JPRS ID: 10548 USSR REPORT ECONOMIC AFFAIRS

• Document Type: CREST
• Collection: JPRS
• Document Number (FOIA) /ESDN (CREST): CIA-RDP82-00850R000500060061-3
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• Original Classification: U
• Document Page Count: 37
• Document Creation Date: November 1, 2016
• Sequence Number: 61
• Content Type: REPORTS

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JPRS L/ 10548
27 May 1982
USSR Re ort
p
ECONOMIC AFFAIRS

~"?7
CFOUO 5/82)
Fg~$ FOREIGN BROADCAST INFORMATION SERVICE
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JPRS L/10548
27 May 1982
USSR REPORT ~
ECONOM I C~ AFFA I RS
(FOUO 5/8~1
CONTEhTS .
INVESTMENT, PRICES, BUDGET ANB FINANCE
Role of Banking, Credit in Economic Management Reviewed
(V. Zakharov; VOPROSY EKONOMIIZI, *~ar 82) . . . . . . 1
Improvements in Pricing Practices for New Technology Voiced
(Yu. Tropin; VOPROSY EKONOMLKI, Dec 81) 12
REGIONAL DEVELOPMENT
Resource Use, Regional Development in Azerbai~an
( G. A. A1 iy ev, e t al I ZVES TIYA AKADEMII NAUK
AZERBAYDZHANSKCIY SSR: SERIYA EKONOMIlCI, No 2, 1981) 23
_ a _ [III - USSR - 3 FOUOJ
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t ~
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i INVESTMENT, PRICES, BUDGET AND FINANCE ~
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~ ROLE OF BANKING, CREDIT IN ECONOMIC MANAGEMENT REVIEWED
' Moscow VOPROSY EKONOMIKI in Russian No 3, Mar 82 pp 3�-12
[Article by V. Zakharov: "Credit and Banks in the Economic Management System"]
' [Text] The financial and credit levers play a major role in increasing the manage-
~ ment level, in intensifying production, strengthening cost accounting and improving
thriftiness. The realization of the tasks set for the llth Five-Year Plan a+nd for
~ the longer period requires a profound elaboration of credit theory and the working
out of practical recommendations on the ways to further improve credit and paymeut
relationships in the economic management system.
' Credit investments by banks during the period of 1966-1980 increased by 4.6-fold
and on 1 January 1981 reached 342.5 billion rubles. Credit has been used to form
; 46.3 percent of the working capital sources in the national economy and, according
; to our estimates, is responsible for over 12 percent of the capital investments.
All of this determines the necessity and possibility of a mor.e effective impact by
~ credit on the development of the socialist economy. .
~ The employment of crediting as an economic management method presupposes the elabo-
ration of standardized crediting methods and the imparting to the management objects
of rights to independently determine the most applicable of them. At the same time
; the management objects should bear material liability in violating the management
standards and crediting conditions. ~
~ The existing excessive detailing of crediting conditions and the obligation to em-
ploy one or another crediting method for a nu~aber of economic sectors can lead to
a strengthening of negative administrative methods in the activities of the credit
system.
I At the same time the economic interests of the self-financing association~ and en-
' terprises can be impinged on and then great material liabilizy will be demanded
' from them for the results of decisions taken related to che organizing of.credit
and payment relations.
~ Crediting, as an economic management method, assists in solving such problems as
the balancing of plans, the strengthening of economic accountability, the encourag-
ing of material and technical progress, the mobilizing of internal reserves and a
number of others. Bank credit must.first of all cover the demand for borrowed
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funds arising in the process of carrying out the economic and social development
plans. At the same time crediting is the most convenient method for covering un-
planned needs for funds.
The presence of different types of needs for borrowed funds also necessitates dif-
ferent methods of satisfying them using bank credit.~ The effectiveness of the im-
pact on the economic interests of the management ob~ects depends largely upon the
adequacy of the methods of satisfying the needs for bcrrowed funds to the nature of
these needs. In the planning and organizing of credit, it is essential to have a
more profound differentiation between the satisfying of planned and unplanned needs.
. At present, the banks differentiate the credit and payment relations with associa-
tions (enterprises) depending upon the qu~lity of their operation. However, this
is not sufficient. Both the good and poorly operating enterprises have the same
, need for borrowed funds both of a planned and unplanned nature. The approach to
them should vary. However, this requirement is frequently not observed. For ex-
ample, kolkhoz crediting is carried out according to the unified credit-debi~t ac-
counts. The concentrating of own funds in one account as well as the accr~diting of
all requirements regardless of their nature reduces the bank's opportunity to activ~
ly influence the rational utilization of kolkhoz working capital. Here it is often
. virtually impossible to determine with suffi.:ient economi~ s~undness that portion
of indebtedness which cannot be repaid as a result of mismanagement. Considering
this it would be advisable to split the keeping of own and borrow~ed funds and pro-
vide credit to the kolkhozes through se~aral loan acc~unta which urould ensure the
, required banking control over satisfying the needs for borrowe~d funds.
It is possible to give anotiher example. A significant portion (around 80 percent)
of the credit used for temporarily making up a lack of own working capital is
,granted not to the associations an~i entexpris~s but rather to a centralized pro-
~ cedure to the ministries and departments without working out measures to mobilize
internal reserves. The ministries turn over the money received as credit to the
associations and enterprises as unxeturned financing. There has been, so to speak,
a'return to the syndicate credits which were widespread at the end of the 1920's.
The�drawback of such crediting was the fact that the bank could not exercise con-
trol over the use of the credit and the operation o~ the enterprises. For the pur-
poses of eliminat{.no the designa ted shortcoming, in 1930, a procedure was instituted
whereby bank crediting itself was to be organized in such a manner that the enter-
prises and organizations requiring credit would obtain it, in bypassing the inter-
mediate levels. The more than 50-year pYactice has confirmed the c:orrectness of
establishing direct ties between the�bank and the loan recipients.
The centralized granting of cred its for temporarily making up a shortage of own work-
ing capital reduces the control significance of crediting and does not stimulate the
mob ilizing of internal reserves of the associations and enterprises. A survey con-
ducted showed that almost two-th irds of the credits received directly by the associ-
ations and enterprises was repaid from addi~iorial and above-planned profit as well as
due to reduced deductions into the material incentive funds. At the same time :.he
credits granted to the ministries, as a rule, were repeatedly extended and then re-
paid from money of the state budget. In our opinion, credits should be granted
directly to the associatimns and enterprises which have a shortage of own working
capital after they have worked out measures to obtai;.i additional profit. This will
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help to solve the problem posed for the llth Five-Year Plan and the lunger run of
making more active use of the financial and credit levers to mobilize internal re-
sources. What has been said does not exclude the possibility of providing credits
~ to the economic management budies as the principles of cost accounting are incor-
` porated in their activities. Suc:~ credits shouZd be provided to meet the needs of
the entire economic complex headed by an industrial association or ministry.
; It is also essential to improve credit planning for an increase in fiMed capital.
The predominant share of such credits is a source of planned capital investments and
for this reason in the plan goes to sgecific recipients. At the same time credits
can be emplayed for certain types of capita]. expenditsres above the limits set by
the state plan. However, these credits in also being planned in a sectorial break-
' down become, in essence, a supplement to the planne~ capital investment sources.
The purpose for credits for above-limit expenditures is to encourage maximum use of
internal resources, for example, uninstalled equipment. Considering this the desig-
nated credits should be planned on a territorial breakdown so that the banking in-
stitutions could effectively settle the questions of extending these credits to the
~ associations and enterprises ind~pendently of tneir departmental affiliation.
At the 26th CPSU Congress it was pointed out that "the ~iisproportions and shortages
occurring in various natior.al economic sectors cause a good deal of economic harm
and complicate the struggle for eff iciency and quality." One of rhe ways for over-
coming or, in any event, mitigating the scarcity of a number of resources is cor-
rect control of production inventoriesa Such control is carried out, in particular,
in the process of organizing the credit and payment relations in the national econo-
my since payment for a signif icant portion of the commodity and material stocks is
made by bank credits. In the crediting of the production associations and enter-
prises, their normal uemand for money should be provided for the forming of material
inventories. However, recently an undesirable trend has been observed of forning
, the designated inventories to an evergreater degree from payment credits. Banking
, control over their iss~sing and repayment is less effective than over specific
credits for material commodities. The ~resenr2 .,f surplus payment funds with the
simultaneous weakening of banking control over their use makes it possible to accu-
mulate material inventories in amounts that exceed their actual need. This, in
turn, cau~es the uneconomic expenditure of material resources at fsome enterprises
and a scarcity of them at oth~rs.
~ It is essential to strengthen ruble control in the crediting of ma;.,..ria~l inven-
tories so as to assist in accelprating their turnover rate, to prevent the replace-
ment of specific inventory credits by payment credits while the mechanism for the
granting and repayment of payment c.redits should be linked as much as possible with
the movement of material commodities.
For increasing the effective functioning of the credit mechanism, it is essential
~ to further improve credit planning. The measures to improve crediting methods in a
number of instances have not provided positive results precisely bec~t~Gn they are
not based upon an appropriate reorganization of the credit ~lanr~ing system.
SeE~eral interr.elated problems are solved in the credit plannlno process. In the
first place, a quantitative expression is given to the objectively existing cost
~ accounting needs of the economy for borrowed funds. Secondly, the credit plans set
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the methods for satisfying the need for borrowed funds depending upon the type of
need. Finally, the third task confronting credit planning cot~sists in determining
the volume and structure of the source~ for covering the demand.for borrowed funds.
Credit planning is carried out in several stages. First of a1:1 it is possible to
note two interrelated but relatively independent processes: the planning of aredit-
ing resources and the planning of the granting of credits based upon the determtned
need for borrowed funds. The concluding stage is the balancing of the amounts of
resources and credits. With the presen~e of several banks the need also arises of
distributing and redistributing the credit resources between them. '
All credit resources, regardless of in which crPdit institution they have tieen accu-
mulated, are available to the sociaiist state and on a planned basis are channeled
~ by it into the development of the active operations of one or another bank. Such
uti3ization of credit resources stems from the nature af the socialist management
system. Bank resources are regulated on a centralized basis in compiling and ap-
proving the credit plans of the Gosbank and Stroybank as well as ~n the redistribu-
tion of functions between them.
~ As is known, in 1977, the financing and crediting of planned capital investments fo'r
the reconstruction and technical reequipping of enterprises in industry and a numb_r
of other national economic sectors were shifted from the Gosbank to the Stroybank�.
Simultaneously the resources of the Stroybank were increased by the amount of the
~ planned repayment of credit5 previously issued by the Gosbank. Moreover, the ac-.
counts which accumulated the money of the production development fund were transfer-
red to the Stroybank. This increased the Stroybank's resources for long-term ~redit
ing.
Thus, socialist credit ensures~the redistribution of funds on an economy-wide scale.
