ANNUAL BULLETIN ON SOVIET ECONOMIC GROWTH

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• Publication Date: April 1, 1987
• Content Type: REPORT

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Annual Bulletin on
Soviet Economic Growth
January-December 1986
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Confidential
SOV SEG 87-001
April 1987
COPY 477
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Directorate of Confidential
Intelligence
Annual Bulletin on
Soviet Economic Growth
January-December 1986
This bulletin was prepared byl
25X1
Office of Soviet Analysis
25X1
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Division, SOVA
Comments and queries are welcome and may be
directed to the Chief of the Defense Economics
Confidential
SOVSEG 87-001
April 1987
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Contents
Improved Performance, Modernization on Slow Track (foldout)
v
Faster Growth in 1986
Industrial Production Picks Up
3
Machinery
7
Agricultural Production Sets New Record
8
Transportation Supports Expansion
9
Resource Allocation Policy
11
Some Gains for the Consumer in Key Areas
12
Real Defense Outlays Increase
13
Confidential
SOV SEG 87-001
April 1987
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 Improved Performance,
Modernization on Slow Track
A. Economic Growth Accelerates
A new high in farm output and a reduction of lost
worktime boosted Soviet GNP growth to about 4
Index: 1976 =1O()
130
percent in 1986-its fastest rate in a decade. Gorba-
chev can claim some success in "mobilizing the lio
human factor," for labor productivity in industry
increased substantially, by roughly 3 percent. Pro-
gress in industrial modernization was slow, however,
and some of the targets missed are important to
Gorbachev's program to accelerate future growth.
The plan for 1987 is ambitious, implying growth
targets of roughly 4 percent for GNP and about 4.5
percent for industry. Because the improved perform-
ance in 1986 reflects both mild winter weather and a
rebound from unusually poor performance in the
previous year, sustaining growth in 1987 will be
difficult. The discipline and antialcohol campaigns
have already had their greatest impact, and the
failure to meet 1986 targets for commissioning new
plant and equipment will weaken the Soviets' ability
to meet this year's production targets.
D. A Strong Recovery in Agriculture
Soviet farm output increased by more than 7 percent
after a two-year downturn and substantially exceeded
the record set in 1983. Factor productivity in the farm
sector rose by 1 to 2 percent, its first measurable
growth since 1982. Continued growth in the livestock
sector, combined with large increases in the produc-
tion of crops such as grain, potatoes, and vegetables,
reflected at least partial success for agricultural poli-
cies that include expanding the "intensive technolo-
gy" program and improving feeding practices.
An excellent forage crop and a 210-million-ton grain
crop, the fourth largest on record, helped Moscow
reduce grain imports and contributed to increased
production of meat, milk, and eggs. Meat production
grew by 3.5 percent to 17.7 million tons, some
400,000 tons higher than planned. Per capita avail-
ability of meat increased by only 1 percent, however,
because increased production was partially offset by a
decline in meat imports. Potato production reached
the highest level since 1979, and vegetable production
was up nearly 2 million tons.
312295 3-57
Reverse Blank
110
100
90
80 1976
~ I
80
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Industry
GNP
Agriculture'
'This measure of agricultural output excludes farm products used
within agriculture and purchases by agriculture from other sectors.
B. Industrial Growth Up
Industrial output increased by roughly 3.5 percent in
1986. Growth was especially fast during the first
quarter, when output was nearly 6 percent higher
than in first quarter 1985, a period of severe weather.
During the last three quarters of 1986, industrial
growth averaged about 3 percent. Although growth
for the year was respectable, most industrial branches
were criticized for failure to meet targets for additions
of new capacity, delivery schedules, and improving
product quality and mix.
Some of the most important gains came in branches
producing industrial materials. The nearly 4-percent
growth in these products probably reflects recent
additions to capital stock and tighter management. In
addition, milder-than-normal weather resulted in a
decline in power outages and bottlenecks on the rail
lines. The energy sector also improved. Oil output
recovered the ground lost over the last two years, and
the electric power industry toped well with the disrup-
tions caused by the Chernobyl' accident and lower
Index: 4th quarter 1981=100
114
Industrial output
112
(seasonally
adjusted)
110
Pre-Gorbachev
trend b
108
106
104
102
100
I I I I I I I
I I
I I I I I I I I
98
111111 IV!!! III IV
I II
m IV 1 II III IVI 11 In IV
1982 83 84 85 86
'Calculated using value added in 1982 rubles.
b Average annual growth from second quarter 1982 through first
quarter 1985 (2.2x).
hydroelectric output.
Percent growth
1983
84
'Net of seed and waste.
b Net of feed.
85
86
Crops'
Net farm
output
Livestock'
E. Hard Currency Trade Falters
The USSR's foreign trade sector was battered for the
second consecutive year, although the Soviets coped
fairly well with a difficult situation. The collapse of
world oil prices coupled with the sharp drop in the
dollar relative to other major Western currencies
resulted in an estimated 15- to 20-percent deteriora-
tion in the USSR's hard currency terms of trade.
Soviet trade data for January-September indicate
that the dollar value of hard currency exports dropped
approximately 8 percent in 1986. The value of oil
sales plummeted an estimated 35 percent. On the plus
side, Moscow boosted the dollar value of arms exports
to the Third World by roughly 15 percent.
Reduced hard currency earnings contributed to an
estimated 10-percent decline in the dollar value of
hard currency imports, with real purchases dropping
more. The Soviets limited the extent of the import
cuts by selling markedly more gold at higher prices
than in 1985 and by active borrowing in world
Billion US $
35
30
25
20
15
10
'Data are for January through September.
financial markets.
C. Machinery: Problems With Timeliness,
Assortment, and Quality
In the machinery sector, output grew by roughly 4.4
percent, a respectable showing but little better than in
1985 and well below the 6.6-percent growth planned
to support industrial modernization. One reason for
the failure to meet the planned output target may
have been that the large investment in this sector
resulted in downtime as enterprises installed new
equipment or renovated their facilities.
~~
Machinery producers were repeatedly criticized by
the authorities for failure to meet goals for product
quality, deliveries, and assortment. According to Sovi-
et leaders, "new" machinery barely exceeded older
models in terms of productivity, and even showcase
factories were turning out poor-quality machinery. In
addition, all civilian machine-building ministries were
criticized for not meeting monthly contractual deliv-
eries, and in most of them fulfillment of contractual
commitments was below that for 1985. Timely deliv-
ery of specific products is important to meeting plans
for commissioning new capacity in the economy.
