GORBACHEV'S FACTORY MODERNIZATION INITIATIVE: MACHINE BUILDING AS A CASE STUDY

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• Collection: General CIA Records
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• Document Page Count: 36
• Document Creation Date: December 27, 2016
• Document Release Date: December 14, 2012
• Sequence Number: 1
• Publication Date: November 1, 1988
• Content Type: REPORT

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Gorbachev's Factory Modernization
Initiative: Machine Building as
a Case Study
A Research Paper
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SOV 88-10076
November 1988
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Intelligence
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Gorbachev's Factory Modernization
Initiative: Machine Building as
a Case Study
A Research Paper
This paper was prepared by the
Office of Soviet Analysis. Comments and queries are
welcome and may be directed to the Chief, Defense
Industries Division, SOYA/
Reverse Blank Secret
SOV 88-10076
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Scope Note
Reverse Blank
Gorbachev's Factory Modernization
Initiative: Machine Building as
a Case Study
This Research Paper examines and evaluates progress in Gorbachev's
program to modernize factories. It focuses primarily on his push to move
advanced production technologies to the factory floor in the civil machine-
building sector. It does not address the state of specific technologies
In this paper we examine Soviet factory modernization options, address
how factory modernization decisions were made before Gorbachev became
General Secretary, and note how his initial programs affected this process.
In doing so, we use the civil machine-building sector as a case study, both
because of its crucial role in modernization and because Gorbachev's
initiatives affect it disproportionately. We then analyze the impact that
proposed changes in areas such as central planning, price formation, and
wholesale trade are likely to have on the factory modernization manage-
ment process. The paper puts special emphasis on the interaction between
traditional, highly centralized administrative measures and the decentral-
izing reform program and its impact on factory modernization during the
12th and 13th Five-Year Plans.
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so V 88-10076
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Summary
Information available
as of 6 October 1988
was used in this report.
Gorbachev's Factory Modernization
Initiative: Machine Building as
a Case Study
Gorbachev understands that the rapid introduction of new and more
appealing consumer goods, higher quality industrial products, and modern
weapons requires the installation of new equipment on the factory floor.
The bulk of this new equipment must be produced in the USSR's own
machine-building factories. Following a strategy first outlined in his
address to the June 1985 Science and Technology Conference, Gorbachev
is directing resources first toward the renovation of these machine-building
factories in the hope they then can provide the advanced equipment needed
to upgrade factories throughout the rest of the industrial sector.
Gorbachev's strategy puts machine builders under intense pressure to
achieve ambitious but contradictory goals. They are to modernize their
own factories while simultaneously increasing the quality and quantity of
their output. To do this they will have to use the best of existing production
lines more intensively, while replacing obsolete ones at a breakneck pace.
To implement this strategy, civil machine building has been tasked to:
? Raise investment from 35 billion rubles in 1981-85 to 63 billion rubles in
1986-90.
? Increase renovation expenditures by 100 percent during 1986-90, to a
total of 30 billion rubles.
? Raise the annual retirement rate of the machinery component of its fixed
capital from 2.3 percent in 1985 to 9.7 percent in 1990.
As a consequence of these actions, the share of equipment in Soviet
machine building that is newly installed each year is supposed to rise
dramatically (see figure 1) to create a more modern, efficient, and flexible
production base able to provide the new, technically advanced machinery
needed to modernize other Soviet industrial facilities.
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One way to modernize existing factories is to "reconstruct" them. This
involves removing entire sets of old production lines and replacing them
with new ones incorporating advanced technologies. Gorbachev prefers this
approach because it creates opportunities to make sharp improvements in
both production processes and products while avoiding the costs associated
with plant expansion or new plant construction. Reconstruction also
permits him to direct scarce construction resources into housing and
services and avoid making the politically unpalatable choice between
consumer well-being and industrial modernization.
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Figure 1
Percentage of Equipment New Each Year in Soviet
Civil Machine-Building Enterprises, 1980-90
Percentage in value terms
20
Actual I Plan
18
16
14
12
10
8
6
4
2
0
1980 82 84 86 88 90
319343 11.88
Gorbachev has borrowed several procedures from the defense industry to
encourage enterprises to increase the amount and accelerate the pace of
reconstruction. Foremost among these is the mandate to begin what the
Soviets call technological preparation for production (retooling to produce
new products) much earlier in the civil product development cycle.
Gorbachev has also ordered increased standardization of products and
components, higher priority for reconstruction projects, better process and
project planning, and a transition to double and triple shifts?in the hope
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that enterprises will maintain production using their most advanced
equipment while reconstructing some of their facilities. These changes?all
of which strengthen central planning?could improve product, process, and
project design but will take several years to show substantial results.
Rather than relying solely on direct orders, Gorbachev is also trying to give
enterprises financial incentives to reconstruct by decentralizing the eco-
nomic system:
? As of 1 January 1988, industrial enterprises were to finance much of
their current and capital expenditures from sales revenues and other
internally generated funds?instead of relying on Moscow to provide
financing.
? Selected industrial enterprises are now permitted to keep the bulk of the
hard currency profits they earn through exports to spend on imported
machinery and equipment for factory renovation.
These measures, however, will not be fully implemented until 1991, when
the 13th Five-Year Plan (FYP) goes into effect.
Despite the flurry of reform initiatives emanating from Moscow over the
past three and a half years, the current FYP was conceived as and remains
primarily a traditional one, governed from the center. The same incentives
and pressures that doomed past efforts at reconstruction continue to
dominate enterprise managers' decisionmaking. Further, the effects of
partial reforms now in place are being negated as ministries continue to
meddle with and redistribute enterprise funds earmarked for renovation.
Moreover, enterprises find it difficult to locate capital goods to purchase
with their remaining funds because equipment sales are directed from the
center.
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The primary result of the conflict between the traditional economic system
and Gorbachev's factory modernization initiatives has been to enhance
rather than to remove incentives for enterprises to engage in reequipping?
the less effective, piecemeal replacement of individual machines?rather
than reconstruction. Because so little has changed with respect to the
decisionmaking process and the incentives affecting these decisions, Soviet
performance in machine-building plant renovation during Gorbachev's first
years has been poor, largely reflecting a continuation of the problems
inherent in centrally administered renovation:
? In June 1987 70 percent of 25X1
renovation investment provided "zero" return because it was merely
reconstruction for the sake of reconstruction.
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? By the third quarter of 1987, 60 percent of the renovated plants surveyed
in Leningrad had unspecified problems reaching planned production
levels.
? In Leningrad, many machine-building ministries have put off renovation
plans until 1990 after sharply slowing the growth of investment dedicated
to renovation in 1987.
? In February 1988, three Soviet economists admitted in a Planovoye
khozyaystvo article that the renovation of machine building "is in a state
of serious disruption."
If Gorbachev decides that factory modernization requires a higher priority,
he could take further administrative actions to give it a one-time boost:
? He could slow new housing construction and use the resources freed to
expand existing factories or build new ones. This option is unlikely given
Gorbachev's highly publicized commitment to increasing the amount of
housing and other facilities for consumers.
? He could reduce planned investment in other sectors of the economy,
such as agriculture and energy. This option is appealing, given the poor
return on investment in these sectors, but would threaten both the energy
and food program goals.
? He could scale back factory output goals, provide breathing room for
effective reconstruction, and import machinery to replace the shortfall in
domestic production. However, the risk of piling up a huge foreign debt
to create new factories is probably too great for Gorbachev, and he is not
likely to choose this option.
? He could cut defense spending and use the freed resources to promote
better technical reequipping and reconstruction. Gorbachev's public
statements indicate some sympathy for this option.
None of these actions would lay the groundwork for a fundamental
improvement of the modernization process because they do not address
enterprise managers' incentives and freedom of action. Moscow's longer
term challenge is to strike balances between a new set of incentives
provided by decentralizing, financial reforms, and the directives provided
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by a reduced but still powerful central administrative apparatus. These
diverse pressures find their focal point in industrial prices. To make a
decentralized, reformed industry meet his centrally set goals, Gorbachev
must simulate a competitive setting and create a price formation calculus
that simultaneously ensures enterprises:
? Make the "right" choice between current production and modernization.
? Have the incentives to develop and disseminate products incorporating
new technologies.
? Can bid for essential high-quality raw materials and intermediate
inputs?priority goods that traditionally have been administratively
allocated to the defense sector.
We believe setting "correct" prices to fulfill these criteria will be almost
impossible. Soviet central planners have never been able to find prices that
simultaneously promoted these goals, and Moscow's retention of substan-
tial administrative levers to guide investment is, by itself, an implicit
admission that they do not expect to arrive at "correct" prices even after
implementing the next round of reforms.
In the absence of such systemic change and relaxation of taut planning
targets, Gorbachev's program is likely to provide only modest improve-
ments. The use of reconstruction as a common method of modernization is
unlikely until Moscow's power to administer factory output and technologi-
cal design is reduced. Until then, most factory renovation will continue to
take the form of reequipping, and new machinery models will be only
incrementally better than those they replace. Thus, Gorbachev's attempt to
modernize the civil machine-building production base?while making some
progress?is unlikely to provide the hoped-for gains in efficiency, improved
product quality, and production levels, nor will it result in the modernized
technological base planned for civil machine building by 1990. As a result,
we believe broader industrial modernization?a process dependent on the
availability of more and better machinery and equipment?will fall far
short of plan.
