease of the level of wholesale prices occurred
and particular attention was directed to the assurance of their stability, tl~.e ob- -
servance of state price discipline and the prohibition of their inflation for newly
assimilated and updated types of products.
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The nex~ revision of wholesale prices during the llth Five-Year Plan, as in 1967,
will lead to a slight increase of their level primarily due ~o the increase of the
- prices for the products of the fuel and raw material sectors of industry. The ~
ratios of prices and the profitability in the processing sectors and for individual
types of products will also be improved with allowance made for the conditiona of
reproduction, which have changed during the past decade and a half. The new whole-
sale prices are being formed on the basis of a profitability of the sectors within
the range of 12-15 percent. As a whole the standard of profitability, which was
previously adopted in pricing, under comparable conditions is not decreasing, since
the expenditure~ on geological exploration and the contributions for the social se-
curity of workers and employe~~s, which have been increased by ap;~roximately 1.5-fold
and nearly 40 percent uf wh~ch were previously financed by assets of the state budg-
- et, are being includc~d in full in che production cost (for extractive sectors).
When introducing the new prices it is intended not to allow an increase of the re-
tail prices for consumer goods and an increase of the cost of the industrial engi-
neering products being supplied to agriculture.
The approxima.tion by wholesale prices of the value expression of the soc:tally neces-
sary expenditures of labor on the basis of the present conditions of reproduction
is increasing their influence on the mobilization of reserves of the increase of
efficiency in several directions. Prices are becoming a more precise tool of eco-
_ nomic calculations, the measurement of the expenditures and results and the calcu-
- lation of the national economic and cost accounting efficiency in all the links of
the national economy. At the same time the stimulating function of wholesale prices
is being broadened by the establishment of r~ore significant markups for highly ef-
ficient industrial engineering products (from 0.5 to 1.25 percent of ~he standard
of profitability, which is used when determining the price, and up to 70 p~rcent of
_ the annual economic impact from the output and use of these products), the length-
ening of the term of effect of the markups in case of the awarding of the State Seal
of Quality (up to four years, and for products of particular complexity up tu five
years) and the use of discounts in the amount of half of the profit from the sale
of products of the second quality category and products not certified on time.
The pract-~ce of planning and pricing and the results of repeated revisi~ns of whole-
sale pri~es again raise the question of the level and structure of prices, which
correspond to the greatest extent to the tasks of efficient management and thn
strengthening of cost accounting and economic stir.tuli. A number of authors link
this with the increase of wholesale prices, espec.ially for s~arce and more econom~.-
cal types of products (for example, highly productive equipment, petroleum, gas).
It is considered that with such an increase prices will reflect more accurately the
socially necessary expenditure~ of labor.
Turning to the history of planned pricing, it is possible to see that this argument
- was cited when substantiating all changes of prices, be it their decrease or in-
- crease. The very concept of socially necessary expenditures is used in a double
sense--as a natural measure of the expenditures of abstract labor in the time worked
and as their monetary expression. On the one hand, owing to the increase of labor
productivity these expenditures, as a result, are decreasing, and their approxima-
tion of the cost can occur, obviously, only with a decrease of prices. On the
other, the socially necessaLy expenditures are understood as the value expression
of the elements of tt-~e production cost (the materials expenditures, amortization,
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wages), the net income and profit, which correspond to the specific conditions and
proportions of reproduction. In this sense the socially necessary expenditures of
labor for different t}-pes of products have dynamics with different directions: they
decrease ir~ the sectors in which the rate of ~echnical progress and the increase
of Iabor productivity is higher; they remain unchanged or increase in those sectors
in which these processes take place less intensively or the changeover to the work-
ing of relatively worse land or mineral deposits, which is reflected by the law of
differential rent, is proceeding.
The principles forming the basis for the new revision of ~wholesale prices do not
confirm, in our opinion, the arguments about the stimulat.ion of the increase of pro-
duction efficiency by higher prices. The objectively exj:sting sectorial differ-
ences in the dynamics of the production costs and the p:-nfitability are taken into
� account in the new wholesale prices. The increa~e of prices in the group of ex-
tractive and raw materials sectors is hei~ag combined, as was th~~ case in the past,
witb. the pursuit of the policy of reducing them in th~ processing sectors. The
a we7:'-Ur.own theses that the efficiency of new equipment in the end is manifested in
the' relative decrease of the price as compared with the equipment previously pro-
duced and per unit of capacity, while the decrease of the cost of most efficient
means of production broadens the range oi their profitable use, remain in force.