F. Priority for Investment
Gorbachev plans to raise the quality and quantity of
manufacturing capacity to make modernization of
industry a major source of growth by the end of the
decade. In line with this strategy, new fixed invest-
ment growth soared to 7.5 percent, with an especially
large increase directed to machinery producers. New-
ly commissioned plant and equipment also increased,
but by less than half the planned rate.
Per capita consumption rose, but slowly, mainly be-
cause legal sales of alcohol, a large share of consumer
spending, fell by 37 percent. Larger-than-usual gains
in the supply of food and housing probably earned
Gorbachev some credit with the populace.
According to our preliminary estimate, defense spend-
ing growth increased slightly to about 3 percent in
real terms. Although somewhat above the rate of
recent years, it does not appear that this growth
represents any change in defense spending policy since
Gorbachev's arrival. Rather, it was driven largely by
the early stages of production of weapon systems
under development well before he took office.
Confidential
Average annual percent growth
1970-75 76-80 81-85
86
Percent growth
1981 82 83 84 85 86
Confidential
Investment
GNP
Consumption
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Improved Performance,
Modernization on Slow Track I 25X1
Introduction organizational changes, modifications of the existing
economic system, and, primarily, a large-scale mod-
When Gorbachev took over in March 1985, the Soviet ernization of the country's stock of plant and equip-
economy was mired in a decadelong slump. Overall ment.F__1 25X1
growth in GNP under the 1981-85 Plan was headed
for its smallest increase in any five-year-plan period. In 1985, during Gorbachev's first year in power,
In 1984 GNP had increased by less than 1.5 percent, Soviet GNP growth was still very slow. Although
and during first quarter 1985 even the nonfarm sector industry maintained its 1983-84 rate of increase
was in bad shape as the coldest winter in 20 years despite a dismal start, disappointing farm output
crippled industrial growth. As General Secretary, again held GNP growth to about 1 percent. 25X1
Gorbachev immediately made the reinvigoration of
the Soviet economy a top priority. He put forward an
ambitious two-stage plan to increase economic Faster Growth in 1986
growth. Initially, growth is to come from what he calls
the "human factor"-a combination of measures to In 1986, however, growth in both industrial and farm
improve worker attitudes, weed out incompetents, and output accelerated (table 1). Soviet GNP grew at its
strengthen party discipline. Thereafter, he intends to fastest rate in a decade-about 4 percent-as farm
achieve major productivity gains through a series of
Table 1
USSR: Growth of GNP and
Selected Sectors of the Economy
Average
Annual
1981-85
1981
1982
1983
1984
1985
19868
GNP b
1.9
1.4
2.6
3.2
1.4
1.1
4.2
Agriculture c
1.9
-0.7
7.2
6.0
-0.7
-1.7
7.3
Nonagriculture b
2.1
2.2
1.2
2.6
2.3
2.3
3.2
Industry
2.0
1.3
0.7
2.7
2.6
2.7
3.6
Construction
2.9
4.5
2.6
3.1
2.0
2.5
3.8
Transportation
2.3
4.1
1.2
2.8
1.5
2.1
4.0
Trade
1.5
1.8
0.2
2.6
2.3
0.8
2.3
Services
2.2
2.4
1.8
2.2
2.4
2.4
2.4
a Preliminary.
b Value added at 1982 factor cost.
This measure for agricultural output excludes intra-agricultural
use of farm products but does not make an adjustment for
purchases by agriculture from other sectors. Value added in
agriculture grew at an average annual percentage rate of 1.1 in
1981-85 and at an annual percentage rate of -2.1 in 1981, 8.6 in
1982, 5.7 in 1983, -2.0 in 1984, -4.0 in 1985, and 8.6 in 1986.
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Gorbachev's most effective measures thus far to
improve the Soviet economy have been those aimed at
"revitalizing cadres-strengthening labor discipline,
getting rid of incompetent managers and officials, and
improving worker attitudes. In their official report on
1986 performance, the Soviets credit much of their
improved growth to a 20 percent reduction in lost
worktime, less cadre turnover, a cutback in the use of
manual labor, and expansion of the practice of
combining jobs to reduce work force requirements. F_
In all likelihood the 20 percent reduction in lost
worktime cited in the official report applies only to
recorded losses, which largely represent sick leave,
unexcused absences, and tardiness. It probably does
not take into account time lost because of supply
disruptions or equipment downtime. Nonetheless, the
scope for the type of reduction reported is large and-
by itself-probably accounts for much of the im-
provement noted in labor productivity and output
growth in 1986.
Aside from the antialcohol and discipline campaigns
already under way, the extremely tight labor market
may have been a major factor in reducing worktime
losses. Given pressure to meet Gorbachev's ambitious
economic plans, managers in the RSFSR and Baltic
republics, where demand for labor exceeds supply,
may have adjusted by taking steps to improve labor
utilization. Yearend data on three of these republics
1986. Many of these workers probably moved on to
other low-skill jobs with little net gain in average
worker productivity.
Labor saving through "combining trades and duties"
probably also was small in scale. This option has
been available for many years. It was first mentioned
as part of the Shchekino economic experiment (intro-
duced in 1967), which called for workers to receive
pay supplements for mastering more than one occupa-
tion to allow "combining of jobs" and has been
incorporated into the rules of recent economic experi-
ments. The job certification program, which in large
part is meant to identify redundant job positions,
reportedly has progressed very slowly, however, sug-
gesting little groundwork has been done to permit
combining jobs.
Gorbachev's broad policy of glasnost-openness in
discussion of all types of heretofore taboo issues-
also has been intended to help mobilize the "human
factor. " In one sense, glasnost is an aspect of the
labor discipline campaign, a way to bring public
criticism to bear against managers who are either
ineffective or who fail to show initiative. The policy
has been used to attempt to generate enthusiasm for
economic restructuring and rouse the population
from a state of general apathy. Another goal is to
stimulate greater effort by management and labor by
demonstrating an apparent honesty and responsive-
imply a reduction in the labor force.
Despite Soviet claims to the contrary, it is unlikely
that reducing the number of manual workers was a
major factor in the improvement in productivity in
production reached a new high and productivity
throughout the economy increased. The improved
performance in the latter half of 1985 and in 1986
means that Gorbachev can claim some short-term
success for his economic strategy. F_~
Sustaining this higher growth rate through 1987 and
beyond will be a challenge, however, because the
programs for improving labor discipline-already in
ness in the system.
place-are likely to have a diminishing impact and
because the 1986 results reflected both a rebound
from agriculture's poor showing in 1985 and the effect
of rather mild weather. Moreover, progress in indus-
trial modernization in 1986 was erratic. Some targets
important to Gorbachev's program to accelerate long-
er term growth were missed.