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Contents
Page
Scope Note
111
Summary
Introduction
1
Gorbachev's Resource Allocation Dilemma
1
Options in Modernizing Existing Plants
1
Reequipping
1
Reconstruction
2
Expansion
2
The Pre-Gorbachev Factory Modernization Procedure
2
The Investment Planning Procedure
2
The Reconstruction Procedure
5
Renovation Thwarted
7
Gorbachev's Modernization Program
9
New Administrative Measures
10
Improved Project Selection
10
Emulating the Defense Industry
10
Enhancing Dissemination of Information
13
Double-Shifting Campaign
13
Decentralizing Reform Measures
14
Self-Financing
14
Direct Foreign Trade
15
Absorbing the New Measures Into the Economic System
15
Directed Investment Quotas
17
State Orders
17
Disappointing Preliminary Results
18
Factory Modernization in the Remainder of the 1986-90 FYP
18
Prospects and Leadership Options
20
Appendix
Factory Modernization in a "Restructured" Economy
23
Reverse Blank
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Gorbachev's Factory Modernization
Initiative: Machine Building as
a Case Study
Introduction
Gorbachev inherited an aged and inefficient civil
industrial base. Successfully modernizing this base
requires installing massive quantities of machines
incorporating advanced manufacturing technologies.
Civil machine building, itself in need of moderniza-
tion, has been tasked with providing most of this
advanced equipment. The fate of the Soviet modern-
ization program thus rests, in large measure, on the
ability of the civil machine-building complex to pro-
duce new and better products, and more of them.
But modernization requires that the distribution, in-
stallation, and integration of these advanced machines
in new and existing factories be well managed. Unfor-
tunately Gorbachev also inherited a system in which
Moscow bureaucracies, rather than enterprises, con-
trol most investment decisions. This excessive central-
ization and the entire economic milieu it created
undercut earlier drives to improve Soviet industrial
productivity. Gorbachev has appropriately initiated a
sweeping program to decentralize parts of this process
to change the basic incentive system that determines
how the Soviet economic system functions. Ultimate-
ly, civil machine building's ability to modernize de-
pends on whether changing investment incentives
permit it to choose and use its own production more
efficiently.
Gorbachev's Resource Allocation Dilemma
Gorbachev intends to modernize the Soviet economy
by upgrading existing enterprises rather than building
entirely new ones. Soviet economists typically claim
that the return on a ruble spent on renovation is twice
as great as that of a ruble spent on new construction.
The primary reason for the greater economic returns
from renovation is that resources?metals and con-
struction materials?are saved by not constructing
new factories and supporting infrastructures. Plant
1
expansion is a middle option. While it requires ap-
proximately the same amount of material per cubic
meter to expand a factory as it does to build a new
one, expansion maintains existing work forces and
avoids the large infrastructure investment (transport,
power, and services) often required to develop new
production sites. By pursuing factory renovation rath-
er than construction of new factories, the leadership
thus hopes to attain its modernization goals without
having to allocate scarce investment and labor to the
construction and construction materials sector.'
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Options in Modernizing Existing Plants
Existing enterprises can be modernized by three
general methods: reequipment, reconstruction, and
expansion. Each has a distinct and separate meaning
in formal Soviet economic usage. However, expenses
for the first two are grouped in one category?
renovation?in statistical reporting.
Reequipping. Reequipment is the straightforward re-
placement of machinery?either individual machines
or entire assembly lines?with more advanced ma-
chines that have technical characteristics similar to
the machines they replace. A simple example of
reequipment would be replacing an old model electric
typewriter with an advanced electric typewriter that
has self-correction, memory, and a program to check
for spelling errors. The expenses for construction and
installation work during technical reequipment are
generally small?Soviet guidelines limit its share in
total expenses to 10 percent?and often no additional
construction and installation work is required.
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' Indeed, if the renovation component of the economywide modern-
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ization program of the 12th Five-Year Plan (1986-90) were imple-
mented according to plan, the Soviets could save construction
resources equal to those used in building all the new housing
commissioned in 1987.
'Gorbachev has publicly disavowed the strategy of extensive
growth.
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Reconstruction. Reconstruction generally involves
more construction and installation work than reequip-
ping. An example of reconstruction, continuing the
analogy, would be the replacement of typewriters with
networked personal computers and high-speed print-
ers, a procedure necessitating installation of ductwork
and hardwiring to connect the PCs to each other and
the printers. While upgrading a typewriter with a new
model increases the speed with which accurate letters
can be typed, installing PCs and printers does this and
permits desktop publishing of pamphlets and graphics
as well. Under Soviet guidelines, reconstruction may
include the expansion and even new construction of
auxiliary and service facilities. The economywide
share of outlays for construction and installation work
in total reconstruction expenses averaged 20 to 25
percent in the early 1980s; the current guideline is 35
percent.'
Expansion. Expansion involves additions to existing
buildings and requires more construction and installa-
tion work than does reconstruction. Indeed, the share
of expenditures for construction and installation work
in total expenditures for expansion is about 60 to 70
percent. However, the work tends to be simpler and
easier, primarily because standardized construction
techniques and kits can be used. Also, properly
planned expansion can take place without disrupting
existing production and without modifying existing
fixtures. Expansion, moreover, permits managers to
retain obsolete equipment for emergencies, whereas
reequipping and reconstruction displace obsolete
equipment. The principal disadvantage of expansion is
that it is a costly and lengthy process. According to
State Committee for Construction (Gosstroy) chair-
man Yuriy Batalin, major construction projects now
take the Soviets about eight to nine years to finish.
Major expansion of existing enterprises can take
about as long, although, in their extensive review of
' In this example, there is a good chance that in the process of
laying extensive new wiring for the PC network, existing phone
lines and electric powerlines must be moved, or if they cannot be
moved, that inefficient and convoluted paths will be required for the
new PC wiring. Analogously, Soviet machine-building enterprises
often have massive concrete and reinforced concrete foundations
and huge overhead crane systems that tend to make both the
planning for reconstruction and the reconstruction itself extremely
difficult.
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Soviet literature on construction, Western scholars
Vladimir Kontorovich and Boris Rumer determined
that typical project completion times for medium-
sized reconstruction projects were three to four years.
Even medium-sized reconstruction projects at ma-
chine-building plants could take longer than this
average, however, because of the special nature of
machine-building plants' physical layout (see inset).
The Pre-Gorbachev Factory Modernization Procedure
Factory modernization ranges from fairly simple to
quite complex, depending on whether the factory is
undergoing reequipping or reconstruction. The latter
is by far the more complex, because the factory
typically attempts the introduction of new products
and manufacturing processes simultaneously and
without reducing current production levels.' Further,
the approval procedure for reequipping, where indi-
vidual projects are smaller, can be simpler and more
straightforward than the often cumbersome approval
procedure for major reconstruction projects.
The Investment Planning Procedure
The formal planning procedures for reequipping and
reconstruction have much in common. Planning be-
gins by reviewing the enterprise passport?the card
files listing all fixed capital belonging to an enterprise
and its current state of repair. Enterprise managers
then project which machines or assembly lines need to
be replaced during the forthcoming annual and five-
year plans.
Enterprises are supposed to select the most advanced
equipment available, using published state standards
(GOSTs) and foreign trade publications to determine
what new machinery models should be chosen to
? Soviet product renewal usually involves substantial changes in the
technological content of the factory's output rather than simple
expansion of product lines: for example, switching to the production
of color TVs rather than introducing new black and white models.
Although a factory can undergo reconstruction to produce the same
product more efficiently, in most cases reconstruction precedes
major changes in the product.
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Machine Building's Special Reconstruction
Problems
Soviet economist Viktor Krasovskiy notes that reno-
vation requires work in cramped industrial premises,
the use of intraplant transport mechanisms and spe-
cialized construction equipment, and detours around
various communication and underground structures.
A Gosstroy department head notes that organizing
construction simultaneously with production is con-
siderably more complex than organizing just new
construction because of the difficulties in sharing the
use of overhead cranes, switch engines, power, trans-
port, and administrative and cultural resources. Oth-
er Soviet economists claim reconstruction is hindered
by severe shortages of skilled labor and specialized
equipment.
While these problems hold true for reconstruction in
general, machine-building plants tend to be especially
cramped. Fully mechanized work is impossible, so
the work is only partly mechanized. This requires
even greater quantities of less powerful equipment for
foundation pit excavation, dismantling concrete and
reinforced concrete components, and replacing crane
beams. Factory workers and construction workers
interfere with each other's work, and so the renova-
tion process can extend over "several decades.'
The ministries then review these plans before they are
finally coordinated by the State Committee for Plan-
ning (Gosplan). When plans call for machinery models
already in serial production, Gosplan incorporates the
production of these models in the annual plans of the
appropriate machine-building plants. They are then
delivered through the State Committee for Material
and Technical Supply (Gossnab) and paid for out of
the State budget, the ministerial budget, or the
enterprise's own production development fund (PDF).
If equipment is imported, and the enterprise has its
own hard currency account (to buy equipment from
the West) or bilateral trade account with an East
European country, only ministerial approval is need-
ed, and Gosplan and Gossnab should not be involved.
replace those scheduled for removal. Enterprises then
estimate the projected growth in productivity that
should result from installing new equipment. The
enterprise is also supposed to look for machines whose
replacement would increase productivity, reduce man-
ual labor, or improve worker safety, regardless of the
equipment's age. The enterprise then decides whether
reequipping or reconstruction is best for its needs and
submits its projected modernization plan (and the
resulting output plan) to its ministry for approval. All
of this planning is done in accordance with the basic
regulations contained in the appropriate set of meth-
odological instructions published by central planning
organs.