The restricting of each bank's operations to the amounts of its resources would im-
pede the development of the most effective active banking operations under the spe- ~
cific economic.conditions. ~ ~
The ties of the credit plans with the economic and social development plans are
diversa and varied on the various levels of national economic management. On the
scale of the en'tire national economy, r;le plans for granting credits for material
commodities and production expenditures are correlated to the national economic
ma~erial balances and the capital investment plans. This coordination is expressed
primarily in the fact that credit is a planned source for forming woiking capital
and carrying out capital expenditures along with the budget allocations and internal
assets. A predominant share of the credits going t.o increase working and fixed
capital in the plan goes to specific purposes. The:se credits are planned for the
ministries and departments and are then distributed to the immediate loan recipients
in the form of the production associations and enterprises. In granting the desig-
nated credits the proportions established in the economic and social development
plan are maintained. '
At the same time, under the conditions of the large-scale Soviet economy, it is dif-
ficult, a..id in a number of instances, even ill-advised to set ahead of time and in
a centralized procedure the ratio of material funds and monetary resourcea and the
structure of solvent demand and supply on the level of the primary maizagement ob-
~ects, the production associations and enterprises. Such a balance is achieved
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using economic management methods, including credit ones. For this reason it is
quite natural to have credits which are not directly assigned. These are to be
used to form the unplanned needs for working capital and capital investments and
for overcoming the particular disproportions arising in the course of carrying out
the economic and social development plans.
The measures to improve credit planning should be carried out in close connection
with the tasks confronting national economic and primarily financial planning. The
organic incorporation of the credit resources and their uses in the state's summary
financial plan is the basis for solving this question. The designated plan should
be compiled not only by the planning and financial b~dies but also by the banking
ones as well. A fuller consideration of all available monetary resources will make
it possibZe to ensure their most rational use as well as the balancing of the
material-physical and cost elements of social reproduction.
An essential prerequisite for incorporating the credit resources and their uses in
the state's summary f inancial plan is a changeover from quarterly to annual period-
icity in compiling and approving the short-term crediting plan of the USSR Gosbank.
This will make it possible to more closely link it to the economic and social de-
velopment plan, to the state budg~t and to the financial plans of the economic sec-
tors, the associations and enterprises. For maintaining the link between the credit
plans and the cash plans, a quarterly breakdown must be made for them and when
- necessary adjustments made in the course of carrying them out.
The economic and social development plans as well as the financial plans set the
~ amounts of capital investments and material inventories as well as the sources of
~ their monetary covering. But bank credits which are one such source are planned de-
- pending upor. their division into short- and long-term. The classification of ,
= credits by time is essential but insufficient as it does not indicate their economic
use. For this reason this cannot be the basic criterion in credit planning. The
_ credit plans should be compiled depending not upon the length of the credits but
~ rather upon their economic purpose. One credit plan should include the creditb and
corresponding resouz~ces f or forming the economy's working capital and another should
have the resources and their allocating for capital investment crediting. Here it
' is particularly important zo ensure an economically sound dividing of the resources
between the designated plans.
There are also substantial shortcomings in territorial credit planning. At present
the credit plans are compiled only as a whole for the Gosbank and Stroybat:?c. Even
the republic bank offices do not have completed, balanced credit plans. This is
due to the fact that for the union-level enterprises credit planning is carried out
by the central banking bodies and for the republic-level economies by the republic
offices and so forth. The inf~rior banking units plan credits virtually for just
the enterprises of the rayon (city) level, for the kolkhozes and for the inte~farm
enterprises and organizations. But only the superior banking bodies are involved in
_ the planning of credit resources.
The little involvement of the inferior banking units in credit planning does not
:lelp to develop local initiative or complete consideration and utilization of in-
- ternal economic reserves. This leads to a situation where in a number of instances
surplus and unnecessary inventories are created with the aid of bank credit and
surplus payment funds are formed.
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An improvement in the territorial credit planning should be carried out by involv-
ing the banking institutions in credit planning for all enterprises and organiza-
tions of a region without exception. However, the transition to territorial credit
planning involves definite difficulties. The experiments carried out in this area
show the fundamental possibility of compiling credit plans with a territorial
breakdown. For example, since 1974, the Latvian Republic Gosbank office has been
carrying out an experiment in territorial credit planning. The conditions of the
� experiment provide that the Gosbank institutions plan.both credits as well as cer-
tain resources. Regardless of the positive results of the experiment it has spread
slowly. Zn 1978, territorial credit planning had been introduced only in the Lithu-
anian, Moldavian and Estonian Union republics.
The involvement of all banking institutions in credit planning will create condi-
tions for converting to the planning of the total need of economic bodies for bor-
rowed f unds. At present planning on the level of the loan recipients covers only a
portion of the borrowed funds, that is, the individual types of bank credits.~ But
for the normal operation of self-financing enterprises they require�not any in-
dividual types of credits but rather borrowed funds generally. A depriving of some
type of credit correspondingly increases the demand for others. The calling in of
credits due leads to the development of overdue liability. Of course, the complete
halting of crediting and the collecting of overdue liability on loans creates the
need to put credit liability into circulation. For this reason, in our opinion, we
must organize the planning of the total demand of each economic body for borrowed
f unds . .
An improvement in credit planning will make it possible to more~soundly determine
the actual effectiveness of organizing national economic crsditing. The drawback of
~ the proposed methods for calculating crediting effectiveness is that their authors
analyze this effectiveness proceeding from the actually existing structure of the
borrowed funds. But it makes a great difference as to precisely which credits were
used by an enterprise to achieve certain results. For example, it cannot be con-
sidersd normal if the economic use of credits was accompanied by an increase in
credit liability. Moreover, it is essential to bear in mind that not only credit
influences the operating results of enterprises but also the course of their opera-
- tions d irectly influences the actually developing structure of credit investments.
_ For this reason, an assessment of crediting effectiveness should be based primarily
upon an analysis of the ratio of the actual and planned structure for sources to
cover the d~emand for borrowed funds.
The state has a direct effect on the economy through the sectorial, territorial and
functional management bodies. One of the functions of the socialist state is the
planned distribution and redistribution of monetary resources and ensuring their
efficient use for the purposes of expanded reproduction. This function is carried
out with the aid of special bodies among which are also the banks.
In organizing monetary circulation, the banks possess definite methods for influenc-
ing the economy. With the aid of payments through the credit bodies, the principle
of the equivalencE of exchange is observed and the financial independence and prof-
itability of the, self-financing enterprises are brought out. Thus, the action of
the law of value is expressed in banking operations. Through the banks the state
. organizes the conscious use of the law of monetary circulation. By emission and
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cash control through the Cosbank, the needs of circulation for cash are ascertained.
lianking information on this question is employed by the state for controlling mone-
tary circulation.
The banks help in observing the requirements of the law of planned, proportional
national economic development. Crediting, the organization of monetary cirGUlation
and the performing of other functions by banks are aimed at maintaining the propor-
tions established in zhe economic and social development plans as well as eliminat-
' ing the particular disproportions which arise.
The existing methods of bank influence on the socialist national economy have de-
veloped gradually, in changing in accord with the needs of economic development.
For example, the presence of numerous banks during the first years of Soviet power
was caused by the mixed nature of the economy. Not having the necessary conditions
or experience in planned economic management, the state endeavored to most fully
utilize the credit bodies for this purpose. In the process of developing central-
ized planning, the banks organically were incorporated in this system and their
; number was reduced.
Initially all the credit bodies were psrt of the financial system. The gradual
separating of the banks from it had the nature of a natural branching out of inde-
pendent bodies in f unctional management from the bodies having other functions and
employing different methods to influence the economy.
A clearly expressed development trend in banking in the USSR has been its centrali-
zation. At present all banking operati~as are concentrated in two systems, the Gos-
bank and Stroybank.
Predominantly the functional principle underlies the dividing of the sphere of ac-
tivity of the banks. The Gosbank provides credits for the basic operations of the
enterprises while the Stroybank f inances and credits capital construction. However,
this principle has not been precisely maintained. In the first place, the
sectors of agriculture, forestry and water management are completely financed and
credited by the Gosbank. Secondly, credits for planned capital investments into in-
dus~ry and certain other economic sectors are provided by the Stroyb~nk, while
credits for above-planned investments are put up by both banks. Thirdly, the
Stroybank provides short-term crediting for some contracting organizations while
- the Gosbank d~es it for others. Fourthly, the Gosbank proviues cash services for
all economfc bodies, excluding those which have their accounts with the Stroybank.
Fifthly, the Gosbank carries out a significant number of operations in the crediting
and financing of capital investments upon the authorization (on behalf) of the
SCroybank which does not have the requixed network of affiliates. All of this re-
duces the effectiveness of control by the banks over the activities of the associa-
tions and enterprises.
The functioning of an enterprise as a management object starts in the period of its .
construction. The administration of an enterprise under construction enters into.
relations with other economic bodies, primarily contracting, supply and others. It
possesses money, sometimes very signif icant amounts, to be used for the financing of
construction. The very period of construction lasts frequently several years. All
of this necessi~ates the incorporation of the new construction projects into the
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system of national economic management. The immediate aim of management is the high
quality completion of construction at the stipulated dates. The more distant ai~ is
the prompt reaching of the designed technical and economic indicators by the con-
structed enterprise. The reachir_g of designed capacity occurs at operating enter-
prises but the opportunities for achieving this goal are established in the courae
of building them.
While new construction does not coincide in time with the ~peration of the enter-
prise itself, the work involved in expansion, reconstruction and technical reequip-
- ping is carried out at already operating enterpriaes. Here material, labor and
monetary resources earmarked for basic operations are frequently used for c~nstruc-
tion. Subsequently these resources should be recovered from the allocations ear-
marked for construction. But this again demonstrates how close are the relations
within the'enterprise as a single economic complex. The main thing is that the re-
sults of the enterprise's operations depend largely upon the results of construc-
tion (including reconstruction and technical reequipping).
Under these conditions it is quite natural to have the management of the enter- ~
prises as economic complexes by unified sectorial and intersectorial management ~
bodies. Among the latter are the planning, f inancial~, supply and others which have
internal subdivisions in charge of capital construction questions. Only the bank-
ing system is an exception as a portion of it manages the ba~ic operations of the
ente~prises within the limits of the functions entrusted to it while the other is
- in charge of their capita~. construction. This inevitably gives rise to involved
relations between the banks as management subsystems and necessitates the constant
coordinating of their actions.
Banks, like the other economic bodies,~ exercise functional management of the
national economy. Consequently, it is essential~to settle the question of ~ust to
what degree the function underlying the activities of the credit bodies should be
. consolidated or, conversely, differentiated. As was pointed out by V. I. Lenin,
the banks a-re bodies involved in the statewide accounting, bookkeeping and control
of production and the distribution of products. This control is carried out by
them on the basis of the monetary c3.rculation passing through the bank. Proceeding
from this, 3t is possible to assume that the organization of monetary circulation
by tl,e banks and the carrying out of statewide accountancy are the constituting
. feature of banks as economic management bodies. For this reason, any breaking up
of monetary circulation merely~complicates the keeping of truly statewide account-
ancy.
At present, control of monetary circulation has been split between the Gosbank, the
Stroybank arid the USSR state savings banks [gostrudsberkassa]. A significant por-
tion of monetary circulation passes.through the savings banks and this provides .
grounds to consider the savings banks as banking institutions. With the transfer
of the savings bank system to the Gosbank, the balances of the public's deposits
began to be used by the bank as a credit resource. As for the rest, the unifying of
these two banking institutions has been more of.a mechanical than an organic nature.