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Table 2
USSR: Industrial Growth by Branch
Average
Annual
1981-85
1981
2.0
1.3
0.7
2.7
2.6
2.7
3.6
2.2
1.6
0.5
3.8
2.4
2.8
3.9
Ferrous metals
1.2
-0.3
-0.4
3.0
0.9
2.8
2.8
Nonferrous metals
2.0
0.3
0.8
3.0
3.0
3.0
3.0
Chemicals
3.8
3.8
2.0
5.8
3.4
4.3
4.4
Wood products
2.1
1.9
0.6
3.0
2.8
2.1
5.4
Construction materials
1.5
1.5
-0.9
3.5
1.7
1.5
3.2
2.3
1.8
2.3
2.4
2.8
2.0
3.7
1.2
1.3
1.7
1.3
0.8
0.7
3.9
Electric power
3.6
2.5
3.1
3.7
5.2
3.5
3.6
Machinery
1.7
0.2
-0.2
1.8
2.7
4.2
4.4
Consumer nondurables
1.7
2.2
1.3
2.4
2.4
0.2
1.1
Soft goods
1.6
1.8
-0.5
1.2
2.8
2.4
1.5
Processed food
1.8
2.5
2.9
3.4
2.1
-1.6
0.7
a Preliminary.
b Value added at 1982 factor cost.
Industrial Production Picks Up
Industrial output increased by roughly 3.5 percent in
1986-up from about 2.5 percent in 1985. Growth
was the fastest in nearly a decade and only slightly
below plan. Most major branches did as well or better
than in 1985 (table 2). Nonetheless, most industrial
branches were criticized frequently by the authorities
for not meeting plans for additions of new capacity,
for failure to meet delivery schedules, and for short-
comings in product quality and assortment. Moreover,
industry's momentum slowed during the year. Indus-
trial growth during the first quarter of 1986 was
about 6 percent higher than in first quarter 1985,
when output was held down by severe winter weather.
During the last three quarters of 1986, in contrast,
industrial growth averaged only about 3 percent. F_
Within industry, some of the most important gains
were posted in industrial materials-steel, chemicals,
cement, and other basic products used throughout the
economy. The energy situation also improved as oil
production recovered the ground lost over the last two
years and the coal industry staged a comeback. In the
machinery sector, output grew by roughly 4.5 percent,
a respectable showing but little better than in 1985
and well below the 6.6-percent growth planned to
support industrial modernization. The consumer
goods picture was mixed, with rapid growth in pro-
cessed food other than alcoholic beverages, but slow
growth in output of soft goods and some consumer
durables.
After a decade of steady decline, overall productivity
in industry turned up in 1986. Growth in labor
productivity increased and the decline in capital pro-
ductivity slowed (table 3). Much of the improvement
in productivity appears to have been the result of
reducing losses of worktime through stricter disci-
pline, less drunkenness on the job, and more effective
management spurred, in part, by labor shortages (see
inset).
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Table 3
USSR: Growth in Industrial Output and
Factor Productivity
Average
Annual
1981-85
1981
Industrial production
2.0
1.3
0.7
2.7
2.6
2.7
3.6
Combined inputs
3.9
4.4
4.0
3.8
3.8
3.7
3.4
Work hours
0.6
0.7
0.8
0.4
0.5
0.4
0.4
Capital
7.0
7.8
7.0
6.9
6.8
6.6
6.1
Overall productivity
-1.9
-3.0
-3.2
-1.1
-1.1
-0.9
-0.2
Labor productivity
1.4
0.6
NEGL
2.2
2.1
2.2
3.1
Capital productivity
-4.7
-6.1
-5.9
-4.0
-3.9
-3.7
-2.4
Despite the output and productivity gains, some indi-
cators of technical progress in industry showed little
improvement. The share of steel output produced with
modern technology, for example, was nearly un-
changed, and in the machinery sector the rate of
increase in production of high-technology products
was not much higher than in recent years. Moreover,
Soviet reporting suggests that gains in the conserva-
tion of energy and metal resources in 1986 were about
the same as during the past five years.
Industrial Materials. Branches producing industrial
materials performed well in 1986, with overall output
up 3.9 percent. As recently as the early 1980s,
shortages of industrial materials caused serious bottle-
necks throughout the economy, and continued expan-
sion in these branches is needed if plans to modernize
industry and improve future growth are to stay on
track. Improvements over the past three years in plant
and equipment and management, plus better trans-
port support, contributed to a 1986 step-up in output.
In addition, the good 1986 growth rate was partly due
to milder-than-normal weather, which reduced serious
weather-related bottlenecks on the rail lines and eased
demand for energy. More effective management-as
a result of personnel changes, continued pressure for
discipline, and modest administrative tinkering-also
appears to have helped increase the growth of indus-
trial materials. Enterprise managers uncovered
"hidden reserves" of labor, materials, and equipment.
Finally, several key industrial facilities initiated a
second work shift to intensify use of plant and equip-
ment.
Output of ferrous metals increased by 2.8 percent.
The ferrous metals industry met its production goals
for crude steel, rolled steel, pipe, and iron ore, but did
not perform as well in providing specific steel products
needed in key sectors of the economy. A midyear
Izvestiya article claimed that enterprises had not
fulfilled plan targets for almost one-third of the steel
products needed to increase the efficiency of metal
use in the economy.
Growth in nonferrous metals output seems to have
stemmed mainly from some improvement in labor
productivity plus additions of new capacity and the
modernization of several aluminum, copper, and nick-
el plants. In the gold industry, delays in commission-
ing new capacity and the declining gold content of
mined ores held output growth to about 1 percent.