3
While the planning procedure is simple in theory,
circumstances may frustrate fulfillment of a plant's
original plans whether they call for reequipping or
reconstruction. For example, a plant may identify a
need for capital equipment not yet in serial produc-
tion. Coordination and planning of the design, devel-
opment, and production cycle for new equipment can
last decades (see inset). Gosplan and ministries then
face the choice of accepting lengthy delays or modify-
ing the original plan to include less advanced equip-
ment. Generally, they modify the plan and use what-
ever equipment is available, rather than accept delays
induced by the design process.
Moscow will often be able to provide a close substitute
for the originally envisioned equipment because the
Soviet practice of making incremental changes to
equipment models makes it likely that some more
advanced version of needed equipment is nearing the
end of development. In addition, newly designed
capital goods created under the all-encompassing
system of GOSTs are usually similar enough to
previous models to reduce the need for redesign of the
production line or facility.'
The common practice of making cosmetic?as opposed to real but
incremental?changes to machinery models and claiming that they
are new models can also explain the ease with which some old
models can be replaced by new models.
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Soviet Product Design
The design and development procedures for a new
product have several major defects. The first is poor
Soviet design work. Boris Rumer cites Soviet surveys
showing that only 20 percent of Soviet designers can
design a simple part and only 5 percent can design a
complete, simple machine tool. Ukrainian party boss
Vladimir Shcherbitskiy claims that only one out of
eight machine-building design institutes in Kiev com-
pletes designs that exceed world or Soviet standards.
Soviet designers are not entirely at fault for poor
design work. They must comply with hundreds of
thousands of inflexible state standards a for various
machines and must attempt to use as many standard
parts as possible in their new products?and all the
while try to introduce progressive and modern de-
signs. Designers are hampered by shortages of com-
puters,b which lengthen each stage of the design
process, and multiple layers of bureaucracy, which
introduce frequent changes in the project design
requirements. Two separate Soviet sources have
claimed that over 100 signatures are needed to
approve new machines, and one of these sources
a Lev Vasil'yev, the former minister of the now disbanded Ministry
of Machine Building for Light and Food Industry and Household
Appliances, said that designers in his ministry were 'forced to
comply with state standards for products established in the fifties
and even in the forties."
b Vasil'yev maintains that design "work organization is routine
and is not automated. The capital:worker ratio of a designer's
workplace is 'peanuts. "1
estimated it required two to three years to collect the
needed signatures. Vasil'yev adds that "designers
most often end up as fixers or couriers collecting
authorizations." In addition, designers must provide
extensive documentation at each stage of the process.
Completed designs require instructions for workers
that run 50 to 60 pages, while comparable Western
documentation is usually only one page in length.
Consequently, it now takes 12 years to create new
tractors and nine years, on average, to create other
agricultural machines. While some of the showcase
enterprises, such as Ivanovo, claim they can create
new machine tools in about a year, at others, such as
Uralmash, some 40 percent of the designs take five
years or longer to complete.
In July 1988 Moscow initiated a program to speed
the development of promising machinery designs for
44 -priority directions." Though details of the plan
are sketchy, machines designed for priorities such as
the food program, transportation, construction, and
consumer services are to be developed only if they
meet specific customer requirements. Unpromising
designs are to be eliminated, and resources concen-
trated on the priority directions. Research and design
institutes have been promised additional computers
and test-base equipment, but rapid improvements to
the test base are not likely without substantial
assistance either from the West or the defense indus-
tries.
The most frequent reason original renovation plans
are modified or delayed is excessive bureaucratic
coordination and review
even the preliminary discussions between an enter-
prise and its ministry over the general directions of
proposed renovation projects can drag on for years.'
Pravda, for example, complained that the manage-
ment of the Krasnyy Proletariy Machine-Tool Build-
ing Association and its parent ministry spent "months
'Professor Judith Thornton, University of Washington, report on
the Soviet Interview Project to the Department of State
(19 February 1987).
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and years in endless coordination" planning the reno-
vation of the old Krasnyy Proletariy factory. But
resolving the differences between an enterprise and its
ministry can mark just the beginning of the review
process. In general, the more expensive and complex a
proposed project is, the more extensive the review
process becomes. Reconstruction projects tend to be
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_.-
"Th
Figure 2. Clearing a path for the project.
larger than reequipping projects, and those costing
more than 4 million rubles require Gosplan review
and approval.'
Renovation may also be delayed by changes in the
bureaucracy or party intervention. Continuing admin-
istrative reorganizations led to project delays at the
Leninakam Refrigerator Compressors Plant. It was
reorganized nine times in 20 years and although new
plans for modernization were drawn up each time, not
one was implemented. It still produces obsolete com-
pressors. Party officials intervened in plans to reno-
vate the foundry at the Moscow Dynamo Works when
planners failed to consider cultural and environmental
concerns . The original plans were sent back when
political authorities realized they called for the de-
struction of the Church of the Birth of Our Lady,
'The evidence on this limit is mixed. David Dyker cites claims that
Gosplan approval of detailed plans is required for projects costing
over 150 million rubles. A Gosplan deputy department chief
claimed the limit was 50 million rubles. A 1986 Ekonomicheskaya
gazeta article claims that review by the State Committee for
Science and Technology is required for projects over 100 million
rubles. However, Dyker also cites an Ekonomicheskaya gazeta
source that states every project proposal must have a "title list"?a
document of about six pages detailing the main technical character-
istics of a project. Gosplan reviews the title list of all projects with
estimated costs over 3 million rubles. Review authority for projects
costing less than 3 million rubles is vested with the ministry and/or
local or republic party or government authorities. Gosplan review is
also required for technical reequipment projects where the planned
expenses for construction and installation work exceed 10 percent of
the estimated cost
5
Cheap at Twice the Price
V. Paschenko, General Director of the Frezer
Production Association:
At the end of last year we failed to take delivery
of a number of machine tools, and as a result of
this we underfulfilled our reequipping plan by
300,000 rubles. The rayon party committee
mercilessly took us to task for this, and we did
not know where to turn. When suddenly, instead
of the machine tool which we had ordered and
which cost 40,000 rubles each, machine tools
costing 100,000 rubles arrived, we were very
happy and reported the fulfillment of the re-
equipping plan.
founded in 1509 as a monument to the Battle of
Kulikovo Field. (This problem is not limited to the
Dynamo plant, and cultural or environmental con-
cerns do not always prevail. See figure 2.)
A final problem stems from the vagaries of the central
distribution of capital goods. Regardless of what is
ordered, enterprises cannot be certain what equipment
will be delivered and when it will arrive (see inset).
The equipment they get may be quite different from
the original specifications, so they seldom take steps
to prepare to install new equipment before its arrival.
If the plan called for reequipment, these delays should
be minor because the construction and installation
work involved in reequipment is minimal. Enterprises
initiate the reequipment process to solve existing or
potential problems, so they tend to install whatever is
delivered.
The Reconstruction Procedure
Reconstruction of an existing enterprise generally is
undertaken as part of a more general preparation for
the production of a new product. This includes three
separate, yet interconnected, tasks:
? First, a proposed new product must go through the
normal design and development procedures before it
is certified as ready for series production.
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Figure 3
USSR: Product Development and Production Preparation
Task 1
Product development at
the design bureau
Selection of
contractors
Possible Machine
Building Bureau
decision b
Production
decision
Preproject advance
design and technical
assignment
Technical
proposal
'......*'''...o
Draft design
Technical
design
Working design
(prototype
engineering),
pilot model
testing/pilot
lot production
f -
Task 2 Task 3
Preparation for production'
Planning new
assembly lines
Maintain output levels of old
products at series production
plant
Manufacturing
new assembly lines
Effective January 1987, preparation for production was to begin
during the technical design stage.
b The Machine Building Bureau is tasked with oversight and
encouragement of civil machine-building technologies. While its
exact role is unclear, it may review at least the most important
new product technologies.
Trial production
Series production
Secret
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? Next, new assembly lines needed to produce this
new product must be planned and installed in the
factory (actual reconstruction).
? Finally, current production of old products must be
maintained while the installation of the new assem-
bly lines is accomplished (see figure 3).
Reconstruction is usually a prolonged process. Most
assembly lines are individually designed, and the
design and manufacturing process takes from three to
five years. Until January 1987 this process did not
begin until the new product the lines are to produce
has itself been designed. (See page 10 for Gorbachev's
plan to accelerate this process). These lines are often
ordered through Gosplan or the Council of Ministers,
so the process of getting the order placed probably
begins several years before the design and manufac-
turing stages. Sometimes a ministry will refuse to
push for new assembly lines?if it is responsible for
acquiring the lines?making it impossible for a plant
to renovate. The Leningrad Reductor factory was
saddled with obsolete equipment, was deeply in debt,
and was tasked with an unachievable plan. Although
the Ministry of the Machine Tool and Tool Building
Industry (Minstankoprom) promised reconstruction
with automatic lines and flexible automated produc-
tion, it never delivered, preferring that the plant meet
its plan using overtime.
Next, when the new equipment arrives at an enter-
prise, it must be installed quickly so as to limit
disruption of current production. But ministries and
higher authorities must approve the installation plans,
and sometimes they make changes even after new
equipment has arrived. The first secretary of the
Kirovabad Party Committee complained that the
Ministry of Instrument Making, Automation Equip-
ment, and Control Systems amended the planning
estimates for the installation of equipment five times
in two years.
The erratic allocation of capital equipment also
hinders reconstruction more than reequipping. For
example, the delivery of a manually operated Mark
7
III lathe instead of a computer numerically controlled
Mark V model need not be a problem in a reequipping
plan. However, if reconstruction plans envision a
flexible manufacturing system including the Mark V
lathe, delivery of the Mark III can prove to be a major
impediment. If the original plan is not revised or
delayed (until the right model is delivered), payoffs
from the project will be minimal.