The savings bank system has kept its independent accountancy and separate cash sys-
tem distinct from the bank. This was justified initially after the turning over of
the savings banks to the Gosbank when they performed a limited range of operations.
Then the savings banks were given the functions of receiving apartment rent and
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other utility payments from the public, for keeping the accounts of organizations
and institutions not engaged in economic activities, for paying wages to emplo~ees
and other income of the population and so forth. All of this significantly ~ompli-
cated accountancy and the cash system in the savings banks and sharply increased the
"counterflows" of cash and transfer payments between the savings banks and the Gos-
~ bank institutions.
For the purposes of maximum centralization of monetary circulation, it is advisable
.j to have the organic incorporation of the savings banks as part of the Gosbank book�-
keeping and cash system. Thc possibilities for such a solution to the question will
be widened as electronic computers are introduced into the work of the bank and the
s~avings banks. The next step should be the unifying of the acco~nting systems of
the Gosbank and Stroybank and the creation of a unif.ied automated control system for
monetary circulati~n of the socialist economy. This will be of primary significance
for the development prospects of the banking system as an apparatus aL statewide
~accountancy.
The parallel functioning of several (even two) banks creates the problem of dis-
tributing resources between them to carry out active operations, that is, the
cr~editing of the national economy and the financing of capital investments and
major overhauls. Resources for financing are allocated on a nonreturned basis ar:1 .
for this reason it is easier to control this. The situation is significantly more
' complex with the distribution and redistribution of credit resources.
~ The emission of money is the regulator of credit resour.:es of an emission bank.
Here money is put into circulation for covering the needs of the national economy
for credit or money is taken out of circulation in reducing credit investment's rela-
tive to the other existing credit resources. The Stroybank is in a different situa- .
tion as it does not have the right to put money into circulation and has in addition
only limited resources in the form of the balances of the economy~3 assets. In de-
veloping various active operations (for ~xample, the crediting of incomplete produc-
tion of construction and installation work), the bank experiences definite difficul-
ties in forming the corresponding resources.
The following aspect is also very important. It is generally recognized that mone-
tary circulation is directly linked with the short-term crediting of the national
economy. Short~-term credits are provided not only by the Gosbank which directly ~
regulates monetary circulation but also by the Stroybank. On 1 January 1981, the
debts of the Stroybank for short-term credits were 39.4 billion rubles or over 15
percent of the total amount of short-term credit investments. But at the beginning
of its activities in 1960, this share did not exceed 3 percant.
� It seems to us that at present tt~e credit activities of the Stroybank are under-
estimated. This is apparent primarily in the fact that credit planning in the
Stroybank is not tied to the planning of monetary circulation. Considering this
and proceeding from the unity of the statewide loan fund, it is essential to draw
up a unified credit plan which is 3.inked to the monetary circulation plans. Such a
, plan will provide an opportunity also to more fully consider all,credit resources
and to better combine the credit anu budget methods for allocating funds in the
economy. The planning of the total volumes of resources will make it possible for
the state to more correctly and economically effectively channel them into certain
economic sectors and for crediting primary measures regardless of in which bank the
~ accounts of the borrowers are.
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In having limited credit resources, the Stroybank in a number of instances is forced
to apply stricter conditions for granting individual credits than is the Gosbank.
However, this causes the valid dissatisfaction and perplexity on the part of the
economic bodies which obtain credits simultaneously from both banks and can compare
their conditions. The presence of different crediting conditions is incompatible
with the unity of credit policy. The most effective banking control over the carry-
ing out of the capital investment plan can be provided under the condition that one
bank finances and credits both the planned and above-planned capital expenditures.
But in a number of instances the enterprises of the same ministries receive credits
for above-planned capital investments at both banks. For example, in 1980, the
enterprises of the Ministry of Light Industry received 80.2 million rubles of
credits for the designated purposes at the Gosbank and 13..9 million rubles at the
St'roybank; the figures, respectivofyCommunicat onsst122 f- andd12w7rmillionarubles?
million rubles; for the Ministry
The possibility .of obtaining credits in two banks does not help to concentrate the
capital investments and weakens banking control.
In formally observing the sectorial principle of the division of functions, the
Stroybank was forced to grant credits for forming the basic herd on the ancillary
farms of the enterprises of industry, transportation and certain other economic sec-
tors, while the predominant portion of these credits is provided by the Gosbank.
In the course of agroindustrial integration, associati.ons are set up which include
industrial and agricultural enterprises. Here the question arises of which of_ the
banks should f inance and credit the expenditures of these associations for capital
investments.
The turning over in 1977 of tne crediting of capital investments in a number of eco- ~
nomi.c sectors from the Gosbank to the Stroybank tias led to an increased number of
operations performed by the Gosbank upon instructions of the Stroybank. This means
that the redistribution of functions between them to a certain degree is of a formal
nature. In recent years there has been a particularly noticeable desire of the
Stroybank to broaden its parallelly existing network. Instead of the sma11 staff of
- authorized Stroybank agents, independent institutions are being crear_Pd and this
significantly increases the number of personnel and expen~i~ures on running the
banking bodies. '
We feel that these phenomena could be overcome by organizing a single bank, in deep-
ening the specialization within it. It would also be possible to create a body
which would coordinate the activities of all the banks. We might recall that at
one time there existed a committee tor banking affairs which performed this function.
Subsequently the work of the banks was directed by the People's Commissariat of .
Finances and later the USSR Ministry of Finances.
The conforming of the rights of banking institutions and management objects is a
condition for the successful functioning of banks as economic management bodies.
Considering this it is essential to broaden the involvement of the inferior banking
- institutions in credit planning as well as their rights to maneuver credits. The
bringing of the decision taking points closer to the places where the decisions are
carried out will make it possible to increase the effective influence of the banks
on the basic management objects, the associations and enterprises.
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At the same time, there cannot be full material liability of the banks to the eco-
nomic bodies since the relationships between them are the relationships of the
principols and ob~ects of management. This does not exclude an increase in the ex-
isting material liability of the banks for handling payments in the national econo-
my. The necessity for this stems fros the state's interest in the correct manage-
' ment of sacial accountancy as well as from the fact that the keeping of money in the
bank and the clearing of all payments through it are a two-sided obligation of the
enterprises, the organizations and the bank.
COPYRIGHT: IzdBtel~stvo "Pra~da", "Voprosy ekonomiki", 1982
10272
CSO: 1820/135
~
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INVESTMENT, PRICES, BUDGET AND FINANCE
IMPROVEMENTS IN PRICING PRACTICES FOR NEW TECHNOLOGY VOICID ~
Moscow VOPROSY EKONOMIKI in Russian No 12, Dec 81 pp 45-54
[Article by Yu. Tropin: "Improving Limit Prices"]
[Text] Increasing the effectiveness of scientific and technical progress depends
largely upon the soundness and effectiveness of the scientific and technical stand-
ards employed in the process of selecting and developing new products. The deci-
sions of the 26th CPSU Congress and the Decree of the CPSU Central Committee and the
USSR Council of Ministers On Strengthening Work in the Area of Economy and Rational
Use of Raw Presduct, Fuel, Energy and Other Material Resources" have pointed to the
necessity of constantly improving the system for evaluating the scientific and tech-
nical level of products in development and for strengthening the mobilizing role of
technically sound standards in achieving thriftiness and increasing the efficient
use of resources.
Among the technical and economic standards employed in design practices extensive
use is made of such a one as the limit price (P,Q,) which is the economically toler-
able maximum calculated amount of the wholesale price. In a ma~ority of works this
is viewed as an important cost parameter of the technical specifications which guide
the designers and production engineers in creati:ig and manufacturing the most effec-
tive tqpes of products.l Its formula can be represented in the following general
form:
P,Q = Pi�S, ~l~
where Pi -the initial maximum price of a new article in the calculated year;
S--reduction coefficient.
In recognizing the advisability of employing a limit .price for selecting the most '
promising models (decisions), for assessing the economic effectiveness of develop-
~ ments and for establishing correct price ratios and levels for the articles to be
produced, it must be pointed out that its role in realizing the reserves for effec-
tiveness and in creating an economic new product is not sufficient. As the maximum
economic standard, a limit price by its nature cannot help to reduce the level of
the design prices (which are often significantly below the limit ones) or increase
the economicness of the developed models. The orientation to such (maximally ac-
ceptable) standards can lead (and in practice does lead) to the production of arti-
cles which are ineffective for the national economy. But this is only one side of
the problem. .
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The limited possibilities of limit prices in the mechanism of increasing the effec-
tiveness of expenditures to a decisive degiee are predetermined by the methodology
of calculating them as this is insufficiently advanced and only slightly aimed at
the end result. The reasons for this are in the followir.6.
In the first place, as yet unity has not bee*~ achieved in the methods for calculat-
, ing the initial value of the limit price (Pi) and the technic.al and economic param-
. eters employed in this and determining the level of the maximum expenditures for the ~
basic groups of new equipment. For this reason the limit prices calculated on such
~ ' a basis are not sufficiently oriented at increasing the effect. They can differ
substantially from their own actual~initial (maximum) amounts and have significant
intergroup discrepancies in terms of content and levels. Thus, for new products
~ designed to replace previously produced ones, the limit price is calculated using
the method of ad3usted expenditures and ultimately would reflect a hypothetical
equal advantage of the models being compared in consumption. But it cannot become
an instrument for reducing expenditures for the given'group of articles although in
setting its level consideration is given to the importance of such significant tech-
nical and economic Farameters (in addition to price) as service life and the current
an3 capital expenditures of the user.
One of the reasons for this is that on r,Iie basis of a limit price it is virtually
impossible to prevent the increased cost of a new model. The limit pri~e for a
; given group of new articles includes the design (calculated) price (Pd) and the
. economic effect (E) which determine the advantages (with the least Pd and the great-
est E) of the selected model in comparison with other a~.ternatives. But the eco-
nomicness of a model can be reduced if according to ths: development results the es-
tablished level of the design price is increased. In this instance there will be a
real increase in the cost of the article in comparison with the design calculations
and the economic effect will be reduced although the condition of the technical
specifications for the P,~ will be carried out since as a whole this price is not
exceeded.
For new products which supplement the parametric series or are part of it, the maxi-
mum prices reflect the existing production outlays calculated for the technical and
economic parameters of the articles with~ut directly estimating the economic effect.
They do not directly c~ntrol the level of operating expenditures and service life
and this can lead to the development of expensive-to-use models for this most repre-
' sentative group of new equipment.2 This applies also to the limit prices for funda-
mentally new articles created on the basis of calculated design expenditures.
Secondly, there is no definite clarity as to the content, quantitative significance
and procedure for calculating and utilizing the reduction factor given in formula .
(1). In establishing its level consideration is not always given to the production
~ ~features and the dynamics of the initial maximum price (Pi) of the articles bein~
developed over the long-range period. This ultimately often leads to a distorting
(overstating or understating) of the limit price.
; Thirdly, the maximum prices for all groups of new equipment as yet do not suffi-
ciently reflect the qualitative and social characteristics of the models being de-
veloped. They are little tied to the material incentive system.3 All of this re-
, duces the importance of the limit standards and narrows the opportunities to employ
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them for creating h:tghly efficient and economic equipment. Moreover, it must be
pointed out that the effective development of new equipment is ~'etermined not by
the existing (or equivalent) expenditures on which the limit prices are based but
rather by the least ones. Consequentily, they should be reflected in the technical
specifications for the development of the product.