The expediency of th~ increase of the price as a lever of the more efticient use of
resources at the present stage of the development o� the Soviet economy, in our
opinion, should not be overestimated. L'nder the conditions of the centralized dis-
tribution of physical assets and equipment (fundingj the new prices are taken into
account in the estimates of expenditures and the financial plans of both suppliers
- and consumers, owing to Gihich to a certain extent it is all the same to the latter,
what price they pay far the resources allocated to them according to the plan. The
consumer could derive a real cost accounting advantage if it were possible to .re-
place, for example, expensive fuel oil or gas with cheaper coal or an expensive
machiiie tool, which is diff.icu].t to operate, with a simpler and more reliab].e one.
The economic influence of the increase of prices on the increase of the production
= volume, the decrease of production costs and the improvement of the quality of items
is especially appreciable when eliminating the unprofitability due to reasons which
- are not connected with the enterprises' own activity. But in this case as weli the
stimulating influen;.e of prices, as experience shows, is quite short-lived. If a
~ decrease of the level of expenditures then does not occur, but, on the contrary,
their increase occurs and the profitability decreases, che regulating functions of
prices cJeaken again and the need for their next increase arises.
~ '
' In the case of centralized planning the standards of expenditures, on the basis of
which the balances and plans of the distribution of industrial engineering products
_ are drawn up, act as a means of economic influence on the efficient use of mate-
rial resources, which is no less effective than the price. Precisely for this rea-
- son in the dec.~ees on the improvement of the economic mechanism much attention is
devoted tu the standard base of planning--the development of a system of advanced
- technical and economic norms and standards by types of operations dnd expenditures
(saving) of labor, raw materials, materials and fuel and energy resources, stand-
ards of the use of production capacities and the specific capital investmen'cs, as
well as to the drawing up af passports of enterprises.
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A peculiarity of the measures now being implemented to improve the economic mecha- ~
nisffi consists in the establishment of a closer relationship of all economic levers
and stimuli with the increase of efficiency by the economy of expenditures in the
production process and with the improvement of the end results of the economic ~
- operations of production collectives. '
- First of all it is necessary to note the strengthening of the connection of the '
stimulation. of the increase of product efficiency with the assignments of the five-
year plans, which it is planned to make stable by years of t.he five-year plan. The '
long-ra~nge standards o� wages, the distribution of the profit and the formation of
economic stimulation funds are included in the system of plan indicators which are
approved by directive for ministries, associations and enterprises.
Limi,*_s of the number of workers and capital investments as the maximum amounts of
restiurceG allocated to them are being included in the plan indicators on labor and
capi'tal construction which are reported to the production collectives. The use of
. limits`aims enterprises at the achievement of higher end results of production, _
since these indicators will not be used for evaluating the results of economic
j operations. At the same time the list of cen~ratly planned assignments on the econ-
omy of expenditures and prod~iction efficiency is being enlarged. Assignments on
the decrease of the use or manLal labor, the average d~crease of the rates of con- .
sum~ttQn of the most imnortant types of material resources, the economic impact from
- the implementation of ;cientific and technical measures and the output of products -
of the hignest quality category are included in this list. In some sectors of in-
dustry, primarily the processing and raw materials sectors, among the financial in-
dicators instead of the profit it is envisaged to set ass~gnments on the reduction
� of the production cost. The planning of labor produr.tivity in industry and con-
- struction is being reorganized on the basis of its measurement according to the -
standard net output or another indicator which refiects more accurately the changes
of the labor expenditures in individual sectors.