Renovation Thwarted
Previous efforts to boost economic performance by
modernizing machine building via extensive renova-
tion?beginning with Brezhnev's renovation cam-
paign in the mid-1970s?were in large part limited by
the incentive system and administrative apparatus
described above. As a result, the returns on invest-
ment in civil machine building fell dramatically (see
figure 4). Soviet incentives clearly encouraged current
production at the expense of renovation when enter-
prise managers faced conflicting plan directives to
produce and modernize simultaneously (see inset,
page 9).
Many managers are not willing to put current produc-
tion schedules at risk and use three strategies to evade
conflicting directives:
? They meet renovation goals through reequipping
rather than reconstruction. A Soviet specialist
claims that, while in 1976 about 45 percent of
machine building's renovation expenses were for
technical reequipment, by 1986 the percentage had
grown to almost 95 percent.
? They misclassify expansion or new construction as
enterprise renovation. A Moscow city party official
admits "it is no secret that, despite the ban on new
[primarily industrial] construction, the building of
more and more new projects is continuing under the
guise of renovation."
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Figure 4
Incremental Output/Investment Ratio in Soviet Civil Machine-
Building Ministries
Additions to outpu of producer and consumer durables per
rub e of imestment.
1.0
0.8
0.6
0.4
0.2
0
1971 72
73
74
75
76
77
78
The incremental output is measured in 1982 factor cost rubles.
Investment is measured in 1984 comparable rubles.
79
80 81
82 83 84 85 86 87
? When reconstruction is unavoidable, they undertake
minimal amounts of reconstruction every year?
enough to claim they are trying, but not enough to
interfere with ongoing production. Soviet planning
officials term this process "crawling reconstruc-
tion." Enterprises are willing to fail to meet their
reconstruction plan and suffer a minor loss of
bonuses, rather than fail to meet their output plan,
with the far more severe consequences that entails.
Secret
319346 11-88
Because enterprises undertake reequipping rather
than reconstruction, modernization is slowed, with
benefits often being limited by the physical attributes
of a building and the niecemeal nature of reequipping.
during the period 1981-
84 reequipping was more effective than reconstruction
only in the Ministry of the Machine Tool and Tool
Building Industry; it was less effective than recon-
struction in the five other machine-building ministries
8
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Plant Caught Between Scylla and Charybdis
The Dimitrov Milling Machine plant was described
by a first deputy minister of Minstankoprom as "a
collection of dog kennels." Reconstruction and later
expansion was deemed vital. Thus, the Dimitrov
Plant, in conjunction with two state institutes, devel-
oped a program to introduce the manufacture of
electronic bracket milling machines. Minstankoprom
approved the program and ordered it to be imple-
mented in 1986.
A production preparation planning schedule was de-
veloped. Equipment accessories were designed; specif-
ic metals and auxiliary equipment were ordered. The
equipment arrived and reconstruction was ready to
begin. For reconstruction to take place in 1987,
however, Dimitrov had to cut its output of universal
machine tools from 3,000 units in 1986 to 1,500. The
week before Ministankoprom confirmed the recon-
struction program, it also ordered Dimitrov to in-
crease production of universal-type machine tools
from 3,000 to 3,190.
for which data were available, an
enterprise cannot remain permanently young through
technical reequipment." Complaints by Soviet leaders
also testify to reequipping's increasing lack of eco-
nomic effects. In 1986
almost 70 percent of
renovation expenditures were spent to replace worn-
out equipment with new but similar equipment.
Gorbachev's Modernization Program
Figure 5
Percentage of Equipment New Each Year in
Soviet Civil Machine-Building
Enterprises, 1980-90
Percentage in value terms
20
15
Act
ual P1
an
10
5
0
1980 82
84
86
88
90
Gorbachev's preferences with regard to the mix of
reequipping, reconstruction, and expansion are clear:
he is pressing civil machine builders to choose more
reconstruction and less reequipment and expansion.
These wishes were echoed by Viktor Krasovskiy, who
declared that "the present-day tasks of machine
building are not to deliver equipment 'piecemeal' to
9
319347 11-80
projects, but the organized installation and skilled
adjustment of entire systems of machines and equip-
ment of shops and production operations."
Following a strategy first outlined in his address to
the June 1985 Science and Technology Conference,
Gorbachev is focusing first on renovating the ma-
chine-building complex, which he hopes will then be
in a better position to provide new, technically ad-
vanced machinery to refurbish the remainder of the
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Soviet economy (see figure 5). Total economywide
renovation in the 1986-90 FYP is planned at 232
billion rubles. To implement this strategy, Gorbachev
has instituted both administrative and decentralizing
reform measures to get civil machine building to:
? Raise investment from 35 billion rubles in 1981-85
to 63 billion rubles in 1986-90.
? Increase renovation expenditures by 100 percent
during 1986-90, to a total of 30 billion rubles.
? Raise the retirement rate of the machinery compo-
nent of its fixed capital from 2.3 percent in 1985 to
9.7 percent in 1990.
New Administrative Measures
Gorbachev has mandated several administrative mea-
sures to accelerate factory renovation. First, he tight-
ened centralized investment project review to concen-
trate investment resources in major reconstruction
projects associated with the introduction into produc-
tion of new, technologically advanced products. Next,
he borrowed from the defense industries the system of
simultaneous product design and technological prepa-
ration for production used in weapons development.
He also initiated measures designed to break informa-
tion bottlenecks and to increase the use of production
lines remaining in operation at facilities undergoing
renovation.
Improved Project Selection. Gorbachev hopes that by
rejecting investment projects incorporating obsolete
technologies and by giving reconstruction priority
over new construction he can concentrate investment
resources on technically advanced projects and reduce
construction times by a factor of 3 to 4. To ensure
that new projects merit funding, he increased the
rigor of reconstruction project review by Gosstroy and
the USSR Industrial Construction Bank (Promstroy-
bank) and expanded the review of specific technol-
ogies by the State Committee for Science and Tech-
nology (GKNT) and the People's Control Committee.
In December 1987 Nikolay Slyunkov, the party secre-
tary overseeing the economy, asserted that only 10
percent of the 1,500 modernization projects reviewed
by Promstroybank met world standards. Similarly,
the People's Control Committee inspection of new
machine tool models proposed by Minstankoprom for
1986 found that only one-half were better than previ-
ous models. In addition to tighter project and design
Secret
review, Gorbachev rearranged priorities among the
remaining projects. A March 1986 joint CPSU Cen-
tral Committee/Council of Ministers decree directed
all ministries, departments, and party organizations to
accelerate scientific-technical progress through major
reconstruction of factories. Whereas previously new
construction had priority for new equipment, priority
was now given to renovation.
Emulating the Defense Industry. Gorbachev also
altered the renovation planning process to bring it
closer to the defense industrial preparation-for-pro-
duction model (see table 1). Several of the changes in
the planning of enterprise reconstruction appear to
have been lifted directly from the preparation-for-
production process used in the defense industries.
Many of these changes will affect both the reequip-
ping and the reconstruction processes.
Accelerated Preparation for Production. Gorbachev
has mandated that production preparation begin in
conjunction with product design so that a new product
can enter series production as soon as it is fully
developed. (The table lists the typical steps in an
accelerated preparation for production.)
the previous
system for civil preparation for production "resulted
in huge losses of time, which cannot be tolerated by
present-day standards." That system called for "work
to be carried out in a rigid sequence: technical
assignment, design and development, prototype fabri-
cation and tests, and acceptance trials." Production
preparation work could begin only after acceptance
trials, resulting in a substantial gap between comple-
tion of product development and series production of
that new product. Beginning preparation for produc-
tion simultaneously with the formulation of design
documentation and the finalizing of test prototypes
became the civil standard on 1 January 1987 (see
inset). However, civil factories must still maintain
current production of new products while preparing
the factory for production of old products?a con-
straint that the defense industrial ministries do not
face.
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Soviet Product and Process (Production Preparation) Development a
Stage of Product Development
Production Preparation Activity
Technical assignment
Sets out purpose of product, describes technical opera-
tional and production requirements, and sets a timeline
for product development.
Consider various ways to prepare for production.
Collect information on production processes and technology that might be
used.
Coordinate the technical requirements of the product.
Technical proposal
Outlines proposed design solution.
Identify existing parts or components that can be used in the product.
Identify alternative ways to assemble new parts and components.
Examine and confirm the technical proposal.
Draft (preliminary) design
First steps of practical design; includes detailed scale
drawings and mockups.
Assess the producibility of different parts.
Assess the design of parts in light of expected operational conditions.
Check the design for the precision and interrelationship of parts.
Examine and reconfirm the design documentation.
Technical design
Full-scale mockups constructed. Technology is frozen.
Mockups tested.
Develop a general plan for preparations to produce the product.
Develop an organizational structure for managing technological preparation
for production (TPP).
Determine the possibility of parallel and independent assembly and inspection
of parts.
Check the design documentation.
Prototype fabrication
Assess the possibilities for using existing assembly units, structural elements,
and materials.
Examine the design of parts.
Develop a TPP information model.
Prepare technical and economic data.
Determine the machinery and tools to be used in production.
Determine the installation of production equipment and the organization of
the workplace.
Lay out the production flow through the plant.
Manufacture special tools and equipment required for production of the
product.
Draft programs for computer solutions to problems.
Correct technical documents on the basis of computer simulations.