The new methods and approaches raised in the press for improving limit price~, in
our opinion, do not fully meet the demands made on them, although some of them have
actually been employed. In particular, a method has been proposed based on con-
sidering the sources of savings for current operating expenditures among the users
of the new equipmeut.4 Here two basic variations are considered. The first of them
is that a savings in current expenditures is achieved (often with fixed productivi-
ty) on a basis of increasing the quality characteristics of the model. This can
involve an increase in production outlays and then the calculating of the maximum
limit for the increase in price is considered ~ustif ied, that is, the given approach
does not go beyond the limits of the existing procedure. The second variation is
that the savings of current expenditures is a consequence of increased machinery
capacity or productivity and this.does not necessitate any additional specif ic ex-
penditures by the enterprises manufacturing the new equipment. In the given in-
stance, for calculating the limit of the increase in prices, the formula has been
recommended:5 ~
� P,~ = Pb � b � ~K, ~2)
where Pb--wholesale price of base article;
Rn and Rb--productivity of new and base machines;
~K--change in capital expenditures for consumer caused by using new
article instead of base one (without value of equipment itself).
This formula has been employed in establishing P,~ in a number of sectorial pro-
cedures (without ~K). However the use of the limit rates calculated by it does not
solve the problem of their soundness and the orientation of developers to highly
economic solutions. In involving only one group of new equipment, tlie maximum rate
~ in comparison with the maximum permiasible price is transferred only to a lower
price level. For example, the limit price of a turbine with a power of
22,000 kw calculated according to formula (2) will exceed the lower level of its
price by 2.2-fold (not considering ~K).6 .Such limit rates, in essence, merely re-
strict to certain limits the acceptable (from the standpoint of ineeting the condi-
tions in the technical specifications for P) increase in the design production out-
lays for new products (in the given ~example by not more than 2.2-fold) and this can-
not be considered justified. Here no consideration is given to the entire diversity
of quality characteristics of new equipment.
Widespread acceptance has been given to the viewpoint of the advisability of setting
the limit rate on a level guaranteeing the consumers a reducti.on in the proportional
value per unit of useful effect (or the maximum limit of the price) for a new prod-
uct within a definite fixed amount, say 20 or 30 percent. In particular, the formu-
la has been proposed:~
P~ = Pb + EuKy, ~3~
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where '~u and Ky--respectively, the useful effect and the caefficient for its minimum
reduction in cost.
Of course, a reduction in the cost of a unit of useful effect (even a minimal one)
in and of itself is positive. However, the position of the authors on a uniformy
~ for example 20-percent, le�~el of the reduced cost of the effect for all new articles,
I in our opinion, needs greater proof. The actual reduction for each individual arti-
' cle may diverge substantially in comparison with the set (fixed) amount. Thus, for
~ the national economy as a whole, the reduction in prices for new articles per unit
of useful effect over 1976, 1977 and the 9 months of 1978, as an average exceeded
the recommended value of Ky by approximately 1.5-fold.8 Consequently, if the actual
reduction is more than the set one, then the given limit rate will not be directly
tied to increased effectiveness of a specific model. But as a whole the P,~ calcu-
lated from formula (3), like f or formula (1), will reflect the maximum price level
considering the economic effect. For this reason such a limit price cannot become
an obstacle to increasing the cost of equipment in the process of its development
in comparison with the initial design expenditures. Moreover, with an equality of
the coefficients s and Ky, the limit price calculated according to formula (3) in
its level is somewhat higher than that calculated using formula (1), as the coeffi-
cient Ky applies only to the value of Eu and not to the entire initial maximum
amount (as ~ does) and this leads to even greater isolation of such standards from
the design expenditures.
In accord with the "Instructions on the Procedure for the Coordinated Development,
Approval and Introduction of Technical Conditions and Prices for Production and
~ Technical Machine-Building Products,�1 a design price (on the basis of the design
~ costs) and an economic effect should be included additionally in a technical speci-
' fication as normed values. The economic effect, the limit and design prices rather
fully describe the economicness of a development and their use would reatrict the
formal fulfilling of the conditions of a technical specification for the standard
P,~ with a real deterioration of the design technical and economic parameters. How-
ever, the given standards, in being closely interrelated, do not meet the require-
ments of flexibility. In actuality for machines for which an economic effect is
calculated (predominantly for articles designed to replace already ~3eveloped pro-
duction), all three indicators keep within the following equation: P,~ = Pd + E. For
other ~roups of new equipment, particularly fundamentally new equipment, the limit
price equals the design price. For this reason each of the set standards individu-
ally plays far from a uniform role in increasing the economicness of a model. Thus,
in the process of developing new articles designed to replace previously developed
- ones, the amount of the effect can be increased by lowering the accompanying capi-
tal investments or current expenditures of the new article's user with a certain
; growth of Pd, that is, under the condition: PW > Pa. This condition expresses a
real rise in the economicness of a product (the increase in the effect is greater
than the increase in expenditures), but such a savings leads to a disruption of the
conditions found in the technical specification for the level of Pd and the de-
velopers are not interested in this. ~ ~
A change in the econ4micness of development can necessitate an.ad~ustment directly
' in the limit price, too. For example, a rise in the level of current expenditures
inevitably should entail a corresponding decline in the level P,~ (this follows from
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the method of calculating it), otherwise it is overstated. Thus, in the process of
developing a new product the objective necessi.ty may arise (and repeatedly so) for
revising all (three) set standards particularly those related to increased develop-.
ment effectiveness. But then they will become less stable and this reduces their
importance and complicates their use in practice.
In terms of other types of equipment for which PQ = Pd, there is no control over the
operating and accompanying capital investments by the users of the new articles.
Due to the increase in these expenditures in comparison with the initial estimates
(or~~heir existing values) there can be a substantial decline in the economicness
of developn~ent.
_ However, a more essential shortcoming of limit prices is their general nature and
weak tie with the end result. For this reason, it is impossible on the basis of
~ them to establish dependable control over the forming of the dynamics of specific
expenditures and the structure of the economic effect wh~ich characterize develop-
ment effectiveness. For example, in the structure of the useful effect of new
~types of machinery and equipment as an average for machine building in 1977-1978,
the savings due to annual productivity was 1C1-15 percent while savings due to cur-
rent operating expenditures were up to 70-80 percent.9 For individual products
there can be a relative and absolute rise in the machinery production outlays per
se. But the use of general limit rates can lead t~o the formation of the far from
best sCructure of the economic effect and to an absolute increase in the cost of
the machines and this cannot be considered ~ustified.
An improvement in evaluating the technical and ec~nomic level of a product being
developed, increased soundness of the limit rates and the strengthening of their
mobilizing role in saving resources are possible, in our opinion, with the broader
use of the specific progressive expenditure rates and physical indicators. These
include: labor intensiveness, quality and social characteristics, operating lives,
the Lse of inetal, fuels, lubricants, electric power and other resources linked both
to the manufacturing and operation of the machine as well as to the product pro-
duced on the basis of its use (or the produced work).
Proceeding from this we consider it advisable to incorporate in a technical specifi-
cation for designing a model for all groups of new equipment (regardless of the
sphere of its use) the basic types of expenditures (in physical and cost terms) as
normed limits, as stems from the Decree of the CPSU Central Committee and USSR
Council of Ministers on strengthening work in the area of economy and the r~tional
use of materia~l resourr_es. In particular, it points to the necessity of incorporat-
ing indicators of product material and energy intensiveness corresponding to the
best achievements of Soviet and foreign science and practice as basic characteris-
tics in the standards and technical conditions,
The advisability of working out specific standards and introducing them into the
pr3ctice of. developing new products is also determined by the need to strengthen the
scientific soundness of the scientific and technical progress plans, for strengthen-
ing the correlating of product develcpment (and production) with the resource capa-
bilities of the industrial sectors and enterprises, for increasing the realisticness
af the new specific scientific and technical decisions which are being taken and
implemented as well as for further improving work in the area of increasing the
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efficient use of material, labor and financial resources. This is also determined
by the system being created of progressive technical and economic standards and
norms (approved by the USSR Gosplan on 11 January 1980),10 since the standards for
new products under development cannot operate outside the given system of standards
~ and norms. In essence, the specific norms are detailed design expenditures pres-
, ently employed in the technical and econ~raic buckground studies for new products.
It is also advisable to incorporate in a technical specification the expenditure
linits f or the quality of the sub3ects of labor and for ~he social parameters of
' the article.
The procedure for calculating such norms (we call them design expenditure norms)
will include a definition of the initial values of the specific resources during
the calculation year and the adjusting of their level considering the prospects of
scientific and technical progress. For calculating the initial design norms for
expenditures we propose the f ormula:
n m e
Nin = ~~Pini + ~ Yin~ + ~KinY with set Cr, ~4)
i=1 j=1 Y
where Nin -initial expenditure norms for new product;
Pini -element i(i = 1, 2, n) of price or cost (raw products, materials,
assembly, wages and so forth);
Yin~--j operating (j = 1, 2, m) expenditures of the consumer (operating
materials, equipment, wages and so forth);
~ KinY--Y expenditures for quality (Y = 1~ 2~ e) of a subject of labor
(wastes and losses, operating expenditures with a change in reliability,
durability, labor intensiveness);
- z--set social parameters (z = 1, 2, z) [the z term is not given in
formula (4)].
After calculating the initial norms using formula (4), they must be adjusted for the
corresponding reduction factor (R) which considers a possible change in these norms
(a decline or increase) over the time of carrying out tl.ie work. Basically two posi-
tions have deyeloped over the content and quantitative 1eve1 of the given coeffi-
cient. According to the first it should consider the possible decline in the pro-
duction outlays of the base product from the moment of turning out the technical
specifications (in other words, the year of determining the initial level of the
maximum price) to the beginning or second year of series output of the new machines.
It has been recommended that its value be set on the level (or as an average) of
0.8. According to the second position, the given coefficient which also equals an
average of 0.8 should consider a possible decline in the production outlays of a
new product in one or two years of its series production. The reduction coeffi-
cient ~
'lhe reduction coefficient for the specific expenditures, in our opinion, should re-
flect their average sectorial dynamics from the year of calculating the initial
norm to the year of calculating the wholesale price of the article being designed
(in essence, this is the year of starting its series development). Such time ]3mits
are determined by the specific nature of the designated norms. They are designed
for the development stage and for this reason after its conclusion the question
arises of determining the actual economicness of the model and the degree of ineeting
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the conditions in the~te~hnical specifications for the set parameters. The actual .
materials needed for this should be obtained during the period of preparing the
draft wholesale price for the new article. If the limiting norm is reduced to the
conditions of the second (third) year of series production, it in essence remains a
calculated one and this reduces its reliability. The reduction factor should be
made equal to the index for.the change in the design initial parameters for the
above-indicated period of time as a result of raising labor productivity, reducing
material intensiveness and the influence of other ob~ective factors. This seems
correct. The expenditure norms set using formula (4) reflect the conditions of
their formation at the start of the year of developing the new article. During the
period of its creation and during tfie organization of series output adjustments are
incorporated in the current norms (including progressive ones, too). In terms of
the norms for articles being developed, this will also be considered by the corres-
ponding production factors.