A chaxacteristic feature of the reorganization being carried out in the methods of '
economic stimulation consists in the estabYishment of a closer relationship between
tr.e amount of the incentive of pr~~duction collectives and individual workers and the
economy of expenditures in tr~e production process. Thus, the material incentive
_ fund at associations and i_ndustrial enter~rises will be formed not according to the
criterion of the increase of the sale of groducts and the profit, but subj~ct to
the increase of labor productivity, the increase of output of the highest quality
category and the fulfillment of the plan of deliveries of products to consumers in
conformity with concluded contracts. The rights of ministries to use, with allow-
ance mdde for the peculiarities of the sectors,among the fund-forming indicators
other qualitative indicators: the saving of materiai resources, the increase af
the output-capital ratio and the shift coefficient, the reduction of the produc-
tion cost, and in the extractive sectors the increase of the output of products in
- physical terms, have been broadened. The econom.ic stitnulation of construction and
installation organizations, as well as the evaluation of their economic operations -
will be carried out in,accordance with the re;sults of the fulfillment of the as- -
signments on the placeme~L' of production capar:ities and facilities into operation,
the commodity production of construction and the increase of labor productivity
an~ the profit.
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~
The tasks of promoting the policy of economy and strengthening cost accounting are
set ;.n the draft plan of the CPSti Central Committee for the 26th party congress,
- "The ;~Iain Directions of USSR ~conomic and Social Development for 1981-1985 and the
Psrio~i to 1990." For this it is envisaged to implement at all levels of management
a set of ineasures which are aimed at the more complete utilization of all types of
resources--labor, energy, raw materials and materials, equipment and production
capacities, at the reduction of various losses and waste and the elimination of _
nonproductive expenditures.
The consistent implementation of the set of outlined measures on the improvement of r
' the economic mechanism is called upon to promote the moie complete utilization of
the reserves of the increase of the efficiency of socialist production and the
- shortening of the period of tY?e planned transi~:ion of the Soviet economy to the in- -
~ tensive path of development.
FO~TNOTES
1. K. Marx and F. Engels, "Soch." /Works/, Vol 16, p 148. _
2. "Historical Statistics of the United States, Colonial Times to 1957," 1958,
pp 106, 107.
3. "Statistical Abstract of the United States," 1977, pp 405, 472. ~
4. "Statistical Abstract of the United States," 1979, pp 413, 476.
5. K. Marx and F. Engels, "Soch.," Vol 16, p 145.
6. In industry the prices of 1975 are presently used as the comparable- price~, in
� construction--the estimate prices of 1969, in agriculture--the prices of 1973,
~ the prices of 1973 are used for the calculations of the national income (see
_ "Narodnoye khozyaystvo SSSR v 1978 godu" /The 'iJS~`R National Economy in 1978/, -
- Izdate].'stvo "Statistika", 1979, pp 333, 574, 579, 585). It is more difficult
to achieve the comparability of the valuation of the fixed capital, since new
- ent~rprises and facilities, which, as a rule, differ with respect to their
technical and design parameters, are put into operation with a mixed valuation
on the basis of the actual expenditures, which are expressed in the prices of
different years. The pric~ factor is, apparently, an important case of the de-
crease of the output-capital ratio, which accelerated during the 197U's (see
V. Fal'tsman, "The Capacity Equivalent of Fixed Capital," VOPROSY EKONOMIKI, -
No 8, 1980; V. Tikhonov, "The Essence of the Agro-Industrial Complex," VOPROSY �
EKONOMIKI, No �3, 1980) .
7. See "Narodnoye khozyaystvo SSSR za 60 let" /The USSR National Economy After 60
Years/, Izdatel'st~~o "Statistika", 197~3, pp 350, 635i "Narodnoye khozyaystva
SSSR v 1970 godu" /The USSR National Economy in 1970/, Izdatel'stvo "Statistika",
1971, pp 383, 703; "Narodnoye kl:ozyaystvo SSSR v 1979 godu" /The USSR Na~icnal ~
- Economy in 1979/, pp 45, 54, 55, 285, 535. For the national economy labor pr~- -
ductivity and the output-capital ratio are calculated with respect to the na- _
tional income, in industry--with respect to the gross output; the accumulations
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of the state sector (the profit, the turnover tax and others) and the net in-
come of kolkhozes are included in the net income. For 1951-1965 the data per-
tain to the accumulations of the state sect.or--the sum of. the profit and the
turnover tax; during 1966-1979 thei~ average annual increase was 7.3 percent.