Develop organizational responsibilities for the management of production.
Check manufacturing tolerances with tooling specifications.
Check the possibility of using standard machinery and tools.
Check the possibility of reducing the amount of machined surfaces.
Check the ease of inspection and repair of parts.
Analyze readiness for manufacturing prototype product.
Check changes in design documentation.
Trial (pilot) and series production
Modify the design to meet production requirements.
Modify the design for ease of maintenance of parts.
Check the design documentation.
a This outline is based on V. N. Krysin, Tekhnologicheskaya
podgotovka aviatsionnogo proizvodstva (Moscow: Mashinostroyeniye,
1984), pp. 14-17.
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Comparative Production Preparation Strategies
Preparation for production can begin either simulta-
neously with product design or after prototype debug-
ging and trial series production have eliminated flaws
in the product and the production line. Accelerated
production preparation can reduce the time needed to
put a new product into series production?if Mur-
phy's Law can be held in abeyance. If however,
planning errors or unforeseen problems crop up, it
wastes much early production preparation work and
results in costly renovation before the product can be
put into series production. Early production prepara-
tion also risks locking in production processes that
are outdated by the time the product reaches series
production.
In the United States, a weapon system usually is
completely developed before substantial funding is
made available to prepare for manufacturing, al-
though most production design work is completed
during weapon development.a This approach de-
creases the risks associated with production prepara-
tion, but it lengthens total weapon acquisition time by
adding time between development and production. US
a Blueprint for Tomorrow: Joint Air Force and Industry Assessment
of the Aerospace Industry Base (Aeronautical Systems Division,
Air Force Systems Command, 16 January 1984), vol. I, section
2.2.3.
civil manufacturers traditionally have preferred to
use this same approach when preparing for produc-
tion. However, increased international competition
recently has forced some major manufacturers to use
accelerated preparation for production, in spite of its
increased risks, in order to get products to the market
earlier and maintain market shares.b
The Soviet military uses the accelerated technologi-
cal preparation-for-production process for weapons
development. It has accepted the early technology
freeze and the risk of increased production costs, in
part because it has been ensured of complementary
and follow-on programs to offset the risks of incorpo-
rating new technologies. Gorbachev ordered Soviet
civil enterprises to use accelerated production prepa-
ration beginning in 1987. He hopes that better and
standardized design work will both quantify and
reduce the risks associated with early production and
production technology freezes.c
b "Increased Standardization of Planning," The Wall Street
Journal (23 February 1988): p. 1.
c B. N. Sokolov, first deputy chairman of Gosstandart, says,
"Clearly the risk here must be measured against the forecast
losses that particular design changes may entail."
More Standardized Planning. As noted in the inset,
preparing for production during the product design
stage may result in costly additional retooling because
mistakes early in the product design process will be
transmitted directly into the production process. Thus,
product design corrections require parallel changes in
made-to-order assembly lines. Gorbachev hopes to
reduce these risks through increased standardization
of product, process, and renovation design?a mea-
sure used in the defense industrial sector. Institutes
such as The State Planning, Technological, and Ex-
perimental Institute for the Organization of the Ma-
chine Tool Building Industry were set up and tasked
Secret
specifically to plan the "comprehensive retooling" 8 of
existing machine-building enterprises using standards,
normatives, and rules for construction (SNiPS) for
organizing renovation. Modularization, standardiza-
tion, and group technologies 9 are to be used for both
s"Retooling" in strict Western usage usually refers to the extensive
replacement of the tooling?fixtures, templates, dies, and jigs?
used with machine tools but does not refer to the replacement of the
machine tools themselves. "Comprehensive renovation" catches the
intent of this task more accurately than does "comprehensive
retooling."
9"Group technologies" is a manufacturing philosopy that identifies
and exploits the underlying sameness of the shape and size of
manufactured items and of the processes used for manufacturing.
See John Grayson, "Innovation at the Soviet Plant Level: The Case
of Group Technology (1950-70)" in Industrial Innovation in the
Soviet Union, ed. Ronald Amann and Julian Cooper (London: Yale
Press, 1982), pp. 101-126.
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new types of capital equipment and construction
materials. (After the new, tighter standards took
effect on 1 January 1988, chemical machine builders,
at least, were unable to manufacture certain special-
order equipment because it did not conform to
grouped drawings.)
Meanwhile, a March 1986 Council of Ministers de-
cree obligated Gosstandart and the machine-building
ministries to simplify the procedure for developing
technical documentation for new machine-building
output. In the same vein, the Soviets pushed standard-
ization of documentation for product changes?which
is especially important as all documentation work
must be repeated every time there is a change in the
product line.
Enhancing Dissemination of Information. Because
Soviet factories (vice ministries) are to make more of
the decisions about when and how to renovate, Gorba-
chev has taken steps to spread knowledge of new
technologies for renovation in order to improve the
quality of decisions made by the average factory.
First, he has increased the publicity given to the
technological successes of individual enterprises?an
approach in keeping with the Soviet tradition of
touting leading enterprises as examples to be followed.
The director of the Ivanovo Production Association
claims that 15 of the country's enterprises are using
Ivanovo designs. Indeed, when the Gor'kiy Automo-
bile Plant decided to modernize its truck production
lines, it decided to first create a subsidiary automated
production facility for specialized truck manufactur-
ing equipment based on proven designs and documen-
tation from the Ivanovo Machine Tool Plant.
Gorbachev has also strengthened Soviet?East Europe-
an enterprise-to-enterprise ties as a means of spread-
ing technical information and expertise. One example
of this is the Czechoslovak-Soviet joint research and
production association "Robot" founded in 1985.
Robot is now working on a plan to renovate the series
production of machine tools at Moscow's Krasnyy
Proletariy factory.
At the same time, the Soviets have put out several
feelers to involve Western businessmen in joint ven-
tures?authorized contractual partnerships between
Soviet and Western firms for the production of goods
13
on Soviet territory?which would require the renova-
tion of existing enterprises. This is a break from past
practices. Formerly the Soviets purchased Western
machinery primarily for reequipment, or occasionally
as part of major turnkey projects.
Double-Shifting Campaign. Gorbachev has made
double-shifting, which began in 1986 as a Leningrad-
based campaign, a national priority?especially for
machine builders. This program calls for transferring
workers on day shifts to evenings and nights to use
their enterprise's most advanced production lines to
full capacity. The now-surplus older lines are to be
scrapped, and the space freed by their removal is to be
used for even more advanced equipment, thereby
holding down the need for new industrial construction
and freeing resources for other uses. Moscow also
probably hoped that the move to double shifts would
pay for itself. While workers were to be paid more for
shift work, they were also supposed to be more
productive using the newer equipment.
Gorbachev put tremendous pressure on the party,
government, and ministries to implement double-
shifting. In Moscow alone 652 enterprises went to
double shifts in the first three quarters of 1987. The
cities, however, had trouble squeezing additional ser-
vices (transport, child care, public dining) from al-
ready strained infrastructures to support fully the
double-shifting campaign. Thus, in spite of the pay
differentials mandated by the decree on shift work,
the morale of workers assigned to the evening and
night shifts sagged, absenteeism and job turnover
increased, and productivity suffered (see figure 6).
Meanwhile, enterprises found it difficult to meet their
increased payrolls using only their own resources.
Although they asked for increased assistance, the
leadership generally has only called upon cities and
enterprises to introduce double-shifting in a better
and more vigorous manner without telling them how
or giving them additional resources. As a result, the
number of workers on second and third shifts was only
2.5 percent higher in 1987 than in 1986.
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Figure 6. (Upper) Many enterprises turned out to
be unprepared for the transfer to two- and three-
shift work.
(Radio) We begin this transmission for those who
aren't sleeping.
(Lower) I generally enjoy the third shift.
Decentralizing Reform Measures
While pursuing new administrative measures to pro-
mote reconstruction, Gorbachev has introduced an
incomplete but major decentralizing reform program
to improve overall economic performance. Two ele-
ments of this reform?self-financing and the reconfig-
uration of foreign trade?directly affect enterprise
financial incentives to renovate.
Self-Financing. As of 1 January 1988, all civilian
machine-building enterprises were moved to self-
financing, and each is now expected as a matter of
course to finance all of its current and capital expen-
ditures (including renovation) from its sales revenues
and other internally generated funds?a condition
Secret
labeled "full economic accountability and self-
finance." Gorbachev hopes that, having earned the
money themselves, enterprises will spend it carefully
and effectively.
Under self-financing, enterprises should have more
automony because most renovation is to be financed
from the production development fund (PDF), the size
of which depends on amortization deductions, an
enterprise's current profits, and the share of those
profits that is to go into the production development
fund. But Moscow still determines how much money
can be spent on renovation because it controls the
share of enterprise profits that is placed in the PDF
and retains the right to reallocate investment funds
from renovation to, for example, housing by changing
the relative shares of profit placed in the PDF and an
enterprise's housing fund.
Further, financial shortfalls are often caused directly
by Moscow, because a plant's profitability is deter-
mined by the state-set price of its primary products.
Some 13 percent of all industrial enterprises now fail
to make profits, and many others fail to make profits
sufficient to fund their renovation needs. Industrial
prices are not due to change until 1990, so enterprises
cannot raise prices to cover costs. In a market econo-
my, factories would halt production if prices could not
be raised, but in the Soviet system neither option is
available. Such financial shortfalls obviously disrupt
retooling plans and postpone modernization.