Consequently, in such an understanding the reduction factors can influence only the
level of the design norms (equally P,~) and not an increase in the economicness of
development, as is somztimes proposed. Physical resource measurements (weight,
quantity and so forth) should be more widely employed as controlling indicators for
the change in the set value norms over time. This is particularly important for
preassembled and other ready-made prcducts which are received through intersectori-
al subcontracting and for which it is difficult to obtain data on the dynamics of
their expenditures. If the article being developed has a basic analogue, then their
reduction factors for comparable expenditures should be equal. For this reason the
planning data existing at the manufacturing enterprises on a change in such expendi-
tures for the base items can be employed for establishing analogous design norms for
, a new model.
It would be erroneous to set the value of S for all new articles on any fixed level
both for the elements and types of expenditures and all the more to employ it as an
indicator considering a change in the production outlays of a new (with the excep-
tion of a fundamentally new) product. In other words, the thus corrected Pd will
not correspond to its purpose and loses its real basis. Let us demonstrate this
from the example of data from a table which represents the dynamics of production
outlays for an analogous product but with a different series run (the third,year
of series development). .
~ Production Year
Series Run
lst 2d 3d 4th Sth 6th 7th 8th
Individual 1.0 0.87 0.80 0.76 0.73 0.70 0.68 0.66
Small series 1.0 0.77 0.66 0.59 0.54 0.51 0.48 0.46
Mass 1.0 0.75 0:57 0.46 0.39 0.34 0.30 0.27
Let us assume that the development of the new model commenced in the 4th year of
producing the base article and series production started in the 6th. Th'en the
actual coefficient for the reduction in production outlays and their component norms
for the basic mass produced product, for example, from the 4th through the 6th year
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(the development period an~ the start of series production of the new model) will
equal 0.74 (0.34:0.46), and from the 4th through the 8th year (the period of de-
~elopment and series production of the new model) it is 0.59 (0.27:0.46). The ini-
tial norms for the new model':s expenditures set for the conditions of the beginning
' of its development year (in our example, the 4th year of producing the basic prod-
uct) must be adjusted by the thus calculated (or by other methods) corresponding re-
duction factors for the types of resources (considering the chosen year of adjust-
ment). This will make it possible to correct the initial expenditure norms in ac-
cord with their objecti~~e basis, that is, the dynamics of the specific material and
labor expenditures for the basic (progressive) article for which they were calcu-
lated. The coefficient equal to 0.8 does not consider the particular features of
product output (the series run of the article or the level of scientific and tech-
nical progress in the sector) and this can lead to substantial miscalculations in
expenditure planning. Thus, its application will cause an understating of the de-
sign price level for a new mass produced article according to the conditions of the
year of starting mass production by 0.06 (0.8 - 0.74) and for a developed product
by 0.21 (0.8 - 0.59). For individual production, the level of the new model's de-
sign expenditures will be, on the contrary, overstated respectively by 0.12 and 0.07.
Analogous miscalculations will also arise for the expenditures on new articles with
a small series type of production. The use of the index for the decline in the new
product's production outlays over the period of its series development is also not
sufficiently sound as a coefficient for the reduction in cost as it reflects not
_ the dynamics of the initial progressive norms but rather the decline (rise) in the
production outlays of the products being developed. Its application leads to a dis-
tortion of the plan expenditure norms.
The norms calculated by formula (4) and adjusted for the time factor will be "ex-
penditure decoders" adopted in the technical and economic feasibility studies for
a new model and characterizing its economicness from the standpoint of price, oper-
ating expenditures, effect and social results. If the necessary corrections which
consider the basic plan quotas and the trends of change over a longer period are
incorporated in these decoders, such specific norms can be accepted as long-range
~ ones. This is particularly important for the scientific research and design organ-
izations which are working on a specific sub~ect.
Of course, the determining of design expenditures with sufficiently high accuracy
is a difficult task. For increasing the degree of their reliability, it is essen-
tial to im~rove the technical and economic soundness of the selected version. It
is economically justified to have the extensive implementation of technical and eco-
nomic expert evaluation of the most important developments after the preliminary
technical designing. The working documents should be elaburated, the material
specifications clarified and the work completed on designing and mocking-up. On
the basis of them it is possible with sufficient ob~ectivity and completeness to
assess the realisticness of the norms, the soundness of the decisions to be imple-
mented and at the same time to outline the appropriate measures to increase the
economicness of the article being developed and to carry out the conditions of. the
expenditure norms in the technical specifications. Subsequently, whe.n the article
has been developed and turned over for series production, such an opportunity will
not exist and,significant additional expenditures would be required.
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The actual activities of the Expert Council of the USSR State Price Committee~shows
the high effectiveness of analogous expert evaluations. In the process of the ex-
pert evaluations conducted by.it (in particular in 1980) for the new draft price
lists, the limit and wholesale prices, substantial oversights were discovered in .
the organization of production, the nor~ system, and instances were disclosed of
the irrational use of material resources, the overstating of product labor intea-
siveness and so forth. The measures promptly adopted upon their results made it
possible to reduce the wholesale price level for a significant quantity of machin-
ery and equipment (totaling hundreds of millions of rubles).il
One of the prumising methods for conducting expert evaluations (including in the
stage of the technical and economic feasibility studies) and thus increasing the
realisticness and importance of the planned standards is the method of functional
cost analysis. This involved examining the soundness of the expenditures not only
from the viewpoint of development, production and operation of the products as a
whole but ~~ao the functional purpose of their individual parameters and norms. At
the same time, the wide use of this method in design practices presupposes the �
availa}ility of data on the concrete expenditures. For this reason the necessity
of wo.rking out and introducing the latter is a requirement of management practices ~
and the present methods of planning and management.
As the init_ial compared norms, a technical spascification should also incorporate
analogous sound indicators for the base articles (the existing values according to
tre parametric series. The difference between them calculated using the adopted
methods per unit of compared result will indicate the savings or increased cost for
each expenditure element and for the product as a whole. We feel that such concret-
ization of the expenditures and results will make it possible for the developers of
the items to do more effective and organized work on all their components (the
sources of formation and the expenditure elements). On this basis it would be pos-
- sible to increase the demands made on the initial information (for the operating,
social and other parameters) and directly on the developers of the articles, the
corresponding organizations and leaders and thus strengthen their responsibiii~~
for the violation of the set norms of the teclinical conditions.
This will also create a basis for introducing a specific system of economic incen-
tives for developers and a differentiated approach for using the bonus surcliarges on
~ prices for a savings (particularly above-norm) in the most important resources and
scarce materials. The calculation can be carried out for the savings of consoli-
dated expenditures ^omprising.the effect:
Et = Ep+Eo+Eq+Es, (5)
where Et--the total amount of.the economic effect;
Ep, Eo, Eq and ES--respectively, the savings in production outlays, operating .
expenses, for quality and social parameters (with an in-
crease in costs, with a minus sign).
The decree on strengthening work to save material resources in the bonus system for
workers, foremen, production engineers, designers and other engin^er and technical
personnel provides for wider bonuses f or the saving of r.esources. From the method-
ological viewpoint, as was pointed oi~t above, the determining of the economic ef-
fect for all types of resources (and not just for material ones) does not require
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' complex calculations. At the same time a number of concepts must be clarified for
employing formulas (4) and (5). Thus, for the product for which the economic ef-
fect is to be determined, it is advisable to isolate and calculate separately the
effect caused by the use in it of new highly effective preassembled articles
(machines, instruments, equipment and units) developed by other organizations and
the conditionally fixed operating expenditures which can lead to an un~ustified in-
crease in production outlays. In a number of instances, the savings due to the dif-
ference between the calculated wages for the new article and the actually paid
wages for the base article can be the result not of an improvement in production
methods, design and so forth but rather a consequence of utilizing a more powerful
and economic working machine or units developed by other organizations while the
effect for these has been considered by society and partially paid to the industrial
enterprises and organizations (the developers and manufacturers). For this reason
there are not sufficient grounds to reconsider it (as a new effect) and to material-
ly encourage another organization for the same thing. In any event here there
should be a substantial differentiation.
Consequently, with the adopted method for calculating the economic effect which has
a direct bearing on the level of P,~ and E, one does not exclude its double figuring
(and respectively, double counting) according to the scheme: new.highly economic
raw product, material, unit, machine. For such new equipment the economic effect
and the bonus surcharg~ on price can be provided even before the start of its de-
velopment and do not alwdys require great efforts on the part of the developers.
� This directly applies to savings from the conditionally fixed expenditures. The
absence of a specific clear source of the economy (where they occur) also leads to
an equal evaluation of the highly skilled labor of developers and unskilled labor ~
employed in the technical work, to an overstati~ag of the economic indicators for
new equipment in certain sectors and organizations at the expense of others, to
overstating the actual total savings in the national economic sectors, to the un-
justified receiving of bonus surpayments by the industrial enterprises and organiza-
tions and to reduced importance for the norms. The savings olitained due to the use
of highly economic materials, preassembled articles and conditionally fixed expend-
itures should be isolated and ~considered separately in the process of the technical
and economic background studies of the model and the design expenditure norms as
well as in economic incentives.
Thus, the concretization of the expenditure norms involves a rather wide range of
questions necessitating new procedural and organizational forms of work and sources
for obtaining and processing information. Their actual solution and coordination
~ are possible on a basis of a comprehensive approach to planning and encouraging
scientific and technical progreys using the method of schedule orders for the plans
(and for the programs)12 which should be basic and primary. On the basis of such
approved plans it is essential to construct a system of secondary schedule orders
which would involve the elaboration and production of the given article and range
of machines with specific progressive expenditure norms set for each organization
and an economic effect. All of this will make it possible to more specifically
and so~indly solve the problems of selecting and producing the most economic version
of a product, to coordinate the planned measures for resources and time, to focus
the developers of a new product on searching for progressive economic decisions, to
raise responsibility and consider the actual contribution of each organization to
scientific and technical progress.
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FOOTNOTES
1 See, for example, A. G. Zav'yalkov, "Tseny i tsenoobrazovaniye v SSSR" [Prices
and Price Formation in the USSR], Minsk, 1976, p 154; V. I. Kabankov, "Tsena i
kachestvo produktsii" [Price and Product Quality], Izdatel'stvo Sovetskaya
Rossiya, 1977, pp~106-107; "Tseny i tsenoobrazovaniye v SSSR" [Prices and Price
Formation in the USSR], Izdatel'stvo Finansy 1979, p 103 and so forth. -
2 See V. Loginov and A. Matli::, "Determining the Effecti~ eness of New Equipment,"
VOPROSY EKONOMIKI, No 4, 1975.
3 The system of material incentives for developers and design organizations as a
whole is based upon the economic effect and the wholesale price, that is, it is
~ not directly related to the limit price.
See, for exampoe, V. I. Aleksandrov, "Printsipy i praktika opredeleniya
limitnykh tsen na novoye oborudovaniye" [Principles and Practice of Determining
Limit Prices for New Equipment], Leningrad, 1973; V. Gal'perin, "Effectiveness
and Prices of New Equipment," VOPROSY EKONOMIKI, No 3, 1977. ~
5 See, for example, V. Gal'perin, "Limit Prices for New r'.quipment," PLANOVOYE
KHOZYAYSTVO, No 12, 1974, pp 68-69.