8. See "Narodnoye kho.^.yaystvo SSSR v 1965 godu" /The USSR National Economy in
1965/, Izdatel'stvo "Statistika", 1966, p 164; "Narodnoye khozyaystvo SSSR v
1970 gadu," Izdatel'stvo "Statistika", 1971, p 173; "~Tarodnoye khozyaystvo SSSR
v 1975 godu," 1:zdatel'stvo "Statistika", 1976, p 229; "Narodnoye khozyaystvo
_ SSSR v 1979 go~,iu," p 162.
- 9. See ''Narodnoye ~hozyaystvo SSSR v 197d godu," p 178; "Narodnoye khozyaystvo
SSSR v 1965 godu," p 168; "Narodn~ye khozyaystvo SSSR v 1978 godu," p 141.
10. See N. Glushkov, "The Economic Mechanism anct the Practice of Planned Pricing"
(KOD4IUDTIST, No 8, 1980); N. Glushkov, "On the Further Improvement of Planned
Pricing and Its Influence on the Increase of Pr.:,~iuction Efficiency and Work
- Quality" (PLANOVOYE KHOZYAYSTVO, No 6, l~uv~; Yu. Yakovets, Prices and the
- Improvement of Planning and the Economic Mechanism" (VOPROSY EKONOMIKI, No 6,
1980); A. Knmin, "The Problem of Improving Wholesale Prices and Rates in Indus-
try" (PLANOVOYE KHOZYAYSTVO, No 5, 1980).
- 11. See "Sovremennyy etap sovershenstvovaniya planovogo upravleniya ekonomikoy"
/The Present Stage of the Improvemen~ of the Planne.d Management of the Econ-
om~/, Izdatel'stvo "Mysl 1978; "Khozyaystvennyye mekhanizmy SSSR i ryada
drugikh stran sotsializma (informatsionno-ar~aliticheskiy obzor)" %The Economic
Mechanisms of the USSR and a Number of Other Socialist Countries (A Data Analy-
" sis Survey)%, Institute of Economics of the World Socialist System of the USSR
Academy of Sciences, 19'9; "Opyt sovershenstvovani,ya upravleniya ekonomikoy v
zarubezhnykh stran SEV (1976-1980 gg.)" /The Experience of I~roving the Man-
agement of the Economy in Foxeign CEMA Countries (1976-1980)/, materials of a
scientific conference, Institute of Economics of the World Socialist System,
1980. ~
COPYRIGHT: Izdatel'stvo "Pravda", "Voprosy ekonomiki", 1981
7$07 �
CSO: 1820
~
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INVES1~tFNT, PRICES, BUDGET AND FINANCE
EXPERTS ~EVIEW NEW CAPITAL INVESTMENT METHODOLOGY
Moscow VOPROSY EKONOMI~~I in Russian No 2, Feb 81 pp 154-157
/article by G. Merkina: "On the New Edition of the Standard Procedure of DetE~rmin-
- ing the Economic Effectivenzss of Capital Investments"/
/Text/ The decree of the CPSU ,Central Committee and the USSR Council of N:inisters
of 12 July 1979 calls for the improvement of planning estimates on the basis of a
system of indicators, which is intended for all levels of management. This gave
rise to the need to bring all procedural documents and other enforceable enactments
in effect in line with the provisions of the decree. In this connection the Scien-
tific Council for the Economic Effectiveness of Fixed Capital, Capital Investments
and New Technology of the USSR A~ademy of Sciences drew up a draft of the third edi-
tion of the Standard Procedure of Determining the Economic Effectiveness of Capital
= Investments.
The draft, which was drawn up by Academician T. Khachaturov, Doctor of Economic Sci- .
ences V. Krasovskiy and Candidate of Technical Sciences M. Loyter under the general ~
direction of T. IChachaturov, is based on the provisions of the indicated decree,
develops the prevailing Standard Procedure of 1969 and includes the results of the
procedural elaborations carried out by the Scientific Council in recent years.
The third edition differs �rom the Standard 1'rocedure of 1969 by more detailed re-
commendations on the estimates of the overall (absolute) effectiveness in p?anning.
The criterion: the increase of the national income--the increase of the net output
(including thca standard net output), which is uniform for all levels of management
(the national ~conomy, the sector, the production association, the enterprise), is
the basis for t:he estimates of the overall (absolute) effectiveness.