Production in the chemical industry grew at roughly
the same rate as in 1985. A decline in pesticide
production and a slowdown in growth of fertilizer
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Table 4
USSR: Growth in Energy Production
Average
1981
1982
Annual
1981-85
Primary Energy b
2.7
2.4
2.6
2.5
3.1
2.8
4.0
Oil
-0.3
0.6
0.6
0.6
-1.0
-2.9
3.4
Gas
8.1
6.9
7.6
7.0
9.6
9.5
6.7
Coal
0.3
-1.7
2.0
-0.3
-0.5
2.0
3.4
Electricity
3.6
2.5
3.1
3.7
5.2
3.5
3.6
a Preliminary.
b Data are for coal, crude oil, natural gas, natural gas liquids, and
hydroelectric and nuclear electric power expressed in terms of oil
equivalent, and include minor fuels such as peat, shale, and
fuelwood.
output prevented better results. Problems with raw
material quality and availability as well as delays in
startups of new facilities hampered fertilizer and
pesticide production. On the positive side, startups of
several new plants helped increase growth in output of
most oil-based chemical products.F__1
The sharp increase in growth in wood products
represented a rebound from the very poor perfor-
mance in 1985. Output of timber, although up 7
percent, did not match its previous high. A chronic
need for retooling in the industry was underscored in
1986 by continuing long downtimes for logging equip-
ment and breakdowns of obsolete timber transport
machinery. Problems in delivering raw materials to
downstream operations continue to plague the indus-
try. In midyear a number of industry managers were
fired or severely reprimanded
Despite strong growth in construction materials out-
put, the press complained about deficiencies in the
supply of local construction materials. Renewed re-
gime attention to housing needs-partly in response to
the Chernobyl' disaster-and plans to finish up old
construction projects placed a heavy burden on this
industry. Achieving timely delivery of materials to
construction sites remained a serious problem. Mea-
sures were taken to try to improve outdated processing
methods in the industry.
Energy. The energy sector produced almost 4 percent
more primary energy than in 1985 (table 4). Targets
for coal and natural gas were exceeded, oil production
recovered most of the ground lost over the previous
two years, and the electric power industry coped well
with the disruptions caused by the Chernobyl' nuclear
power accident and by reduced hydroelectric output.
Part of the price of stronger industrial growth in 1986
was a large fuel bill.
Reversing a two-year decline, oil production in 1986
rose to 12.3 million barrels per day (b/d), 400,000 b/d
above the 1985 level. All of the increase resulted from
growth in West Siberian output that was realized
largely by returning idle wells to production and
sharply stepping up the pace of drilling and well
completions. The cost of raising output was high.
Although figures on investment have not been re-
leased so far, oil-industry investment was slated to rise
by 31 percent in 1986, to roughly 15 billion rubles.
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Economic Impact of the Chernobyl'Accident
Our analysis of the Chernobyl' accident indicates
that, while the ultimate cost in the loss of human
lives will be high, the direct damage to agriculture,
industrial facilities, and the environment last year
was limited to a fairly small area.
The biggest economic cost so far has been the loss of
electricity generated by the Chernobyl' reactors and
the resulting increase in fossil fuel used by replace-
ment power plants. We estimate that an additional 15
million barrels offuel oil (40,000 b/d), 3 billion cubic
meters Qf'natural gas, and 5 million tons of coal were
used in 1986. In addition, Eastern Europe may have
been asked to bear the burden of some electricity cuts
during the 1986-87 winter period of peak demand.
Longer term consequences for the Soviet civilian
nuclear industry include the investment writeoffs of
one or more Chernobyl' reactors and the costs of
modifications to improve safety at other reactors. A
rough total of these capital costs shows them to be
equivalent to one to three years' investment in the
industry. Nevertheless, we expect the Soviets will
strive to minimize the impact of the Chernobyl'
accident on their long-term plans for nuclear power
and will continue to expand the role of this energy
source.
In contrast, the accident's impact on agriculture was
small. According to the Soviet press, the area con-
taminated by radioactive fallout is largely restricted
to about 1,000 square kilometers, equivalent in area
Soviet oil exports to hard currency countries rose in
volume by about 8 percent in 1986, but, because of
the fall in world oil prices, hard currency earnings
from oil declined by about $4 billion.
Natural gas output grew by 6.7 percent, to 686 billion
cubic meters, last year and was well above plan.
Production of gas at the Urengoy gasfield supplied
most of last year's increment to output. Yamburg, the
USSR's second-largest field and expected source of
most future increases in annual output, did not begin
to a circle with a radius of 18 kilometers, and a few
outlying pockets. Over half of the contaminated area
consists of forest and swampland. Soviet data show
that the region accounts for a minuscule share of
total Ukrainian farm output. Damage to farming
regions beyond the Chernobyl' area was probably
minimal.
In addition to the economic costs, human costs were
substantial. The initial casualties-29 people report-
edly died of acute radiation sickness-will probably
account for only a minor part of the ultimate human
toll of the Chernobyl' disaster. Many thousands of
persons were exposed to radiation (or will be exposed
to residual amounts of radiation as daily routines are
established), increasing their long-term cancer risk.
Theoretical calculations indicate that, over the next
70 years, radiation exposure from Chernobyl' could
result in an additional 500 deaths from cancer among
the 135,000 people evacuated. This would increase
cancer risk from the natural population incidence of
12.5 percent to 12.7 percent. The potential death rate
due to radiation-induced cancer among those in-
volved in the cleanup is double that of the evacuees-
raising the overall cancer risk to roughly 13 percent.
The cancer threat poses unique medical and psycho-
logical problems, even though the overall statistical
increase in cancer rates is likely to be minimal.
producing until the final quarter. The volume of gas
exports to hard currency countries is estimated to
have dropped by about 10 percent, while the average
price of these exports fell roughly 40 percent. Among
the reasons for this decline in gas export earnings
were slack demand in the West European market-
due to warmer-than-normal weather and slow eco-
nomic expansion-and intense price competition
among gas-exporting nations.
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Coal production rose to 751 million tons, 25 million
tons more than in 1985 and one of the largest gains
since World War II. Higher labor productivity (possi-
bly achieved by unofficially lengthening work hours in
selected mining activities) as well as greater output
from surface mines located east of the Urals probably
accounted for most of the production gains. Because
most of the coal from eastern basins is much lower in
heat value than that produced elsewhere in the
USSR, the net addition to energy output is likely to
be less than implied by the reported growth in
production.
Electricity output was only slightly below plan, de-
spite a troubled year for the power industry, which
suffered a loss of capacity in the Chernobyl' nuclear
accident and a drought-related reduction of hydro-
electric production. Electricity output grew 3.6 per-
cent, to about 1.6 billion kilowatt hours. A strong
performance from fossil-fuel power plants-a 5-per-
cent rise in electricity generation-boosted total out-
put enough to assure an adequate power supply to
most of the USSR. (For a discussion of the economic
impact of Chernobyl', see inset).
Machinery. The performance of the machinery sec-
tor-the source of investment goods, military hard-
ware, and consumer durables-was creditable, al-
though growth at 4.4 percent was little better than in
1985 and well short of the plan figure of 6.6 percent.