6 Calculated from the data: "Potrebitel'naya stoimost' v ekonomike razvitogo
sotsializma" [Consumer Value in a Developed Socialist Economy], Izdatel''stvo
Mysl', 1974, p 199.
~ See, for example, A. Koshuta and L. Rozenova, "New Equipment and Price Forma-
tion, VOPROSY EKONOMIKI, No 4, 1978, pp ~.03-104; V. Ye. Novikov, "To Improve
Price Differentiation for Different Quality Raw Products and Materials," in the '
book "Sovershenstvovaniye tsenoobrazovaniya na syr'ye i materialy" [Improving
~ Price Formation for Raw Products and Material,s], Moscow, 1979, p 9.
8 Calculated from the collection "60 let planovogo tsenoobrazovaniya v SSSR" ,
[Sixty Years of Planned Price Formation in the USSR], Preyskurantizdat, 1979,
p 57. .
9 See N. T. Glushkov, "Sixty Years of Planned Price Formation in the USSR and the
Basic Tasks of Improving the Price System in Light of the Decisions of the 25th
CPSU Congress," in the collection "60 let planovogo tsenoobrazovaniya v SSSR,"
p 25.
10 See the collection of documents "Sovershenstvovaniye khozyaystvennogo mekhaniz- .
ma" [Improving the Economic MechanismJ, Izdatel'stvo Pravda, 1980, pp 57-68.
11 See "Voprosy tsenoobrazovaniya" [Problems of Price Formation], Scientif ic Ab-
stract Collection, No 5, Moscow, 1981, pp 2-5.
12 See L. Gatovskiy, "Managing the Effectiveness of Scientific and Technical
Progress," VOPROSY EKONOMIKI, No 1, 1980, p 31.
COPYRIGHT: Izdatel'stvo "Pravda", "Voprosy ekonomiki", 1981
10272
CSO: 1820/136
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~
~
I
~
~
REGIONAL DEVELOP'MENT
i
~
-f
r
I '
I
~
i
; RESOURCE USE, REGIONAL DEVELOPMENT IN AZERBAIJAN
I Baku IZVESTIYA AKEIDEMII NAUK AZERBAYDZHANSKOY SSR: SERIYA EKONaMIKI in Russian
; No 2, 1981 pp 54-65 .
i
i
' [Article by G. A. Aliyev, B. A. Budagov and A. A. Nadirov: "Comprehensive Utili-
~ zation of Resources and Problems of Economic and Social Development of Regions"]
[Text] Socialis~t utilization of nature is one af the most i~nportant conditions
~ for the rapid development of production, whose main goal is to satisfy the con-.
stantly growing needs of the Soviet people. Its generally recognized advantages
~ include the solution to a complex of difficult problems in the control of the pro-
cesses of reproduction of natural wealth, its efficient utilization and protection
; of the environment.
~
I -
; At the 26th Congress, the party set the task of "providing for efficient utiliza-
~ tion of natural, material and labor resources as a decisive and the most effec~ive
' method of multiplying ~the country's natural wealth and rapidly increasing the so-
' cialist accumulations and resources for consumption [1, 128].
~ � � .
j The strategy of socialist utilization of nature envisions, when bringing natural
' resources into national economic circulation, primarily the ensurance of the har-
monious socio-economic development of the society as a whole and of each territori-
i al part of the country individually. What with the uneven distribution of supplies
' of mineral raw material and.fuel throughout the territory, extensive utilization
i of natural resources in the growth of productive forces everywhere is undoubtedly
~ one of the most important advantages of the socialist syste~n of managewent. The
i
founder of the Communist Party of the Soviet Union and the creator of the first
' socialist state in the world, V. I. Lenin, considered a solution to~the prob lem of
efficient distribution of industry on the territory of Russia with its immense
; expanses "from the standpoint of the proximity of the raw material and the possi-
; bilities of the least losses of labor during the transfer from the processing of
' the raw ma~erial to all the subsequent stages of the processing of semimanufactured ~
~ products right down to obtaining final products" [2, 288]. This Leninist fore-
~ sight lay at the basis of the solution to the problems of the development of our
; country's productive forces that have arisen in a relatively short period of time.
I As in all other countries of the world, in the Soviet Union there is an irregular
i
distribution of natural wealth throughout the territories of.the country although,
i as we know, the USSR occupies the leading position in the world with respect to
I
-I
i
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supplies of all the most important natural resources. In terms of the degree of
availability of natural resources, specialists have divided up the territory of the
USSR into the following groups of economic regions [3, 15]:
regions with an extensive complex of natural resources on whose territory there
have been discovered no less than 40 of the 60 most important kinds of minerals;
regions with rich natural resources having 20-30 of the most important kinds of
minerals; � ~
regions with relatively limited natural resources, each with no more than 3 kinds
of minerals. � ~
On the whole, an overall estimate of the distribution of supplies of mineral raw
material and fuel ar.d energy resources shows that they have been discovered mainly
in the economic regions of the eastern part of the country. But the regions' un-
equal provision of their own mineral resources in no way impedes the development
of the productive forces of those regions which have limited natural resources.
This is abundantly clear from the following facts. The Belorussian SSR, the Lat-
vian SSR, the Lithuanian SSR, the Estonian SSR and the Moldavian �SSR have limited
supplies of mineral resources as compared to the other union republics. Despite
- this fact, in these republics the leading branch of the national economy, industry,
is developing at very rapid rates. But while the overall volume of the gross out-
put of USSR industry as a whole had increased 20.3-fold in 1979 as ~compared to
1940, in the Belorussian SSR it increased 27-fold, the Latvian SSR--43-fold, the
Estonian SSR--46-fold, the Moldavian SSR--48-fold and the Lithuanian SSR--56-fold
[4, 142]. An exceptionally important role in this rapid growth of industry be-
longs to the utilization of secondary natural resources, materials, fuel and so
forth that are shipped in from regions that have raw materials. The exceptional
importance of this natural wealth in the development of the national economy of all
union republics, including those on whose territory relatively fewer natural re-
sources have been discovered, ensues from the very essence of the socialist method
of production. The fact is that the socialist society creates all the necessary
conditions for more efficient distribution of productive forces on the country's
territory, provides for rapid development of the national economy in all of its re-
gions and thus systematically enlarges their production and economic base for the
- development of industry~ These conditions predetermine the high national economic
efficiency of the utilization of many kinds of secondary resources in other re-
gions as well, particularly in those which use mainly the preparecl products that
are obtained from them. On this plane the Soviet Union has created close an~d ex-
tensive interconnections among all of its regions, which, in the final analysis,
plays no small role in providing for extensive specialization and the high level
of comprehensive development of the economies of all union republics and economic
regions of the country. Therefore, as the facts show, the structure of.the indus-
try of all union republics and economic regions is much broader than are those
preconditions which could actually be created through local natural resources. In
~ almost all cases, essentially, only the basic nucleus of the industry of the re-
gions reflects the territory's own capabilities which are created through the uti-
lization of local natural resources. Under conditions of socialism the structure
of the industry of each region is actually formed based on the requirements of the
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comprehensive development of the economy, under whose condition the scope of stable
combinations of interrelated branches and territorial proportiot~s of production a~
a whole go far beyond the framework of these possibilities. As the overall level
of development of the productive forces of the regions rises~and the achievements
of scientific and technical progress are utilized more extensively the development
of an ever larger number of branches of industry is becoming less dependent on the
~ availability of internal sources of raw material, which to some degree "smooths
out" territorial differences in the distribution of natural resources.
One of the most important trends in socialist utilization of nature is comprehen-
sive utilization of the mineral resources on the territories where they are locat-
ed, and also more efficient utilization of natural conditions in order to create
the fundamental nuclei of the economic complex of each reg~on. The decisive,in-
fluence of this trend in the utilization of nature on the economic and social de-
velopment of the regions can be seen from the example of the Azerbaijan SSR.
The economy of Soviet Azerbaijan, being a part of the unified national economic
~ complex of the USSR, is developing in a planned way and at rapid rates. During a
short segment of time embracing little more than 60 years of Soviet power, the
volume of the gross industrial output of the republic increased 67-fold, and that
of agriculture--7.4-fold. One of the decisive factors ensuring the high rates of
development of production in the republic is the more efficient and comprehensive
utilization of its local natural resources. Despite its relatively small terri-
- tory, in the Azerbaijan SSR there have been discovered industrial supplies of pe- .
troleum, natural gas, iodobromine water, alunite, semimetallic ores, rock salt,
non-ore construction materials, marble, rock, brick and so forth. The scale of
assimilation for the economic and social development of Azerbaijan has not been
the same in various periods uf its historical development. For a long time, of
the natural resources existi:ig in Azerbaijan they exploited mainly the deposits of
petroleum and gas which arE its main and most important natural wealth. But in
terms of the influence of these resources on the development of the productive
forces of Azerbaijan two periods can be clearly singled out. The first of them em-
braces the prerevolutionary period when it was typical for foreign capitalists to
steal the main wealth of the region and, in keeping with this, utilize the ex-
tracted raw material inefficiently from the standpoint of its limited effect on ~
the various branches of the national economy. Suffice it to say that in 1913 7.7
million tons of petroleum were extracted in Azerbai~an, of which only 4.5 million
tons (or 58 percent of all the extracted petroleum) were processed at primitive
local refineries for the production of a limited quantity of petroleum products,
and the rest of it was shipped outside the region. Thus under the conditions of
the social structure that existed at that time the most minimal possibilities of
the main natural wealth of Azerbaijan were utilized for the development of its
~ economy.
The second period embraces the time since the triumph of the socialist revolution.
During this period a large economic complex that was formed in the republic on the
basis of the extraction of local fuel resources has comprised the basis of its
entire economy. Because of the high level of development of th~e fuel industry
along with brancfies of the national economy that are interconnected with it the
Azerbaijan SSR received such well-~eserved unionwide recognition as the "Petrole-
um Academy."
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" How is the special role of the fuel industry reflected in the entire socio-economic
life of the republic? First of all, in the significant increase in petroleum ex-
tract~.on �and the creation of a new branch for extracting natur~l gas and casin;
head gas. The large volume of petroleum extraction made it possible to organize a
large petroleum refining industry in the republic whose large and modern enter- �
prises process all of the petroleum extracted in the republic and produce dozens of
kinds of valuable products. The development of the petroleum and gas processing
industry, in turn, became the basis for the creation of a large petrochemical and
chemical industry in the republic which is also of great nationwide importance.