~ The very amount of capital investments is specified considerably more completely.
Along with the capital investments in fixed production capital the expenditures on ~
- . the formation (replenishment, reduction) of working capital and the nonproduction
expenditures cr~nnected with the development of production and the att.raction of man-
= power (on housing, municipal and general construction and others) are taken into
account.
The recommendations on the use of the standards of the overall (absolute) effective-
ness are elaborated in greater detail. The standards themselves, which it is en- _
visaged to differPntiate by planning periods (5 years and 10-20 years) and with
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_ respect to the levels of management of the national economy (the national economy
as a whole, individual sectors, subsectors) are also sounder.
The stai~dards of effectiveness L~r tt~e five-year; plan as the main form ef planning
are of ~articular importance. For the llth Five-Y~ar Plan the standard of.the over- _
all (abso?utej effectiveness f.or the national economy as a whole is set at the level
achieved during the lOth Five-Year Plan, that is, Ea is 0.14, and by sectors of the
national economy at 0.05 to 0.25.
The recommendations on the use in the analysis of the factors which influence the
overall effectiveness of capital investments: the change of the labor.-output,
- mat~erials-output and capital-~utput ratios, the shortening of the term of construc- _
tion and the reduction of its estimated cost, are new in the third edition of the
Standard Procedure. -
- The recommendations on the consideration of the time factor when determining the
overall (absolute) effectiveness are presented more completely. In additiori to the
- calculation of t~e lag, it is recommended to make an estimate of the losses from the
freezing of capital investments during above-standard periods of construction (and
assimilation), for which the appropriate design formulas are cited.
The elaboration of recommendations on the calculations of the comparative effective- -
ness of capital investments, which is based on the criterion of the minimum adjusted
expendi.tures, was required to a lesseL extent. Very significant features are dis-
tinguished in the new edition of the Standard Procedure. First, the limitation of
the sectorial deviations from the standard coefficient of comparative effectiveness,
which is being maintained for the llth Five-Year Plan at the level of 0.12, is
called for. If deviations are necessary, the standard shoul~i be not less than
0.08-0.10 and not greater than 0.20-0.25. Second, recommendations on the calcula-
tions of the effectiveness not only for producers, but also for users are cited in _
the new edition. The determination of the aggregate impact, which is also compared
with the cumulative costs, is recommended.
The third edition of the Standard Procedure contains new sections which make it pos-
sible to take into account the peculiariti.es of the calculation of the effectiveness
- of capital investments in the expansion, renovation and retooling of operatin~ en-
= terprises, scientific research and design operations, the nonproduction sphere and
the sphere qf circulation and in environ~.nental protection.
^1he studies conducted in recent years by the Scientific Council and its t?ral branchl
are the basis for the section on the determination of the economic effectiveness of
. capital investments in the expansion, renovation and retooling of operation enter- -
prises. It is recommended to compare without fail the effectiveness of new con-
struction with the effectiveness of the rznovation and retooling of operating enter-
prises. In these comparisons it is necessary to take into account the entire amaunt
of capital investments--the production and nr;nproduction investments, as we11 as ~he
expenditures (or saving), which is connecte~i with the additional attractian af _
1. See tlie draft of the Procedural Recommendations on Determining the Economic Ef- -
- fectiveness of Cap~tal Investments in the Operating Works (Sverdlovsk, 1980).
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manpower resources. There are also r,ecoimnendations on the consideration of the so-
cial consequences of renovation--the impravement and facilitation of working con-
ditions. ~
The section on the determination of the effectiveness of capital investr~ents in the
_ nonproductive sphere, which is inc.luded in the Standard Procedure, is based on the
Procedure of Determining the Effectiveness of Expenditures in the Nonproductive ~
S~here (Moscow, 1979), which was previously elaborated by the Scientific Coun~.il. -
The section conta~ns general recommendations on the calculations of the socio-
economic effectiver_ess by comparing the obtained social and socio-economic results
(impacts) with the expenditures necessary for their implementation. A set of indi- -
cators, which reflect the impact of capital investments in the material base of the
~ nonproductive sphere, its individual sectors and. objects, is cited. Recommendations =
; are given on the calculations of the comparative effectiveness and the selection of
the best variants on ~he basis of the maximum achieved social results, and in the
case of the identity of the social results in different variants,on the basis of the
minimum ad~usted expenditures.