Output of civilian machinery appears to have in-
creased at roughly the same rate as production of
military hardware. One of the reasons for the below-
plan output may have been that the large surge in
investment in this sector-the 1986 Plan called for a
30-percent increase in the civilian machine-building
sector alone-resulted in downtime as enterprises
installed new equipment or renovated their facilities.
Whatever the reason, shortfalls were reported in the
production of several key products, including electric
motors, industrial robots, chemical equipment, forg-
ing and pressing machines, and petroleum equipment.
Targets were exceeded, however, for most producer
durables-including metal-cutting machines and
computer equipment.
leadership statements, "new" machinery being in-
stalled scarcely exceeded older models in terms of
productivity, and even showcase factories were turn-
ing out poor-quality machinery. In addition, accord-
ing to a recent press release, some enterprises were
resisting the new state system of quality control, and
the machine-building and other ministries "did not
achieve a decisive breakthrough in ... raising the
technical level and quality of output."
Machinery producers also were repeatedly criticized
in the press for failure to meet goals for product mix
and deliveries. Timely delivery of specific, contracted
products-not simply growth in overall output-is
important to meeting plans for commissioning new
capacity in the economy and renovating the produc-
tion base. All civilian machine-building ministries
were publicly criticized in the course of the year for
not meeting monthly contractual deliveries. In most
machine-building ministries, fulfillment of contractu-
al commitments was lower than in 1985. According to
the Central Statistical Administration's report on
1986 Plan fulfillment, "violations of contract disci-
pline were committed by one in four enterprises."
These probably are primarily violations of delivery
schedules but also may include failures to meet
quality or assortment specifications.
Consumer Nondurables. Production of nondurable
consumer goods grew by only about 1 percent, after
almost stagnating in 1985. Light industry output,
however, grew more slowly than in 1985, evidently as
a result of changes in the mix of goods produced. The
output of children's goods, which are in high demand
but relatively low in price, increased substantially in
response to intense administrative pressure. This in-
crease in the production of lower priced goods, how-
ever, probably occurred at the expense of higher
priced items. Moreover, to judge from the Soviet
press, light industry is still failing to provide consum-
ers with products of satisfactory quality, particularly
sewn goods and footwear.
Output of the food processing industry rose only 0.7
percent last year, mainly because of a large decline in 25X1
the production of alcoholic beverages. If alcohol is
Progress in improving the quality, reliability, and
technological level of Soviet-manufactured machinery
and equipment was poor. According to published
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Table 5
USSR: Growth of Farm Output
Average
Annual
1981
1981-85
182.3
158.2
186.8
192.2
172.6
191.7
210.1
78.3
72.1
78.2
82.9
85.5
73.0
87.2
76.3
60.8
71.4
81.8
85.4
82.1
79.3
5.0
4.7
5.3
5.1
4.5
5.2
5.3
Meat (slaughter weight)
16.2
15.2
15.4
16.4
17.0
17.1
17.7
Milk
94.4
88.9
91.0
96.5
97.9
98.6
101.1
Eggs (billions of units)
74.4
70.9
72.4
75.1
76.5
77.3
80.3
a Preliminary.
b Net of feed, seed, and waste.
Net of seed and waste.
a Excluding changes in inventory and net of feed and waste.
excluded from the data on food processing, growth
was a healthy 6.5 percent. An improved feed supply
for livestock helped boost production of processed
animal products. Expansion of processing capacity
also enabled the industry to make better use of
available supplies. The output of processed meat,
sausage, dairy products, and butter and vegetable oils
was especially impressive. The Soviets also succeeded
in carrying out some of the goals of the antialcohol
campaign. Output of nonalcoholic drinks increased by
30 percent, in part by converting wine and spirits
factories to nonalcoholic beverage production. Legal
production of vodka, wine, and other high-alcohol
drinks reportedly declined by 35 percent.
Agricultural Production Sets New Record
A strong recovery in agriculture in 1986 after a two-
year downturn reflected at least partial success for
policies such as expanding the "intensive technology"
program and improving feeding practices to increase
productivity under the ongoing Food Program. Factor
productivity improved by 1 to 2 percent, its first
appreciable growth since 1982. Continued growth in
the livestock sector, combined with substantially in-
creased production of important crops such as grain,
potatoes, and vegetables, resulted in a 7.3-percent
increase in farm output (net of feed, seed, and
waste)-to a level nearly 5 percent above the previous
output record achieved in 1983. Good-to-excellent
weather in parts of the Soviet grain belt helped
increase grain and forage yields, while mild tempera-
tures and adequate precipitation aided potato and
vegetable production.
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Table 6
USSR: Freight Shipments by Transport Mode
Average
Annual
1981
1981-85
Rail
3,840
3,762
3,725
3,851
3,910
3,951
4,061
Maritime
232
223
224
238
235
240
249
River
612
594
605
607
619
633
649
Highway b
6,536
6,651
6,739
6,612
6,357
6,320
6,648
Oil pipelines
641
634
641
649
648
631
653
Gas pipelines
408
345
373
400
440
482
NA
Percentage rate of growth
Soviet data for 1986 are preliminary; growth rates as officially
reported. Because of multiple counting (shipments moved on more
than one carrier), no total is shown.
b Excluding the non-common-carrier highway fleet.
An excellent forage crop plus a 210-million-ton grain
crop, the fourth-largest grain harvest on record,
helped Moscow reduce grain imports and contributed
to increased production of meat, milk, and eggs. Meat
production grew by 3.5 percent to 17.7 million tons,
exceeding planned output by 400,000 tons. Per capita
availability of meat increased only a little, however,
because increased production was partially offset by a
reduction in meat imports. Potato production reached
the highest level since 1979, increasing by about 14
million tons from the depressed 1985 level, and
vegetable production was up by nearly 2 million tons
(table 5).F__7
Transportation Supports Expansion
Soviet transport carriers posted a strong performance
in 1986 following a mediocre year in 1985. Freight
traffic measured in ton-kilometers increased by 4.8
percent and passenger turnover by 3.8 percent, both
well ahead of the planned rates. Freight shipments
were up for every transport mode (table. 6). These
higher growth rates resulted from improved weather,
which spurred the recovery of industrial deliveries
from 1985's depressed performance; a good year for
Soviet agriculture, which increased the growth of
shipments on rail and highway carriers; and an in-
crease in oil production, which reversed the 1985 fall
in oil pipeline tonnage. The relatively mild winter of
1985/86 not only facilitated the increase in demand
for transport services but also contributed to the
transport sector's ability to handle those shipments
expeditiously.