The extensive development of the petrochemical industry p'redetermined the appear-
ance in the republic of many other branches that are related to it, particularly
- the large petroleum industry machine building, instrument buildirig, various kinds
of inetal processing, ferrous metallurgy (produ.ction of steel pipes, the electric
energy industry and so forth. The scope of the development of just the aforemen-
tioned directly interconnected branches of the petrochemical complex, including the
base petroleum and gas extraction industry, is shown by the fact that it accounts
for almost 50 percent of the industrial output of the Baku-Sumgait region where all
the main branches of the complex are concentrated or almost 40 percent of the over-
all industrial production of all of Azerbaijan. The inestimable role of the signi-
ficant increase in the extraction of petroleum and gas, and also their efficient
utilization in the development of the republic's productive forces, is reflected in
the fact that all branches of industry directly arising~on the basis of the petro-
leum and gas extraction industry now produce almost 7 times more products than'does
ttie base branch itself. ~The entire petrochemical�complex has provided for bringing
a large number of labor resources into the sphere of production and has created the
necessary conditions for carrying out an extensive process for developing a large
network of higher and secondary training institutions, scientific and planning in-
stitutions, production and social infrastructures, and so�forth. As a result of
the rapid growth of product~ive~forces on the basis of.the development of the pe-
trochemical complex, we have seen the appearance of ne~o eities (Sumgait, Ali-Bay-
ramly, Neftechala) and the dozens of settlements of an urban type, and the city of
Baku, the oldest center of the pe~troleum industry, has ~rown beyond recognition.
For example, the urban population in the Baku-Sumgait region had increased almost
6-fold in 1979 as comgared to 1920, and that of Baku itself--5-fold. During this .
time the number of residents of the city increased from 131,000 to 1,571,000. ~
Each new stage in the development of the national economy is typically accompanied
by improvement of the structure of the republic's economy as a result of the in-
creased role of one kind of natural resource or another. In this connection the
assimilation of the rich resources of the Zaglikskoye deposit of alunite in western
Azerbaijan is of great significance. This is the second largest.deposit in the
world in terms of the supplies of raw material that have been discovered. This~ de-
posit is also being worked in keeping with the socialist principle of the utiliza-
tion of nature--maximally comprehensive utilization of raw material, satisfaction
of the growing needs of the country for the corresponding products, and an in-
creased role for its assimilation in solving the problems of the republic's socio-
- economic development. At the present time, on the basis of the Zaglikskoye alunite
mine the republic is forming a large complex of the aluminum industry. A large
mine for extracting the raw material is already in operation (Zaglik) and not far
from it in Kirovabad there is a large aluminum plant in operation where the raw
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material is enriched, and as a result of its comprehensive processing they can pro-
' duce aluminum oxide, potassium fertilizers and other products. An important unit
in the comprehensive processing of alunite raw material is the functioning of the
Sumgait aluminum plant where they have organized the production of inetallic alumi-
num and evaporators for home re~rigerators. Also existing in the republic are many
other enterprises of the aluminum industry for manufacturing various products for
- industrial and household purposes. In the near future it is intended to further
deepen the compre:.-+~sive processing of the initial alunite raw material; in parti-
cular, it is intended to organize the production'of various kinds of rolled alumi-
num and extract certain other useful'components from the initial raw material, and
to organize a large industry for producing various construction materials on the
basis of the utilization of the enterprise's wastes.
Iron ore deposits are also being worked in the western part of the republic. Large
metallurgical plants have arisen on the basis of this raw material in the neighbor-
ing union republic (city of Rustavi) and on the borders of the republic itself--in
Sumgait. Comprehensive utilization of local raw material resources was one of the
~decisive factors in the rapid development of productive forces in the western re-
gions of Azerbaijan. Suffice it to say that 17 percent of all the workers in de-
veloped industry of the western regions are employed at ferrous and nonferrous me-
tallurgy enterprises. The considerable growth of the~second largest city in the
republic, Kirovabad, with a population of about 250,000, the appearance of the city
of Dashkesan, and so forth, are closely related to the utilization of the afore-
mentioned sources of raw material in the region.
The utilization of hydro-energy resources exerts a significant influence on the de-
velopment of the republic's economy. The overall hydroelectric power resources of
- the republic are estimated at about 5 million kflowatts.
These resources are also being assimilated in stages. The first of the largest
hydroelectric power stations in the republic was the Mingechaurskaya GES which was
constructed on the Kura River. At the present time the construction of an equally
large hydroelectric power station is being completed on the middle course of this
river. Plans have been prepared for the construction of other large electric power
stations on the Kura and Araksa rivers and so forth. A typical feature of the as-
simlation of the republic's hydroelectric power�resources is a comprehensive solu-
tion to hydrotechnical~problems which envisions an expansion of irrigation farming
and regulation of the flow of the rivers in order to prevent flooding of the terri-
tories adjacent to them. An important result of each hydrotechnical installation
in the republic is the formation of a new city--the center of the economic and cul- ~
tural life of the correspc~nding region. An example of this is the city of Minge-
chaur which appeared in 1948 on the basis of the construction of the Mingechaur-
skoye GES and which became a large city in a short period of time. Here, as a re-
sult of the construction of the hydroelectric power station, the fixed capital that
was created, the housing, the highly skilled personnel and the local resources, an
important center was formed for electrotechnical machine building, the construction
materials industry, the textile industry and other branches.
During all the years of socialist canstruction the Azerbaijan SSR has been a large
construction site with an annual introduction of a large volume of fixed capital in
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various branches of the national economy. During 1920-1979 30~billion rubles'
worth of capital investments were made in the development of the republic's nation-
al economy, 441 large industrial enterprises and numerous medium-sized and small
industrial facilities as well as about 50 million square meters of overall (usable)
dwelling space were put into operation, and 1,780 general educ~tional schools were
cons*_ructed; during 1946-1975 alone 408,000 hectares of irrigated land were assi-
milated, 1,294,000 hectares of pasture were watered, and so forth. Such a large
scale of development of the economy gave rise to the problem of extensive utiliza-
tion of various local mineral non-ore materials for the creation of all the neces-
sary branches of the construction~materials industry. As a result the republic
created almost all branches of the construction materials industry, fully satis-
fying its own needs. At the present time the successful process of forming local
territorial production complexes has raised for the branch a broader task--to cre-
ate in the main regions almost all industrial construction materials on the basis
of uti.lizing the corresponding mineral resources, and also wastes from various
~branches of the national economy.
An important condition for enlarging the economic potential of each region is more
efficient utilization of the advantages and the neatness of the soil and clima.te
conditions of each territorial part of the republic for efficient development of
~ agriculture. It is known that accounting for the possibilit~.es of the soil and
climate conditions of each specific territory is an extremely complex process and
it is largely determined not only by the character of the socio-economic formation,
but also by.the concrete conditions of the utilization of nature itself: One of
the main reasons for the low productivity and small income from agriculture in
Azerbaijan during the prerevolutionary period was the weak process of territorial
divis3on of labor, and therefore altaost 90 percent of the planted area was taken
up with less productive grain crops whose products were intended mainly for satis-
fying the limited needs of the peasants who produced them.
It is known that the territory of Azerbai~an has exceptionally diverse soil and
climate conditions. In the opinion of specialists, 9 of the 11 climatic types that
exist in the world can be found within the republic. These natural possibilities
began to be used extensively only during the years of Soviet pow~er. Under the
conditions of a plan~ed socialist economy efficient utilization of the soil and
climate possibilities of.each territory is related primarily to correct speciali-
zation and concentration of agriculture in each natura' and economic zone based on
the principle of maximum favorability of the chosen conditions for the development
of specific branches of agriculture and animal husbandry. Efficient specialization
and concentration of agriculture leads to maximally complete utilization of the '
natural capabilities of the soil and climate conditions of each te~rritory for in=
creasing the production of agricu~ltural products. Closely related to this process
is additional productivity of agriculture as a result of increasing the efficiency
- of the agrotechnical and zooveterinary measures that are implemented. 'Finally,
efficient specialization and concentration of agriculture gives agriculture an in-
creasing role in solving the most important problems of the socio-economic develop-
ment of each region and country as a whole. This is reflected primarily in the
fact that all the necessary conditions are cieated for mass production of indivi-
dual kinds of agricultural products and, on this basis, there can be succeasful
development of the correspanding branches of processing industry and many other
branches of the national economy that are related to them.
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% Of course the conditions for the utilization of the soil and climate possibilities
are not the same for individual regions of the country. For example, under the
conditions of the Azerbaijan SSR where a considerable part of the territory is in
a clearly arid zone the solution to the problem of highly effective agriculture is
' impossible without solving the necessary water management prnblems. And the re-
public's water resources are limited. IrWreover their distribution throughout the
territory is extremely irregular. The average annual coefficient of local flow
(annual volume 10.3 cubic kilometeYS) with an area of 86,600 square kilometers is
3.78 horsepowe~ per square kilometer or a 119 millimeter layer of flow. The ir-
regularity that is observed in the distribution of the flow throughout the terri-
tory is also observed in its distribution throughout the year, which is caused by
the differences in the sources of water for the rivers. All rivers of Azerbaijan
can be divided into two groups from the standpoint of distribution throughout the
year: a) the area of the Greater and Smaller Caucasus--most of the moisture comes
in the warm half of the year, and b) Talysh--most of the moisture comes during the
cold half of the year.
During the period of most intensive irrigation of agricultural crops (July-August)
the rivers of the first group provide 10-35 percent, and those of the second--1.5-
5.0 percent of the volume of the annual flow.
The overall resources of river waters in the Azerbai~an SSR, taking into account
the volumes for the needs of the national economy, amount to 32.3 cubic kilometers.
Of these 22.0 cubic kilometers come in from ad~acent territories through the river
systems of the Kura and Araksa. Local flow (formed only from rivers of the repub-
lic) amounts to 10.3 cubic kilometers.
'!'he lake network is poorly developec: in Azerbai~an. The overall number of lakes
does not exceed 250 and most of them have an area of less than 0.5 square kilo-
meters; their overall area reaches 100 square kilometers; and the volume of water
does not exceed 500 milliu~~ ~uui~ meters. The most impartant of them are ~�~a'-er
reservoirs that have been created from branches and influxes. The overall area of
lakes and water reservoirs in the republic is 925 square kilometers, but those with
complete volume amount to about 19 square kilometers. Under these difficult con-
ditions for water supply, one of the most effective ways of efficiently utilizing
existing water resources in the republic is to create water reservoirs with various
types of regulation of the flow. At the present time 32 water reservoirs have baen
created and are operating on the territory of the Azerbaijan SSR, including the
Mingechaurskoye, Araksinskoye, Sarsar.gskoye, Dzheyranbatanskoye, Akstafachayskoye,
Varvarinskoye, Arpachayskoye and others with a broad network of irrigation canals.
All of the water reservoirs with the exception of the Mingechaurskoye, Araksinskoye
and Sarsangskoye have seasonal regulation and used for purposes of irrigation. In
addition to branch reservoirs, on the large rivers a number of non-branch (irri-
gation) water reservoirs have been created--the Dzheyranbatanskoye, Uzunobinskoye,
Negramskoye and others.
The long-range plan for water management construction in the republic envisions the
creation of numerous water reservoirs, mainly for multiple purposes. As a result,
the number of water reservoirs in the republic will reach 75.
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A constituent part of efficient utilization of land resources in the r.epublic is
the implementation beginning in the first days of Soviet power of large measures
for land reclamation, particularly leaching saline soil. This provided for i~
provement of the condition of hundreds of thousands of hectares of land. During
1971-1979 alone the republic leached about 75,000 hectares of saline soil.