A new section on the determinatioa o;` the econo~ic effectiveness of capital invast- _
ments in the sphere of circulation ('trade, public dining, material and technical
- supply, procurement) is introduced i'i~ the third edition of the Standard Proce.dure. , _
The amount of the impact is defined as the sum of the trade discounts (markups) less
the payment for the services of other sectors of the national economy and the mate-
rial expenditures, which are included in the karketing c~sts. It is also recom-
- mended to take into account the costs of cc~n5ui;ption, of which the expenditures of
time of the population on purchasing goods are a part, and such additienal indica-
tors as the breadth of the assortment of gaods, the appearance of goods and the~
preservation of the qualit5= ~f goods, the provision of conveniences to customers,
- the observances of th~ requirements of the labor s3fety and labor hygiene of trade
workers and others. -
In recent years the Scientific Council has devoted much attention to the elabora- -
_ tion of procedural questions of the effectiveness of environmental capital invest- _
. ments. The restilts of the rQSearch were reflected in the Temporary Procedure of
Determining the Effectiver.ess of Expenditures on Environmental Protection Pleasures
(1980), wliich was prepared by the Scientific Council and was approved by USSR Gos-
plan. The corresgonding section has been included in *_1?e third edition of the ~
Standard Procedure. In it recommendations on the calculations of the secia]. an~
- economic impact are cited, recommendations are given on the use of the approved
economic appraisals of land, water, timber and mineral resources, as well as on tiie
use in the calculations, which such ap~raisals are lacking, of the indicators of _
_ the net output, the pr~fit or the decrease of the production cost.
In the section on the determindtion of the economic effectiveness of sci~ntific re-
search and design operations there are given: a classification of these operations
- according to the degree of their ability to increase the efficiency of social pro- ~
duction; recommen~ations on the selection of the base (standard) for the comparison
of scientific results with the existing and planned achievements of science and
technology; methods of ineasuring the ecanomic potential which is created by the in- -
troduction of scientific results in economic practice; recommendations on the con-
sideration of the preproduction expenditures, which are connected with the
n-
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~ preparation for thE~ introduction of scientific results and are not included in the
production cost of products. The consideration of the social results, which are
not fullv reflected in the value estimate: the elimination of difficult physical la-
- bor, the increase of the level af labor satety techniques, the elimination of indus-
trial accidents and occupational diseases and so on, is also called for.
Methods of determining the actual effectiveness of capital investments are presented
_ i:~ a special section of the Standard Procedure. Recommendations on the calcui.atior.s
of the abs~lute and comparative actual effectiveness of the capital investments
which are ~eing allocated for new construction, the renovation and retooling of the
operating works, are given here. The increase of the net output (the profit) and
the effectiveness ratio (the profitability) are used ~s the indicators. .
The draft of the Stand~rd Procedure was repeatedly discussed in the bureau of the
- Scientific Council and then was submitted to the plenary meeting of the counci2,
which was held on 28 May 1980 and in which specialists of scientific research and
design organizations, ministries and departments participated. Those who took part _
_ in the discussion unanimously approved of the draft sutimitted for discussion and =
stated that it is a signif icant contribution both to the general theory of efficien-
cy and to the tnatter of adopting in plannir~g and design practice uniform, scientif- -
_ icall.y sound methods of calculating the effectiveness of capita.l investments. A
number of rema:~ks and requests were made during the ciiscussi:.~. � -
= Doctor of Economic Sciences V. Vorotilov (Institute of Soci~-Economic Problems of
the USSR Academy of Sciences) directed attention to the la~',in the draft of a sg~-
cial section on the determination of the regional effective: ~ss of capital invest-
ments and in this connection to the inadequacy of tre recommendations on the con-
sideration of related expenses only with respect to the sectorial attribute.
V. Tolpygin (USSR Gosplan), having emphasized the importance of the specific values ;
- of the standards of the overall (absolute) effectivenes;:, whic~l are presented in the ~
~ document, noted the need ffl r the strict monitoring by planning and fi.nancial organs
~ oF the carrect use of the Standard Procedure in economic substanti~tions of capital
~ investments.