The railroads-which carry nearly three-fourths
of nonpipeline freight traffic in ton-kilometers-
squeezed 2.8 percent more tonnage onto the heavily
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Table 7
USSR: Total Trade, 1981-86 a
Average
Annual
1981-85
1981
49.3
43.4
47.1
51.0
51.9
53.2
63.0
25.2
24.4
26.2
26.7
26.4
23.3
19.2
Less developed countries
12.7
11.6
13.8
13.9
13.2
11.2
12.4
Imports by region
Communist
44.6
37.2
42.5
45.5
47.0
50.7
59.0
Developed countries
24.9
25.4
26.2
25.4
24.2
23.1
23.0
Less developed countries
9.4
10.6
9.1
9.6
9.1
9.1
8.2
'Includes both hard currency trade and trade conducted with soft
currency partners on a clearing account basis.
bPreliminary.
used system. They met the increased demands of
industry and agriculture by increasing train weights
and reducing turnaround times for freight cars, the
same formula used since 1982 to boost performance.
These measures were instrumental in controlling con-
gestion on rail lines and alleviating freight car short-
ages-two factors that curbed freight traffic in the
late 1970s and early 1980s and created a drag on
overall industrial production. In addition, as part of a
campaign to increase efficiency and control rising
costs, rail managers trimmed their labor force during
1986. As a result, labor productivity soared by 7.5
percent. F__1
Although 1986 was a good year for the railroads, the
strong recovery observed since 1982 may have come
to an end. According to analysis of quarterly rail
performance, after a strong comeback in first quarter
1986, the railroads recorded little growth in freight
traffic during the remainder of the year. Also, the
increase in average train weight fell far short of the
increases planned for 1986-90. Thus, the easier oppor-
tunities for putting more tonnage on the main lines
may have been exhausted. F--]
Meanwhile, shipments on the centrally directed high-
way carriers rebounded by 5.2 percent last year,
reversing a three-year decline; however, total ship-
ments were still below the 1982 peak. This turnaround
in performance probably reflects, in part, a policy of
shifting a greater share of trucking from departmen-
tal carriers, those managed by the industrial minis-
tries, to the centralized fleet. The Soviets hope that
greater centralization of highway shipping will im-
prove the notorious inefficiency of overall truck trans-
portation with respect to labor, capital, and fuel
usage. F__1
Soviet Trade Shifts Eastward
The foreign trade sector was battered for the second
consecutive year, although the Soviets coped fairly
well with a difficult situation. The collapse of world
oil prices coupled with a sharp drop in the dollar
relative to other major Western currencies resulted in
an estimated 15- to 20-percent deterioration in the
USSR's hard currency terms of trade. While the
dollar value of total trade increased last year, largely
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because of a 19-percent depreciation of the dollar vis-
a-vis the ruble, the dollar value of hard currency
exports dropped about 8 percent (an estimate based on
Soviet trade data for January-September 1986). De-
spite Soviet attempts to deal with the effects of the
falling oil price by boosting sales, the value of oil
exports plummeted by an estimated 35 percent. On
the plus side, Moscow boosted the dollar value of arms
exports to the Third World by roughly 15 percent,
despite the difficult financial position of many of
Moscow's principal arms customers.
Reduced hard currency earnings contributed to an
estimated 10-percent decline in the dollar value of
hard currency imports, with real purchases dropping
more. The Soviets limited the extent of their import
cuts, however, by selling markedly more gold at
higher prices last year and by borrowing in world
financial markets. Moreover, Moscow sought to ex-
pand its financial horizons by tapping alternative
types of financing such as acceptance financing and
more sophisticated credit instruments while continu-
ing to use traditional syndicated loans and export
financing. Grain accounted for the largest import
cuts, as improved domestic agricultural performance
and lower world grain prices allowed the Soviets to
reduce foreign expenditures without jeopardizing
grain consumption goals. Deliveries of machinery and
equipment, important to Soviet efforts to modernize
industry, increased in dollar terms last year but
dropped in real terms.
In contrast to trade with the West, Soviet trade with
the Communist world grew, increasing to about two-
thirds of total trade compared with a little over 60
percent a year earlier. Moscow's terms of trade with
its Communist trading partners improved slightly last
year because the large drop in world oil prices had not
yet been factored into the CEMA oil pricing formula.
The USSR ran another sizable surplus with its East
European partners, despite Moscow's repeated calls
for more balanced trade. Moscow may have been
willing to tolerate East European deficits again in
1986 in partial compensation for the economic dam-
age caused by the Chernobyl' accident.
Resource Allocation Policy
In contrast to 1985, when the programs and decisions
involving resource allocation resulted mainly from
policies that predated Gorbachev's selection as Gener-
al Secretary, the pattern of resource allocation in
1986 began to reflect Gorbachev's own policy to
increase resources going to sectors critical to the
modernization of the civilian economy. Increased
resources for defense in 1986, however, reflect weap-
ons programs that were under development long
before Gorbachev became General Secretary.
While economic growth was picking up in 1986,
Gorbachev was attempting to make modernization of
industry a major source of growth by the end of the
decade. In line with this strategy, investment soared,
with the greatest attention being given to renovating
and reequipping those facilities that produce machin-
ery critical to the modernization effort. The share of
output used for consumption slipped slightly, although
the level of per capita consumption rose somewhat.
Defense also was given more resources, although with
the economy growing at a healthy pace the share of
goods and services going to defense was roughly
unchanged.
Mixed Returns on Modernization
In 1986, new fixed investment grew by 7.5 percent,
very close to the planned rate (table 8). In line with
the goals laid out in the 1986-90 Five-Year Plan,
growth in investment channeled into the retooling and
reconstruction of existing enterprises increased sharp-
ly, more than doubling the 7-percent average annual
rate of the 1981-85 Plan period. Furthermore, al-
though no yearend data were released, nine-month
results indicate investment in industries producing
machinery and equipment climbed by about 17 per-
cent. An almost 10-percent increase in investment in
the agro-industrial complex favored the industries
that produce inputs for agriculture and process farm
products.
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Table 8
USSR: Indicators of Capital Formation Growth a
Average
1981
1982
1983
1984
1985
1986b
Annual
1981-85
Total new fixed investment
3.5
3.7
3.5
5.6
1.9
3.0
7.5
Of which:
Machinery
4.6
5.0
4.8
6.9
1.4
5.1
NA
Gross additions of new
3.0
0.3
5.2
5.9
2.2
1.5
6.0
fixed capital
Unless otherwise noted, rates of growth are based on official
Soviet series valued in constant 1984 prices.
b Preliminary.