The existence of enterprises that are operating at a
loss leads directly to another serious problem?the
tendency of ministries to use their profitable enter-
prises as "cash cows." Ministries with large numbers
of unprofitable enterprises tend to increase the share
of profits remitted by profitable enterprises to the
ministry?eroding the incentives for enterprises to
earn profits (see figure 7). One of the more radical
reform economists complained that ministries fixed
the shares of these remittances at 92 to 94 percent of
total profit. It's no wonder that Abel Aganbegyan
claims that this flexible allocation of profits can
"stifle anyone."
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Figure 7 This cartoon depicts a ministry taking
from the thrifty factory to give to the profligate
factory.
In late 1987 and early 1988, Moscow temporarily
bailed machine builders out of almost 4 billion rubles
of debt by combining a one-time debt forgiveness
program with a package of bank loans. However,
machine-building officials fear that when these loans
come due later this year, half their enterprises will not
have enough money to pay wages, much less to repay
the loans. Thus far, the new financial pressures that
the leadership had hoped would motivate machine
builders to produce more, retool, and conserve re-
sources have more often led to increased demands for
monetary relief that are likely to intensify, at least
until scheduled revisions in industrial prices take
effect in 1990.
Despite all of these problems, self-financing has al-
ready provided positive results?in some cases it
motivates enterprises to choose new capital equipment
more carefully. The same enterprise director who
previously was overjoyed when he received equipment
he had not ordered now claims that under self-
financing he must "look at every price 10 times" to
make sure he is not paying too much.
15
Direct Foreign Trade. The other reform program
affecting renovation is the reconfiguration of foreign
trade. In January 1987 Gorbachev expanded the
foreign trade rights of all civilian machine-building
ministries and selected machine-building enterprises.
They are now permitted to keep the bulk of the hard
currency profits that they earn through exports and
are supposed to spend their retained profits "primarily
on the import of machinery, equipment, and materials
for the needs of retooling and modernization."
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To date, the impact of changes in the foreign trade
area on factory modernization has been mixed. Mos-
cow still indirectly controls how much hard currency
an enterprise can earn by tasking factory capacity
through annual plans. Further, it is not clear whether
enterprises with foreign exchange rights will use them
to renovate?as intended by the reform initiative?or
instead will use them to support current production.
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Absorbing the New Measures Into the Economic
System
The administrative measures intended to support Gor-
bachev's factory renovation program could be bal- 25X1
anced against their decentralizing counterparts if
these were the only determinants of Soviet enterprise
behavior. Certainly accelerated preparation for pro-
duction can coexist with self-financing. But Gorba-
chev's renovation initiatives, to be effective, ultimate-
ly must find their niche within the overall schema of
the Soviet economy. Leonid Abalkin, Director of the
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Administrative Measures Versus Decentralizing
Reform
The preeminence of administrative, or directive, mea-
sures over decentralizing measures or market forces
has been the hallmark of the Soviet centrally planned
economy to the present and will remain so at least
through 1990. Traditionally, Soviet central economic
planners set output targets, determine input levels,
and allocate investment. While outputs, inputs, and
investment goods have prices, these prices are also
determined by the center and are changed only
infrequently. Prices do not change in response to
changes in the supply or demand of goods, so prices
do not serve to reallocate resources among alterna-
tive uses. Prices in this system exist primarily for
accounting purposes. Resources are reallocated only
when the center determines that there is a substantial
imbalance between supply and demand, and gaining
the center's attention sometimes requires an imbal-
ance of crisis proportions. If the central planners
decide to act, resources are taken from lower priority
economic sectors and transferred to higher priority
sectors.
Prices play a much greater role in a market, or
decentralized economy. When shortages occur, firms
initially bid prices of a good in short supply up, and
the good is reallocated from those firms for which it
is less important to those firms for which it is more
important. Next, the good's new, higher price sends a
signal to current or potential producers of the good to
produce more. They, in turn, reallocate their re-
sources and produce more of this good and cut back
on the production of other goods. The supply of the
original good expands, its price falls, the supply of all
other goods is reduced, and their prices rise.
which depend both on a firm's current and projected
profitability and interest rates. Market firms that
invest face the same choices?reequipping, recon-
struction, expansion, or new construction?faced by
Soviet enterprises. Ree quipping takes less time, can
be somewhat disruptive (and reduce current profits),
and provides limited payoffs. Reconstruction is more
disruptive, takes an intermediate amount of time, but
can provide substantial eventual returns. Expansion
does not disrupt current operations but costs more
and can take longer. Any of these options, or none,
could be best for a particular firm at a given moment,
depending on its individual situation and interest
rates.
The investment strategy of a firm operating in a
market is most influenced by prospective profits?
Gorbachev's proposed changes to the Soviet economic
mechanism will create only the facade of a market,
especially through this FYP and probably into the
next. The center will still set prices, and enterprises
will not be completely free to produce as many goods
as they wish at those prices. What is likely to happen
is that enterprises, to the extent possible, will produce
those items on which they can make a profit and
discontinue production of unl,rofitable items. Howev-
er, because prices of primary and intermediate goods
are also fixed, the market mechanism that re-
allocates production resources from one primary
good to another is short-circuited, and the producers
of profitable goods are likely to face shortages of
primary and intermediate inputs. Soviet enterprises
are likely to face similar problems with renovation in
a mixed environment. Enterprises are likely to find
particular equipment items are unobtainable, and
they will not have the legal authority to raise their
offer price
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Economics Institute of the USSR Academy of Sci-
ences, a five-year
plan is implemented either on a traditional, adminis-
trative basis or on a "reformed" basis; plans cannot be
implemented on a mixed basis. According to Abalkin,
the 1986-90 FYP is being implemented on an admin-
istrative basis (see inset). While Gorbachev has put a
few decentralizing, "reform" measures in place, they
are not yet fully operational in the sense that they are
the primary determinants of enterprise renovation
strategies. Their impact is muted in large part be-
cause centralized administrative planning is still the
Soviet norm, and meeting administratively deter-
mined, short-term output goals continues to be far
more important to an enterprise manager's career
than implementing renovation.
Because the vast majority of industrial activity contin-
ues to be driven by the traditional incentive system,
Gorbachev has to depend on redundant and overlap-
ping directives to guide renovation decisions to meet
FYP goals. These vestiges of the command econo-
my?especially directed investment and state or-
ders?will affect renovation decisions far more than
will the incentives provided by Gorbachev's reforms.
Directed Investment Quotas. The 1986-90 plan allo-
cates capital investments among ministries, depart-
ments, union republics, and branches of the economy
and specifies investment targets for the renovation
and retooling of existing enterprises. A typical enter-
prise that wishes to retool during the remaining years
of this FYP will be able to do so only if it has a plan
quota for renovation outlays, can acquire producer
durables through the Gossnab system, and has an
authorized construction quota. However, capital in-
vestments for enterprises were distributed and ap-
proved before the enterprises converted to self-financ-
ing. Consequently, the capital investment quotas were
not coordinated with the planned sources of financ-
ing?the enterprise's production development and am-
ortization funds. Some enterprises will have more
than enough to finance renovation projects from their
own funds; others will have to borrow from their
ministry or the USSR Construction Bank. However,
17
Curbs on Free Spending of Plant Profits
"The existing practice of defining the state order...
makes it practically impossible to find an outlet for
the additional profits. What can you purchase at your
discretion when the output of many enterprises and
whole sectors whose goods are of particular interest to
the consumer is 'swallowed by the state order'?
"What can the Volga Truck Plant acquire with the
130 million rubles in above-plan profit that it gained
last year? Buy a machine tool, for instance, from
Frezer? But all Frezer's output apart from packaging
and swarf [metal shavings] goes toward the state
order.... In its turn Frezer or another enterprise
'with revenue' may want to buy a bus, but practically
all the vehicles produced by the Ministry of the
Automotive Industry are incorporated in the state
order."
Izvestiya
15 January 1988
rearranging the capital investment allocations and
construction quotas will be much more difficult than
borrowing funds.'?
State Orders. State orders (goszakazy) are plan orders
for the most important types of goods?fuel, energy,
some consumer goods, and most producer durables?
that are placed by either Gosplan or the ministries.
State orders are a vestige of centralized control of
industrial production during the economic transition
period and protect critical programs such as weapons
production. However, the current high share of state
orders in total machinery output severely limits the
ability of machine-building enterprises to undertake
In the opinion of informed Soviet economists, the main function
of production development funds for many enterprises during 1988-
90 will be to provide Gosplan information so that it can more
accurately match capital investment quotas with projected sources
of enterprise investment finance in the 1991-95 FYP.
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renovation. For example, state orders account for 86
percent of the 1988 production program for the
Ministry of the Machine Tool and Tool Building
Industry, and/
state
orders for many machine-building enterprises in Mos-
cow "account in full for the entire production pro-
gram and at times are even in excess of production
capacity." These high levels of state orders relative to
capacity have led many to complain.(
These high levels of state orders slow machine-
building's modernization in four ways:
? Tasking at or near full capacity makes it impossible
for an enterprise to shut down production and
undertake major reconstruction.
? As is the case at the Moscow Ball Bearing Plant,
state orders can be placed for the least profitable
items, which reduces profits and, in turn, the size of
the enterprise's production development fund.
? The prevalence of state orders makes large PDFs
nearly irrelevant because there are few producer
durables available for purchase outside the state
orders system (see inset).
? Even when the state orders themselves are for
technologically advanced machines, the additional
planning required for state orders can slow the
diffusion process."
Disappointing Preliminary Results
Because so little has changed with respect to where
the decisions are made and the incentives affecting
these decisions, Soviet performance in machine-build-
ing plant renovation during Gorbachev's first years
largely continues to reflect the weaknesses inherent in
centrally administered renovation:
? In June 1987
70 percent of renovation investment provided
"zero" return because it was merely reconstruction
for the sake of reconstruction.