, Candidate of Economic Sciences M. Spektor (Institute of Economics of the Ural Scien- _
tific Center of the� USSR Academy of Sciences) expressed the wish that in calcula-
tions of the efficiency of operations on renovation not only the saving of the wage
fund would be taking into account, but the released labor woLl.d r~ appraised with
- respect to the public consumpt_on funds. There were also remarks an the methods of
calculating the actual eff ectiveness of capital tnvestments, as well as wishes with
respect to the use of the experience gained wY~en analyzing the actual efficiency of .
- the enterprises of the Urals.
Candidate of Economic Sciences I. Ferepechin (USSR Central Statistical Administra- _
tion) spoke about the use of consoldiatE:~.: indicators in calculations, about the
nzed to distinguish when analyzing the effectiveness the proportion of .*_he impact
obtained due to noninvestment factors, about the correct choice of tnF. basis of
comp3rison for calculatLons uf the efficiency of renovation operations with allow-
ance made for the dynamics of production and about the inadvisability of adding the
_ underamortized part of the functioning capital with the tapital investments for _
- renovation.
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Doctor or ~conomic Sciences I. Vikhrev (Central Scientific Research and Planning
Institute for Experimental Industrial Buildings and Structures of the USSR State
Committee for Construction Af fairs) substantiated the assumption of t'he illegiti-
macy of dividing renovation operations into certain goals or others (as was indi-
- caCed in the draft) , since a seC of goals is incc,rporated in the basis of the reno- ~
_ vation of the uperating works.
;
- Doctor of Economic Sciences B. Smekhov (Institute of Economics of the USSR Academy I
of Sciences) made the suggesti~n to strengthen in the section on the cumparative ef-
fectiveness of capital investments the principle of a national economic approach to
the calculations of the ef~ectiveness and to give recommendations on the use of this
section not only in designing, but also in planning for the purpose of selecting '
- the optimum version of the plan. He considers it necess.ary to include a provision
on the stable estimated cost of construction in th.:. section on the actual effective-
ness.
Doctor of Economic Sciences V. Fal'tsman (Central Institute of Economic Mathematics
of the USSR Academy of Sciences) proposed to apply to all calculations the probabil-
ity approach to the estimate of the effectiveness, which is recommended in the Pro-
cedure for scientific research and experimental design operations, and to take into _
account the distributed lag af capital investments. He also spoke about the expedi-
ency of using linear programming methods when comparing the versions and abaut the
insertion in the Standard Procedure of a paragraph which provides �or the reduction
of the total of the capital investments by the amount of increase of the assets in-
tended for capital repair,
Candidate of Economic Sciences A. Bulkin (NlIinformenergomash) expressed the opin-
ion that the regional aspect of the problem should be the subjec�r of special pro-
- cedural elaborations.
1
Candidate of Economic Sciences P. Sapozhnikov (All-Union Scientific Research Insti-
tute of thz Organization of ^~Ianagement and Economics of the Petroleum and Gas Indus- F
try) emphasized that the changeover to calcula.tions of the effectiveness on the ba-
_ sis of inclusive expenditures is necessary for the extractive sectors (especially
those which do not have the opportunity to use in the immediate future the indica-
- ter of the net output)~.