The term "gross additions of new fixed capital" differs from "new
fixed investment" in that it counts only those investment projects
that were completed.
Despite the fastest annual growth of investment since USSR: Growth in Per Capita
the mid-1970s, the Soviets fell well short of their plan Consumption, 1986
for bringing new capacity on stream. Newly commis-
sioned production facilities increased by 6 percent,
less than half the rate planned to support the modern-
ization program. Shortfalls were especially large in 4
metallurgy, machine building, and energy. Little pro-
gress was realized in concentrating resources on high- 3
priority projects, curtailing construction time, and
reducing the volume of unfinished construction. Con-
struction delays are probably a cause for concern to
the leadership, which is counting on planned additions
to production capacity to contribute to faster econom-
ic growth in the late 1980s.
Some Gains for the Consumer in Key Areas
Per capita consumption grew by less than 1 percent in
1986, mainly because legal sales of alcohol, which
account for about one-fifth of food expenditures, fell
by 37 percent as a result of the antialcohol campaign
(table 9 and graph). Western reporting indicates con-
siderable grumbling about the reduced availability of
liquor, although some of the drop in state-produced
alcohol probably was offset by increases in home
brew. (See inset for a discussion of the impact of
alcohol-related changes on Soviet economic statistics.)
a Consumption of alcohol was 20 percent of total food
consumption.
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Table 9
USSR: Growth in Per Capita Consumption a
Average
Annual
1981-85
1981
1982
0.5
1.3
-1.0
1.1
1.8
-0.5
0.8
Food
-0.8
-0.1
-1.5
1.2
0.8
-4.5
-1.3
Soft goods
1.3
2.1
-1.5
0.6
2.4
3.2
1.4
Durables
3.0
6.3
-2.6
1.7
4.6
5.2
5.0
Services
1.5
1.4
1.4
1.3
1.8
1.8
2.1
^ Established 1982 prices.
b Preliminary.
Despite the cutback in alcohol sales, enhanced avail-
ability of key components of consumption-food and
housing-may have earned Gorbachev some points
with the populace. Supplies of quality food, one of the
main indicators by which consumers judge their well-
being, improved in 1986. Fruit and vegetable produc-
tion was up from depressed 1985 levels, and per capita
meat consumption grew by about 1 percent. In addi-
tion, new housing completions were up 4.4 percent,
the largest gross increment to the housing stock in two
decades.
Continued growth in wages, coupled with cutbacks in
alcohol sales, resulted in a large increase in the
amount of cash held by households. The higher prices
in the uncontrolled collective farm markets during
1986, despite larger supplies, and continued queuing
in state stores with fixed prices demonstrate that
unsatisfied demand for quality foods is still
substantial.
On balance, Gorbachev's campaign to improve con-
sumer goods and services, announced in October
1985, was off to a slow start. Although food supplies
were more abundant, enterprises failed to meet goals
for supplying consumer services to workers and the
population. Overall, growth in per capita consumption
of nonfood goods and services in 1986 was below the
average annual rate of growth posted during 1976-80,
although similar to that during 1981-85. Finally,
complaints about the poor quality of consumer goods
persisted.
Real Defense Outlays Increase
While our information on defense spending growth in
1986 is less solid than that for consumption and
investment, our preliminary estimate is that overall
defense expenditures in constant prices increased by
about 3 percent last year. Although somewhat above
the rate of the recent past, it does not appear that this
growth represents any change in defense spending
policy since Gorbachev's arrival. Rather, it was large-
ly driven by the start or early phases of production of
several new weapon systems that were under develop-
ment long before Gorbachev took office. In 1985 and
1986 these programs helped raise procurement growth
to about 3 percent per year.
The largest jump in expenditures in 1985 was in
aircraft procurement. The initial production stages of
the new Blackjack bomber-whose development dates
back to the early 1970s-and Moscow's continued
emphasis on fighter production helped drive up air-
craft expenditures. Increases in both tactical and
strategic missile procurement-led by outlays for the
SA-10 and SA-12 air defense systems-also raised
missile procurement in 1986 following a cyclical
decline in the early 1980s.
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Gorbachev's policy of glasnost has apparently re-
versed a 15-year trend toward reducing the amount of
economic data officially released to the public. The
Soviet economic problems that Gorbachev wishes to
address have been more frankly discussed in public
speeches, the national press, and economic journals.
Moreover, several discontinued data series reap-
peared in the 1985 Soviet statistical yearbook, and
the report on plan fulfillment for the first three
quarters of 1986 had nearly as much detail on
performance as the usual annual report in January.
The 1986 annual plan report also was expanded
slightly-especially in areas measuring progress in
capital construction and in the technical level of
industrial production-and some new statistical se-
ries have been released in the economic journals.F_
The limits to openness are gradually becoming appar-
ent, however. Gorbachev is eager to use glasnost to
document the magnitude of the problems he sees in
the Soviet economy and bring public criticism to bear
against managers and party officials responsible for
failures to meet plan targets. He is not interested in
using it to publicize bad news for the consumer, nor
to release information on defense-related production.
Information on changes in personal savings was omit-
ted from the annual report on plan fulfillment in
1986, suggesting leadership sensitivity to the problem
of excess purchasing power that was aggravated by
cutbacks in alcohol sales. Moreover, in contrast to
Meanwhile, we believe Gorbachev has told military
leaders that-like their civilian counterparts-they
will have to use resources more efficiently. One
manifestation of this has been a greater emphasis on
conservation and less costly training practices. For
example, at a major naval conference in December
1985 attended by the newly appointed Commander in
Chief of the Soviet Navy, Admiral Chernavin, it was
reported that some commanders had failed to under-
stand the need for "an intensification of combat
training" during 1985 and instead had "decided on an
unnecessary increase in the number of sea exercises,
earlier years, planned increases in production of
individual nonferrous metals were not published for
1986, making assessment of growth in that strategi-
cally important branch of industry more difficult.
Furthermore, puzzling discrepancies have appeared
in official Soviet statistics on aggregate economic
performance in 1985 and 1986. In particular, report-
ed growth of national income, personal consumption,
and retail trade-in constant prices-is surprisingly
high compared with their growth in current prices.
Such comparisons of reported growth in current and
constant prices imply average price reductions that
are not consistent with published information about
changes in individual prices in 1985 and 1986.