" Stepan Shalayev, head of the Central Council of Trade Unions,
complained at the October 1987 Supreme Soviet session that of 160
new machinery items developed by intersectoral science and tech-
nology complexes, only 78 were included in the state order of the
draft 1988 plan.
Secret
? By the third quarter of 1987, in Leningrad, 60
percent of rehabilitated plants surveyed had unspec-
ified problems reaching planned production levels.
? In Leningrad, many machine-building ministries
have put off renovation plans until 1990 after
sharply slowing the growth of investment dedicated
to renovation in 1987.
? Most recently, in February 1988, three Soviet econ-
omists admitted in a Planovoye khozyaystvo article
that the renovation of machine building "is in a
state of serious disruption."
Nor is Moscow having much success in concentrating
equipment and construction resources on the most
important projects. Reconstruction's higher priority
has not yet always paid off in practice. In 1986 and
1987, Soviet machine builders delivered only 33 to 50
percent of the requested amounts of basic types of
machine tools?lathes, polishing machines, and tooth-
cutting machines?ordered for reequipment and re-
construction projects. While the Soviets claim the
number of projects under construction was reduced by
11 percent in 1987, the average construction time was
shortened by 6 percent and still exceeds their guide-
lines by 260 percent.' For all of machine building, the
gap between resources invested and resources com-
missioned (available to use for production) remains
substantial (see figure 8).
Factory Modernization in the Remainder of
the 1986-90 FYP
As long as machine-building ministries and enter-
prises are held to their taut five-year and annual
plans, they cannot shut down plants for reconstruc-
tion. Reequipping and expansion will continue to
account for the greatest share of resources spent on
enterprise modernization, and accelerated technologi-
cal preparation for production will be implemented
only in the context of enterprise expansion. Most
improvements in planning, standardization, and infor-
mation flow are likely to lead to more effective
reequipping rather than more reconstruction. While
increased and better reequipping will provide a larger
and more modern production base than exists now, it
will not provide the gains that Gorbachev had hoped
would come from reconstruction, nor will it provide
''See Ye. T. Gaydar, "Improvements Course, Economic Review,"
Moscow Kommunist, No. 1 (January 1988): pp. 41-50.
18
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Figure 8
Growth of Capital Investment and Capital
Commissionings in Soviet Machine Building
Billions of 1984 rubles
Investment
...Commissionings
20
19
18
16
??? ...0
.00
#..
15
40'
400
do'
?0"
14
???
13
12
11
10
1981-84
85
86 87
319350 11-88
the modernized base that Gorbachev expected to
characterize Soviet machine building at the end of the
economic reform transition period.
The contradictions between administrative measures
and fledgling enterprise financial autonomy are likely
to delay factory modernization:
? State orders?backed by force of law?will continue
to be placed for unprofitable, obsolete, low-quality
items. Such orders often conflict with other state-
imposed requirements and can result in low profits
and fines for producing obsolete or low-quality
goods, which in turn draw down the production
development funds of producing enterprises. Minis-
tries often react to these perceived inequities by
reallocating PDFs from one enterprise to another,
further reducing the incentive to earn profits.
19
? Self-financing also threatens fulfillment of Gorba-
chev's renovation goals because the enterprises may
become more reluctant to spend their hard-earned
rubles. In early 1988, one Siberian enterprise re-
fused to upgrade its prototype assembly lines be-
cause under the new financial arrangements the
upgrade would be at the expense of workers' profits.
While the enterprise had some money, and acknowl-
edged the upgrading project had merit, it also felt
that it should be financed from its ministry's own
centralized resources because the ministry wanted
to develop the lines for use at other enterprises
within the ministry.
? Further, the wider range of choice envisioned under
self-financing is likely to be undercut by the stan-
dardization drive. Since technology evolves in often
unpredictable ways not subject to guidelines and
specifications, Moscow's attempts to administer
tightly the supply side of the product development
process are likely to impede, rather than reinforce,
an enterprise's freedom under self-financing to ac-
quire technically advanced, yet exotic, equipment.
? The edict on accelerated technological preparation
for production seems to lack an effective enforce-
ment mechanism and is likely to be ignored as long
as machine builders are dominated by state orders.
Also, though machine builders are now self-financ-
ing, the economic reforms have not reduced the
influence of the State Committee for Prices. As long
as enterprises face arbitrary and often retroactive
price rollbacks on successful new products, they
have only weak financial incentives to put new
models into production under any circumstances? 25X1
much less to halt current production and undertake
major reconstruction. Indeed, some Soviet econo-
mists fear that self-financing provides enterprises
significant opportunities to expand or start new
construction projects?leading to even greater dissi-
pation of construction resources than now exists.
This is the very problem Moscow was trying to
correct with increased project review.
25X1
Fundamentally, Soviet enterprise managers still cor-
rectly perceive that if they fail to fulfill the current
year's plan and promise to fulfill next year's plan
(after renovation) they are far worse off than they
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would be if they meet this year's plan and promise to
renovate next year.' At least until 1991 an enterprise
will be taking a high risk in stopping production to
reconstruct his factory.
Many problems in determining whether an enter-
prise's best modernization choice is to reequip, recon-
struct, expand, or build anew arise because Soviet-
administered prices fail to transmit accurate informa-
tion?they do not reflect actual resource scarcities.
Choices based on administered prices often turn sour,
and the overall costs of modernizing the economy
increase. However, even though the present system
inhibits choosing the most efficient path to modern-
ization, Gorbachev can implement policies to increase
the amount of modernization?though each option
has an attendent cost."
Prospects and Leadership Options
Gorbachev's current and proposed initiatives should
result in real but slow progress in factory moderniza-
tion. The return on his program will be limited
primarily by the fact that not one of the policies he
has introduced provides much incentive for enter-
prises to reduce current production for the sake of
future growth. Enterprises will continue to choose
reequipping as a means to meet centrally imposed
renovation goals and will avoid disruptive reconstruc-
tion. Factory modernization?as it is likely to be
implemented?will not yield the technological basis
for rapid economic growth:
? Expansion and new construction will remain the
types of factory modernization that enterprises pre-
fer. These are construction-intensive forms of
'' Soviet Professor of Economics V. Kirichenko, in the December
1987 issue of Planovoye khozyaystvo, discusses the 1988 plan and
notes, "The new principle that is being put into effect is: if you
failed to meet the plan in the current year, work more intensively in
the coming year, make up for lost time, meet the five-year plan
targets. This is specifically the position that will confront many
machine-building enterprises in 1988.'1
'" The nature of the above conflicts should change somewhat with
the further extension of reforms and adjustments to the price
system scheduled in 1990 and beyond. However, the analysis of the
potential for conflicts between factory renovation initiatives and the
next round of reforms is quite speculative and so is addressed in the
appendix.
Secret
investment, however, and will compete with the
high-priority housing program for limited construc-
tion resources.
? Significant technological boosts from better product
design are unlikely because the standardized, bu-
reaucratic system of product design has, if anything,
become more rigid.
? Extensive and effective reconstruction will occur
infrequently, usually only at selected enterprises
when Moscow brings intense pressure to bear.
If Gorbachev decides that factory modernization
should have a higher priority, he can take several
steps that would give a one-time boost to the pace of
factory modernization:
? He could scale back his announced plans to build
more housing. This would free construction re-
sources, permit modernization to take place through
expansion and new construction of factories, and
would not interfere with production at existing
factories. This option is unlikely given Gorbachev's
highly publicized commitment to increasing the
amount of housing.
? He could reduce planned investment in other invest-
ment-intensive sectors of the economy, such as
agriculture and energy. While this would free some
resources, it would not free the right type of re-
sources. Modernization can be boosted either by
transferring high-quality material inputs or con-
struction resources. Construction comprises a small
share of energy investment, and agriculture cannot
provide high-quality material inputs. In addition,
significant investment transfers would threaten the
food and energy program goals.
? He could reduce machine building's planned output
goals. For an individual factory, cutting the output
plan for a year or two provides the breathing room
needed for reconstruction. In the aggregate, howev-
er, cuts in machine building risk chaos because one
factory's production becomes the next factory's new
assembly line. But, if the plans are carefully crafted,
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implemented at the start of the next five-year plan
period (1991), and combined with imports of ma-
chinery and equipment sufficient to offset domestic
production shortfalls, this policy offers a way of
breaking out of a technological rut. The risk of this
option is that with either poor planning or bad luck
the Soviet Union could find that it had replicated
the Polish experience of the 1970s?piling up a
huge foreign debt to create new factories that are
technologically backward. The risk is probably too
great for Gorbachev to implement this option
throughout machine building, but his public state-
ments hint that he may consider it for factories
building textile or food-processing equipment.
? He could reduce defense spending. If defense's
claim on resources were reduced substantially, the
reduced tautness in the economy generally and the
greater availability of high-quality resources would
permit more and better equipment designs to pro-
ceed from the drawing board to series production.
As a result, the effectiveness of technical reequip-
ping could be increased. Reconstruction would also
be possible at civil factories whose quotas could be
cut because production of intermediate goods for
defense was no longer required. Gorbachev's public
statements indicate some sympathy for this option.
Reverse Blank 21
While each option would provide a one-time boost to
factory modernization, none of these centralized, ad-
ministrative actions would create the groundwork for
an improvement in the factory modernization process.