Doctor of Economic Sciences N. Nikolayevski.y (VNIIiieft' ) emphasized the particular
importance for the extxactive sectors of the fact that a significant portion of the
- capital investments is ~;oing for compensati~~n of the planned retirement of capital
and capacities. In his opinion, the inclusive expenditures should be used, as is
stipulated in the draft, only when appraising new equipment, since their use in all _
- calculations of the effectiveness of capital investments in the ex~ractive sectors
- can lead to the adoptioii of capital-consuming versions. ~
- Doctor of Economic Sciences D. Palterovich (Institute of Economics of the JSSR
- Academy of Sciences), after noting the particular importance of the standards of '
the overall (absolute) effecriveness, which are cited in the Standard Procedure,
raised the question of the subsequent elaboration of such standards in the sec-
~ tor~.al procedures of deteiminix~g the effectivei~ess of capital investments, which
are base:d. on the Standard Pracedure, as well as in the procedures for individual -
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l-
directio:as of capital investments. Bearing in mind the particular shoxtage of man-
_ pnwer resources, he proposed to take into account when comparing versions the so-
_ cial expenditures per worker. -
Doctor of Economic Sciences A. Beschinskiy (Commission for the Forecasting of power
Engineering) indicated the need to adjust worlu prices for raw materials (especial-
ly p,:troleum) and recommei:ded the consi~eration of the difference in production
costs, as well as the proportion of raw materials going for pxports. It is expedi- _
_ ent, in his opinion, to calculate the related costs not according to the prices,
_ but according to the production cost. He also believes that it is necessary to de-
velop a special procedure for elaborating the regional aspect of the calculations
of the effectiveness. ~
Candidate of Economic Sciences A. Vitin (Scientific Research Institute of Economics ,
attached to USSR Gosplan) said that in the draft it had been possible to eliminate
a number of contradictions between the calculations of effectiveness at the nation- _
al economic level and the level$ of the sector and the enterprise. He also made
~ refinements in the concept "the cost accounting level of management" and noted the
particular urgency of a~~pting the Standard Procedure in planning and design prac-
- tice. Doctor of Economic Sciences A. Tolkachev (Scientific Rese~rch Tnstitute of
Economics attached to USSR Gosplan), who spoke about the need for the intensive ~
- elaboration of sectorial instructions on the basis of the draft, rated it favorably. i_
Chairman of the Scientific Council Academician T.. Khachaturov, who delivered the
concZuciing speech, emphasized that r.he changeover to the consi3eration of the net
and standard net output, which is set forth by the decr~e of the CPSU Cer.tral Com-
~ mittee and the USSR Council of Ministers of 12 July 197'~, made it possible to re-
commend the criterion of the effectiveness of capital investm~nts in the form of
the increase of the national income both for the global level and for the sectorial
ana -:ost accounting level of management of the econ~my. He noted that it is not
advisable to agree with all the remarks made during the discussion. This concerns =
first ot all the desire to single out a special sectian on the regional effective-- ~
_ ness, the substantiation of which is the subject of an indepei~dent stu3y. Appar-
ently, there is no need to reflect in the Standard Procedure the manner of monitor- _
- ing its use~ It is not competent to give rer.ommendations on the supplementary ap-
praisaa. of living labor by means of the proportion of the public consumpc.ion funds
- per worker, since the public consumption funds are intended for meeting the needs
_ of the entire population. It is hardly possible at present to give a precise an- _
swer to the question about the proportion of the impact, for which noninve3t~nent
~ factors account; this requires special studies, especially as this propor:.ion does
n~t i~emain stable. T.he sugges*ion on using the inclusive expenditures z,nd world _
prices ior individual types of extracted natural resources is to a certa:ir~ extent
of a sectorial nature. It is also inadvisable to atress the probabilistic nature
of the calculations of the e.ffectiveness of capital investments, which, to be sure,
is justified only for substa.ztiations of long-term itivestment progr~ms and scien-
tific research and experimental design operations.
Many specific proposals on the impravement of the third. eciition of the Standard _
Procedure were reflected during iCs modificati~n; the remarks presented by the All-
Union Bank for F~nancing Capital investments and the Scientific Research Institute =
of Economics attached to USSR Gosplan were taken ii?.to account. -
- 26
FOR OFFICIAL USE ONLY
. - ~ _ . ,
APPROVED FOR RELEASE: 2007/02/08: CIA-RDP82-00850R000400010004-2

APPROVED FOR RELEASE: 2007/02/48: CIA-RDP82-44850R000400014404-2
FOR OFFICIAL USE ONLY
The procedure, which was approved as a temporary procedure by First Deputy Chairman -
� of USSR Gosplan V. Isayev (15 September 1980) and First De.puty Chairman of tt~e USSR
State Committee for CQnstruction Affairs M. Chentemirov (S November 1980), has been
- sent to interested organizations.
COPYRIGHT: Izdatel'stvo "Pravda", "Voprosy ekonomiki", 1981
7807
CSO: 1820 END -
,
~ `
, 27
,
' FOR OFFICIAL USE ONLY
~
_ _ _ I
APPROVED FOR RELEASE: 2007/02/08: CIA-RDP82-00850R000400010004-2