The resolution of the ma~or water management problems and improvement of ameliora- ~
� tion of the fields have become one of the decisive factors in more efficient utili-_
zation of the republic's soil and climate possib ilities. First of all, the area of
land being used for agriculture has increased and now amounts to almost half of the
entire territory of the'republic. At the present time actually irrigated agricul-
tural land, including land for short-term use, comprises 28 percent of all the ag-
ricultural land in the republic. With the undoutatedly considerable increase in
agricultural land, the development of agriculture in the republic takes place main-
ly through its extensive intensification and concentration of the branches of farm-
ing and animal husbandry in the various natural and economic zones of the republic.
To this end we have determined the leading branches of agriculture, whose develop-
ment, as many years of experience show, are the most efficient under the conditions
of the Azerbai~an SSR. As a result, during a short period of time radical changes
have taken place in the structure of agriculture, which led to a marked increase
in the productivity and the effectiveness of agriculture. It is no accident that
the area of land~planted in all kinds of crops has increased 1.6-fold in 1980 as
compared to 1913 while the volume of the.gross output increased more than 11-fold
during this same period. This process has been taking place especially intensive-
ly in recent years, which is shbwn by the figures in the attached table.
Table. Change in Structure of Farming in Azerbai~an SSR During 1965-1980, Y
Years
1965 1970 1980
Entire area 100.0 100.0 100.0
including area planted in:
All grain crops 45.5 38.5 29.4
Industrial crops 18.5 15.2 16.5 ~
Potatoes and vegetable-melon crops 4.2 3.7 4.2
Feed crops ' , 16.5 20.4 25.3
Fruits and berries 1.5 9.8 9.0
Vineyards 7.2 11.8 14.6
Tea plantations 0.6 0.6 0.6
The basis of the progressive changes that are taking place in the structure of ~
farming in the republic, as before, is deepening of socialist territorial division
of labor, under whose conditions ttiere�is,a pro cess of maximum concentration of the
branches of agriculture~in those Yegions where they produce the greatest effect on
the scale of the country's entire national economy. Because of this, in the struc-
ture of agriculture in Azerbai~an an increasingly significant position is begin-
ning to be occupied by such agricultural czops as grapes, fruits, cotton, tobacco
and so forth. ~These heat loving crops, which have a relatively limited area of
distribution in the country, are exceptionally suitable for the climatic conditions
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~
' in the republic. The significant concentration of~areas planted in them in Azer-
bai~an makes a weighty contribution to increasing the availability of these agri-
cultural products throughout the entire country and, as highly profitable and rela-
tively more labor-intensive branches of agriculture, they contribute to extensive
' enlistment of lo~al labor resources iri the sphere of production and regular improve-
ment of the material well-being of rural workers. The manifestation of the improve-
ment of the structure of agriculture in which no small role is ~layed by a regular
process of accounting ever more fully for natural factors in the overall level of
~ development of agricultural production, can be seen from the following facts. Du-
j ring 1965-1980 the areas planted in all agricultural crops increased 1.3-fold (and
fruit orchards and vineyards--2-fold as their proportion in the structure of farm-
ing increased from 14.7 percent to almost 24 percent), but the gross output of the
branches of farming increased 3-fold during this period. During this same period
the production of gross output~ per one hectare increased 2.3-fold. As the facts
show, an important factor in the significant increase in agricultural production
was the expansion of areas of those branches which~are most suitable to the local
natural and economic conditions of individual zones of the republic. In connection
with the changes taking place in the structure of agriculture there has been a
considerable increase in the role and significance of individual branches of it in
the country and in the republic itself. Suffice it'to say that at the present time
Azerbaijan, which occupies 0.38 percent of the territory of the Soviet Union, pro-
vides 8.1 percent of the raw cotron, 17.1 percent of the grapes, 3.3 percent of the
vegetables, 4.1 of the green leaf tea, most of the tobacco and so forth 145].
Highly developed agriculture has provided for the republic's creation of a broad
network of industrial enterprises for processing various kinds of agricultural
raw materials, and it must be noted that tnis trend in the development of industry
now occupies a fairly appreciable place in the structure of the highly developed
industry of Azerbai,jan. Thus calculations show that branches of industry angaged
in initial processing of local agricultural raw material had 424 enterprises in
1979 (more than 20 percent of the overall number of industrial enterprises) which
produced more than 28 percent of the republic's gross industrial output. On the
whole all other branches (of light industry and the food industry) that use semi-
manufactured products and materials from the aforementioned enterprises account for
36 percent of the overall number of workErs and more than 50 percent of the pro-
ducts produced in all of the republic's it~dustry. It is notable that the agro-
industrial complex, which expands the scope~ of production with each new stage in
'the dP.velopment of productive forces, contributes to the growth of many other
branches of industry that are closely related--machine building, the construction
materials industry, the chemical industry and so forth. The long-term program that
was adopted for further specialization and concentration of agriculture on the ba-
sis of complete and efficient utilization of the local soil and climate conditions
of each territorial part of the republic is being successfully carried out. The
forthcoming advances in this connection can be ~udged from the earmarked develop-
- ment of viniculture in Azerbaijan. Its production volume in the republic will be
3 million tons in the republic in 1990 as compared to 1.4 million tons in 1980.
Other leading branches of agriculture are developing at rapid rates.
A most important result of extensively bringing local natural resources into na-
tional economic circulation is the elimination within an extremely short period of
time of previously existing profound differences among individual regions of
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Azerbaijan in terms of the overall level of development of productive forces. Be-
fore the revolution more than 97 percent of the products from industrial production
came from Baku alone and therefore in 1920 77 percent of all of Azerbai~an's urban .
- population was concentrated there and the remaining 23 percent of the population
were in 15 other cities. Even such regions of Azerbaijan that are rich in natural ~
resources as the central and western regions which occupy more than half of the
territory had almost no developed industry.
Now, by taking advantage of particular natural possibilities in each region, cer-
tain territorial production complexes have been formed or are being successfully
formed. A reflection of this'deep socio-economic process is the regular expansion
of the network of urban settlements, of which there were 185 in the republic in
1980 as compared to 16 in 1920. During this time the number of urban residents in-
creased 8-fold. The scale of the development of the national economy everywhere,
particularly industry, can be judged from the example of those aforementioned large
western and central regions. At the present time tl~ese two regions have more than
25 percent of the highly developed industry in Azerbaijan, and hundreds of large
enterprises representing many important branches of industry have been created.
More than half of the republic's cities have grown up withfn these regions and
about 28 of the urban population live in thetn. . �
The republic's natural riches are being utilized with great concern for protecting ~
the environment. Both in the Soviet Union as a whole and in each union republic,
including the Azerbaijan SSR, this problem is under state regulation. For these
purposes the republic has created the State Committee of the Council of Ministers
for the Protection of Nature. The interdepartmental council for the trotection of
nature under the Azerbai3an SSR Academy of Sciences is doing a large amount of
work. The amount of money allotted for measures to protect nature increases each
year. During 1976-1980 alone Azerbai~an allotted 170 million.rubles from the
state budget for measures for protectir.g the environment. Environmental protection
in Azerbai~an is carried out in all the n?ain directions while taking into account
- tfie republic's specific conditions. Among the most important of these are: ~
protection of Zand resources through conducting anti-erosion measures, terracing
slopes, leaching saline soil, limiting the allotment of land for nona;;~ricultural
purposes, restoririg and recultivating damaged land in places where mii~e~rals have
been mined, and so forth;
protection of forest resources by limiting or prohibiting the selling of trees;
regular reforestation;
protection of water resources through the construction of purification installa-
tions, purification of polluted waters, the utilization of waste waters by changing
over to a system with closed cycles of water supply in production, limitation and
regulation of the application of mineral fertilizers over "storehouses" of under-
ground water, and so forth;
protection of the animal world through the creation of preserves and refuges, the
prohibition or regulation of hunting rare animals, the restoration and normal re-
production of the animal world, and so forth.
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i
~ The republic is doing a large amount of work for protecting the Caspian Sea. To
this end the discharge of waste waters into the sea is limited to the sanitary
~ norm, and the operation of oil wells and also the transportation of petroleum f~om
; the deposits to the ref ineries are limited by complete prohibition of discharging
; petroleum into the sea. A considerable amount of work is being done to prevent
pollution of the atmosphere.
~ In the future it is intended to implement a number of special-purpose comprehensive
~ programs for further stepping up the assimilation of the republic's natural re-
sources. To this end, prospecting and searching for fuel in new regions are be ing
: expanded and principally new problems are being resalved for increasing the extrac-
tion of petroleum and gas from sea deposits. It is intended to create various in-
dustries on the basis of more comprehensive processing of raw material resources
that are now being processed in order to considerably increase the output of final
prepared products from them. The assimilation of new natural resources will play
an important role in the future development of the republic's productive forces.
Exceptionally important for ~the republic's further econo~ic and social development
will be the development of resources of the groups of deposits of semimetallic ores
that were discovered in recent years in the northern and northwestern parts of the
republic's territory. The composition of ore components in these deposits is very
rich and, with comprehensive processing of the raw material, makes it possible to
obtain many valuable products and create a large chemical-metallurgical combine.
; The assimilatiori of these.resources will serve as an important impetus for.further
growth of the productive forces in the regions where the raw materials are located
themselves and it will also bring about a certain change in the improvement of the
structure of industry of Azerbaijan as a whole. Extensive assimilation of the im-
mense resources of rock salt should pYay an important~role in.the development af
the republic's productive forces. Their territorial proximity to large deposits
, of dolomite and the existence of all the necessary local production and economic '
conditions have determined the complete economic expediency of creating in the near
, future on the territory of the Nakhichevanskaya ASSR a large industry for producing
soda ash, a metallurgical compound of magnesium, cooking salt and other important
industrial products. We have begun and are continuing successfully.to assimilate
extensively and sequentially the hydroelectric power and iodobromine resources,
non-ore construction materials and so forth. A qualitatively new stage in the ef-
ficierit utilization of the soil and climate resources of Azerbaijan is the prac-
~ tice which is expanding each year of obtaining two or three yields a year and ter-
! racing the slopes of mountains in order to increase the areas of perennial plant-
ings, particularly vineyards and f ruit orchards.
Thus the example of the Azerbai~an SSR shows that, under the conditions of social-
ist.utilization of nature, the development of natural riches is closely intercon-
nected with the formation everywhere of numerous territorial complexes that are
based on local mineral and raw material resources and are oriented toward secondary
natural�resources of other regions. Bringing natural resources into national eco-
nomic circulation in a planned way ensues from the task of satisfying the public
demand of the entire country on the basis of high rates of development of produc-
, tion and its increased efficiency, taking into account the coordination of all the
main units and aspects of the highly developed economy of each region.
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FOOTNOTES
1. "Materialy X7NI s"yezda KPSS" [Materials of the 26th CPSU Congress], M~oscow, .
Politizdat, 1981.
2. V. I.~Lenin, "Nabrosok plana nauchno=tekhnicheskikh rabot" [Draft of Plan for
Scientific and Technical Work], Collected Worlcs, Vol 36.
3. A. P. Levin, V. G. Udovenko, "Pr3rodnyye resursy i effektivnost' proizvodstva"
[Natural Resources and Production Efficiency], Moscow, "Znaniye," 1975.
4. "Narodnoye khozyaystvo SSSR v 1979.godu" [The USSR National Economy in 1979),
Moscow, 1980.
COPYRIGHT: Izdatel'stvo "Elm", 1981
11772
CSO: 1820/129 END
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