In the absence of systemic change and relaxation of
taut planning targets, Gorbachev's program is likely
to provide only modest improvements. The use of
reconstruction as a common method of modernization
is unlikely until Moscow's power to administer factory
output and technological design is reduced. Until
then, most factory renovation will continue to take the
form of reequipping, and new machinery models will
be only incrementally better than those they replace.
Thus, Gorbachev's attempt to modernize the civil
machine-building production base?while making
some progress?is not likely to provide the hoped-for
gains in efficiency, improved product quality, and
production levels, nor will it result in the modernized
technological base planned for civil machine building
by 1990. As a result, we believe broader industrial
modernization?a process dependent on the availabil-
ity of more and better machinery and equipment?
will fall far short of plan.
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Appendix
Factory Modernization in a
"Restructured" Economy
The investment process during the 1991-95 FYP is to
be based on a "reformed" system, but factory mod-
ernization in the 1990s will be shaped by both admin-
istrative and reform measures. Reformers want finan-
cial incentives to be the primary guides to enterprise
renovation decisions, with the expectation that finan-
cial incentives will be so structured that enterprises
will voluntarily seek out optimal technologies, acceler-
ate the preparation-for-production process, and
choose double or triple shifts without the club of
administrative compulsion.
The "Ideal" Investment Decision Making Process
In a "reformed" economic system, Soviet enterprises,
in theory, will behave as would Western firms faced
with the challenge of modernization. Soviet enter-
prises will maximize profits, for the good of the
collective and the locality, based on new, rational
prices (circa 1990) and subject to constraints imposed
by Gosplan and the ministries. Thus, if an enterprise
sees the need to renovate early in the five-year
planning period, it will slow production, modernize its
assembly lines, and make up for below-target output
early in the period with above-target output late in the
period. Alternatively, if an enterprise produces above
plan targets early in the period, it can accumulate
money in its PDF, secure in the knowledge that
targets will not be raised, that its PDF will not be
reallocated, and that it can shut down and modernize
late in the plan period. Because enterprises will be
under pressure to maximize a stream of profits, they
will voluntarily risk accelerated preparation for pro-
duction, just as Western firms have done.
Also in theory, modernization will be planned on the
basis of the best available technology?Western, East
European, or domestic. Gorbachev plans to increase
the availability of domestic equipment by revamping
the unresponsive centralized Soviet wholesale trade
and distribution system. Free wholesale trade in the
means of production?producer durables?is sched-
uled by 1992. Enterprises will be able to purchase
equipment best suited for their particular renovation
23
needs on the basis of direct negotiations with suppli-
ers. Purchases abroad will be made using the firms'
own export earnings. The ministries, Gosplan, Gos-
stroy, and the GKNT, however, will continue to share
overall responsibility for guiding the technological
modernization of enterprises. Increased standardiza-
tion of products, processes, and project development
will permit them to conduct their oversight responsi-
bilities in a more timely and accurate fashion.
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Factory Modernization in Practice?Difficult Choices
But before the Soviet modernization program of the
1990s can proceed as hoped, the Soviet leadership
must decide between wider adoption of decentralized
incentives and continued reliance on administered
controls. Moscow's challenge will be to set financial
incentives that ensure the proper level and quality of
investment and the right mix of reconstruction. The
Soviet leadership's desire to have factory moderniza-
tion guided more by financial levers and less (but still
influenced) by administrative levers could be thwarted
unless leadership preferences are consistent and prices
accurately reflect these preferences. To do so, the
planners and the leadership will have to devise and
agree on a price mechanism that features sufficient
competition and flexibility to assure that:
? Enterprises make the "right" choice between cur-
rent output and modernization for future
production.
? Enterprises have the incentives to develop and dis-
seminate new technologies.
? Enterprises that attempt to produce new products
are able to bid for essential high-quality raw materi-
als and intermediate inputs?priority goods that
traditionally have been administratively allocated to
the defense sector.
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Between Current Production and Modernization. In a
market economy, the balance between current pro-
duction and modernization is struck as millions of
firms and individuals evaluate their own unique in-
vestment options with regard to product and input
prices and current interest rates. After the next round
of reforms, the Soviet leadership intends to set the
aggregate volume of investment and to allocate much
investment directly from Moscow, letting financial
incentives guide remaining investment decisions. Mos-
cow faces the challenge of inducing tens of thousands
of enterprises to undertake actions that mesh with
central goals. The leadership will probably find that
financial incentives are unwieldy and erratic instru-
ments of compulsion. For example, to encourage
machine builders to produce more requires high pro-
ducer prices for capital goods. However, as prices of
producer durables rise, enterprises become more re-
luctant to retool. If the Soviet leadership nevertheless
forces the pace of factory modernization in the face of
rigid prices for producer durables, it may be forced to
provide enormous subsidies for reconstruction.
Price manipulation to encourage reconstruction rather
than reequipping or expansion will also cause difficul-
ties. Decentralization, combined with the expected
"high" control figures for output targets, will continue
the current incentives for enterprises to expand rather
than undertake reconstruction. While these incentives
can be offset by raising the prices of construction
materials, this action is inconsistent with Gorbachev's
housing construction (and cost containment) goals,
and attainment of both objectives would require dif-
ferentiated prices for builders of houses and builders
of factories. If prices are not differentiated, excessive-
ly high prices will encourage reequipment at the
expense of reconstruction, but prices that are too low
will cause too much factory expansion (vis-a-vis hous-
ing) or a shortage of construction materials.
Thus, while enterprises will be encouraged to respond
to price incentives, their actions will frequently be at
odds with central goals. Moscow implicitly acknowl-
edges this dilemma and is prepared to override incom-
patible responses to price incentives with another
mechanism of central control. The Gosplan decree
directs Gosplan to determine "overall volumes of
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contract construction work as the basis for the conclu-
sion of contracts by construction organizations." In
effect, the central planners will continue to set indi-
vidual investment and renovation quotas for each
enterprise?the current procedure?and this will
override many of the incentives of self-financing and
PDFs.
Between Standardization and the Diffusion of New
Technologies. Prices also affect the diffusion of new
technology. In a market economy, firms have the
choice of either developing or using new technologies.
Relative freedom of entry, even with patents, means
that alternative technologies can be developed to solve
particular production problems, and prices of new
classes of advanced equipment, such as computers,
tend to fall as new suppliers enter the business. The
central administration of technology reduces the free-
dom to develop and produce products incorporating
new technologies.
Moscow plans to change prices of producer durables
by 1990 to reflect changes in resource costs that have
occurred since the last major price revision in 1982.
Because technology is also an input of new equipment
models, its cost should be incorporated in the price of
new equipment. Moscow, however, finds it difficult to
measure either the costs or benefits of new technology
with any accuracy, so setting correct prices for new
equipment is difficult. The diffusion of new technol-
ogies is also hindered by the absence of financial
incentives encouraging innovating enterprises to share
information on indigenously developed technologies.
For example, the director of the Ivanovo Machine
Tool Production Association wants the rules changed
so that his plant will receive 5-percent royalties on
every process it develops. Others, mostly inventors,
argue that payments should go to the individual
inventor rather than the sponsoring plant. Without
incentives, both enterprises and their employees are
uncooperative about sharing expertise and technologi-
cal dissemination is delayed.
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In spite of these drawbacks, Moscow intends to
maintain the preeminence of administrative measures
in technology policy. Gosstroy, the GKNT, Gosstan-
dart, the ministries, and the Machine Building Bu-
reau will continue to share responsibility for setting
technological standards and disseminating technol-
ogies. Although central administrative control of tech-
nological policy and prices generally distorts incen-
tives and hinders technological progress, it provides
some benefits, especially if monopolies are wide-
spread. Administered technology?along with cen-
tralized prices and mandatory plans?can counteract
the tendency of monopoly suppliers of equipment to
provide limited quantities of low-tech equipment at
high-tech prices. One result of decades of Soviet
campaigns for specialization is that many important
types of producer durables are produced at only one or
two enterprises. As Ryzhkov said, "monopolism is
literally suffocating us." Without competition in the
manufacture of, for example, food-processing equip-
ment, the elimination of centralized technology policy
risks the fulfillment of Moscow's high-priority plan to
rapidly modernize the food-processing industry. Thus
Moscow will be tempted to centrally administer tech-
nology until sufficient competition develops among
machinery suppliers to provide incentives to build
advanced equipment.
Between Guns and Butter. Because the USSR's huge
defense sector cannot be isolated from the rest of the
economy, continuing to ensure defense's priority claim
on resources by administrative means will put added
pressure on markets. In particular, defense's claim on
industrial resources is so large that the Soviet leader-
ship will have to perform a delicate balancing act to
Reverse Blank 25
keep profits from state orders from becoming either
too large or too small, and thus hindering the relative
development of either the enterprises engaged primar-
ily in civil production or the enterprises that specialize
in state orders. For example, those civil plants that
make components for defense are likely to receive
state orders to do so?at prices set by the state. Many
enterprises that are forced to take such orders are
likely to make below-average profits?limiting their
ability to finance modernization or provide worker
amenities.
The priority given to defense also creates distortions
in product design. In an economy of pervasive short-
ages, designers of civil machinery will still be forced
to design products around actual material availability
rather than designing products to meet theoretically
better but practically unreachable specifications. For
example, Soviet locomotives are now designed around
the limitations of low-grade steel?the only steel
generally available with which to build locomotives.
The use of lower quality steel also has hindered Soviet
efforts to adapt US technology to Soviet combines.
stainless steel constitutes only 30 percent
of the materials used to construct Soviet machinery
for food processing, whereas the proportion is about
60 percent in the West.
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