Although these statistics do not affect CIA measures
of Soviet economic performance, which are based
primarily on disaggregated data expressed, to the
extent possible, in physical units, they are widely
used as indicators of changes in growth. The primary
reason for the implied deflation seems to be an
inappropriate treatment of prices of alcoholic bever-
ages-which rose sharply-in the official index of
retail prices. Such a procedure enables the Soviets to
show economic growth and improvement in living
standards substantially higher than would otherwise
be the case.
which leads to overuse of engine capacity, overcon-
sumption of fuel, and premature aging of equipment."
Building on the fast start achieved in 1986, the 1987
Plan is ambitious, implying GNP growth of roughly 4
percent with growth of industry at about 4.5 percent.
Since the improved performance in 1986 reflects, in
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Economic Restructuring-Impact Yet To Come
Measures taken in 1986 to improve organization and
management were basically meant to modify the
existing economic system to improve its efficiency
and flexibility over the long term. Implementation of
these decrees and policies is just beginning, and real
changes in operating practices, if they come, lie
ahead. Gorbachev's initiatives have focused primarily
on four areas: streamlining the bureaucracy, increas-
ing enterprise autonomy, improving workers' incen-
tives, and encouraging personal initiative. None of the
measures adopted so far, however, could be charac-
terized as the "radical reform "that Gorbachev called
for at the 27th Party Congress. They do not re-form
(restructure) the economic system in any essential
way. Some of the innovations may produce small
benefits, along with much that will bring complaints,
but the system-rooted problems will continue.
Reorganizing the Bureaucracy
A cornerstone ofGorbachev's reform program has
been his efforts to reorganize and streamline the
bureaucracy. According to his own statements, these
policies are designed to achieve more effective cen-
tralized control over the main direction of the econo-
my while leaving more of the day-to-day management
to lower levels. His insistence that the bureaucracy
shift its focus to strategic planning has been reflected
in a number of organizational changes. New super-
agencies answering directly to the Council of Minis-
ters have been created to oversee key economic
sectors. Such coordinating bodies have been set up for
machine building, agro-industry, energy, construc-
tion, foreign trade, and social development. Most of
these bodies are not yet fully operational, however,
and progress in achieving intended sharp cutbacks in
personnel has been spotty.
managers. It also endorses other Gorbachev initia-
tives that have given selected enterprises the right to:
? Deal more directly with their suppliers, rather than
funneling their requirements through authorities in
Moscow.
? Trade directly with foreign firms.
? Base their production plans on trade orders from
customers.
? Exercise greater financial autonomy and retain a
larger percentage of their profits.
Improving Workers' Incentives
Gorbachev's chief accomplishment in this area has
been the passage of a wage reform designed to reverse
the leveling trend of the Brezhnev years and to create
a closer relationship between workers' pay and their
performance. Although this reform amounts to a pay 25X1
increase for many categories of workers, no state
funds have been set aside for the increase. The
effectiveness of the reform will depend on whether the
enterprises canfind ways to finance these increases
from their own resources.
Encouraging Personal Initiative
Gorbachev's promise to provide greater scope for
individual initiative has brought new legislation sanc-
tioning expanded business opportunities outside the
state sector for individuals and small businesses,
especially in consumer goods and services. Permissi-
ble action is greatly circumscribed, however. Individ-
ual activity must be conducted under close state
supervision with participants obtaining licenses and
paying taxes on their income. The law restricts
participation to pensioners, housewives, students, and
moonlighters, and forbids the hiring of labor. There
is also no provision for access to necessary supplies
for such activity. What impact these actions will have
Increasing Enterprise Autonomy
A new law, scheduled to be adopted at the next
session of the Supreme Soviet, codifies the enterpri-
ses' rights and calls for the election of enterprise
is still unclear.
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uonnaential
part, a mild winter and a rebound from the poor
showing of the previous year, sustaining growth in
1987 will be more difficult.
Nonetheless, Gorbachev's drive to revitalize economic
growth by modernizing the industrial base, improving
management, and motivating worker effort apparent-
ly is to continue in 1987. The industrial plan focuses
on producing more and better machinery for modern-
ization and more goods for the consumer. The Soviets
seem to be counting on the sharp rise in civilian
machine-building investment in 1986 to spur an accel-
eration in output in 1987. Machinery output, after
increasing by about 4.4 percent in 1986, is slated to
jump by 7.3 percent in 1987. This task will be made
more difficult by a new quality control program
requiring state acceptance of output, introduced in
1,500 enterprises in January 1987. Under this pro-
gram, output that does not pass state quality inspec-
tors cannot be counted in production figures. In
addition, machine builders are to concentrate their
efforts on high-technology products for investment
The 1986 gains in labor productivity will be hard to
repeat, however. A continuation of the discipline and
antialcohol campaigns will not have the same incre-
mental impact on worktime, and gains from reduc-
tions in other worktime losses, including intrashift idle
time, will be hard to achieve. Their major causes are
systemic problems-supply disruptions and downtime
of aged equipment-that cannot be solved quickly by
administrative measures. Gorbachev probably is hop-
ing that some of the numerous modifications of the
economic system and organizational changes intro-
duced since he took office will begin to bear fruit.
Most of the changes in these areas are just beginning
to take effect, however, and any benefits to be reaped
will come over the longer term. (See inset for a
discussion of organizational changes and "restructur-
ing" of the economic mechanism undertaken in 1986.)
and quality durables for the consumer.
Also in line with the modernization program, invest-
ment again seems to have priority. Growth in total
investment in 1987, however, is not scheduled to
match the initial leap planned for 1986. Nonetheless,
total investment is to increase by 4.6 percent-faster
than overall economic growth and apparently a bit
faster than what was originally called for in the
1986-90 Plan. Disappointing growth in the machinery
sector and the need to invest more in energy sectors
probably have resulted in greater allocations of funds
for them. In a speech outlining the Plan, State
Planning Committee Chairman Talyzin suggested
that more investment than was originally planned
would also go to sectors serving the consumer. Hous-
ing is scheduled for a sharp rise.
Plan documents also indicate that higher labor pro-
ductivity is to be achieved, in part, by complementing
the discipline campaign with a 3-percent increase in
average wages (about the same as in 1986), with the
gains directed to good performers and to technical
personnel. As a further incentive to greater work
effort, Gorbachev may be counting on new legislation
that allows some expansion of private production of
consumer goods and services.
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Lonnaentiai
Confidential
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