A COMPARISON OF THE US AND SOVIET ECONOMIES: EVALUATING THE PERFORMANCE OF THE SOVIET SYSTEM

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• Publication Date: October 1, 1985
• Content Type: REPORT

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Directorate of Confidential
Intelligence
A Comparison of the
US and Soviet Economies:
Evaluating the Performance
of the Soviet System
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Confidential
SOV 85-10175
October 1985
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Directorate of Confidential
Intelligence
of the Soviet System
A Comparison of the
US and Soviet Economies:
Evaluating the Performance
from
This paper was prepared byl Office of
Soviet Analysis, with contributions and assistance
Assessments Division, SOYA,
Comments and queries are welcome and may be
addressed to the Chief, Defense and Economic
25X1
25X1
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Confidential
SOV 85-10175
October 1985
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Preface In October 1961 Nikita Khrushchev boasted at the 22nd Party Congress
that by 1981 the Soviet Union would have a higher standard of living than
any capitalist country. He also predicted that the USSR's industrial output
would be twice the 1961 level of the entire nonsocialist world. These goals
were reflected in the Party Program ratified by that Congress. Soviet
economic performance at the time was robust, and the prospect of catching
up with the United States did not seem unattainable.
In February 1986 Mikhail Gorbachev will preside over the 27th Party
Congress. A new Party Program will be ratified that will outline a program
to revitalize an ailing economy that still trails far behind that of the United
States.
This comparison of the US and Soviet economies presents briefly the
information we consider most important to an understanding of what has
happened in the interval between the two Party Programs.
For easy use, it is organized in
questions and answers and makes liberal use of graphics.
The main sources of data are:
CPAS 85-10001
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September 1985, Handbook of Econom- 25X1
is Statistics: 1985.
US Bureau of the Census, Statistical Abstract of the United States:
1985 (105th edition), Washington, DC, 1984.
USSR Central Statistical Administration, Narodnoye khozyaystvo
(annual editions).
Joint Economic Committee of Congress, Soviet Economy in the 1980s:
Problems and Prospects, (parts 1 and 2), Washington, DC, 1982.
Other publications that were drawn upon and may be of interest to the
reader are cited at the end of each section. 25X1
Confidential
SOV 85-10175
October 1985
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A Comparison of the
US and Soviet Economies:
Evaluating the Performance
of the Soviet System
Key Judgments General Secretary Gorbachev reportedly wants to make good on Khrush-
Information available chev's boast that the USSR would surpass the United States economically
as of 1 August 1985 and industrially. Moreover, recent articles by Gorbachev's economic
was used in this report
adviser, Abel Aganbegyan, have highlighted the large gap between Soviet
and US levels of output and productivity and have called for high growth-
through the introduction of new technology and improved economic
management-as the necessary policy response.
The Soviets' use of the US economy as the standard against which to
measure their own progress is longstanding. In fact, comparisons of Soviet
economic performance with that of the United States are given a promi-
nent place in the USSR's major statistical compendium. This preoccupa-
tion with comparisons stems in part from being number two and having to
try harder and in part from the ideological need to demonstrate the
superiority of the Communist system.
But the Soviets' own statistics show that they have made no progress in
overtaking the US economy since the mid-1970s. More detailed compari-
sons based on Western measures (presented in this report) give a picture
that is generally similar, with the USSR falling somewhat further behind
in some areas.
The areas in which recent Soviet performance has been poorest relative to
US performance since the mid-1970s are GNP size and growth, per capita
consumption, quality of consumer goods and services, agriculture, develop-
ment and application of new production technologies, and labor
productivity:
? The Soviet economy on average grew faster than the US economy from
the mid-1960s to the mid-1970s, raising Soviet GNP from 49 to 57
percent of US GNP. After 1975, however, the US economy grew faster,
and Soviet GNP fell to 52 percent of the US level in 1984.
? The USSR's consumption level is like that of a country with a much low-
er per capita GNP. The costs of its defense activities for many years have
exceeded US levels-often substantially-and its investment levels near-
ly match US levels, but its per capita consumption expenditures are only
about one-third those in the United States.
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? The poor quality of many Soviet consumer goods and services is a
persistent torment of daily life:
- Health care is notoriously bad: insufficient funding, lack of qualified
personnel, and shortages of supplies have helped to lower Soviet life
expectancies.
Housing is shoddily constructed and poorly maintained, and about 20
percent of the urban population either lives in dormitories or shares
living space with unrelated families and singles. In addition, most
newlyweds are forced to live with their families because the waiting
period for a new apartment may be as long as a decade.
- Soviet consumer goods are usually of lower quality than Western
models. The lack of quality control and the unpopular mix of
available items are significant sources of consumer dissatisfaction,
which contributes to low labor productivity. In the United States,
items incorporating recent technological advances-digital watches,
calculators, and video recorders-are widely available at low cost, but
these are not generally available in the USSR. Soviet domestic
production of many of these items started several years after
commercial production began in the United States.
The Soviet diet contains more starchy staples than the American, and
a larger proportion of Soviet daily protein intake comes from nonmeat
sources. Shortcomings in processing and distribution often limit the
variety of foods, especially fresh fruits and vegetables out of season.
? The USSR has an agricultural labor force eight and a half times as large
as that of the United States, and it has 40 percent more land under
cultivation and pasture. Yet agricultural production in the late 1970s and
early 1980s failed to match the rapid growth in the Soviet demand for
food. Shortages of quality foods like meat and dairy products have
become chronic in some areas and are worsening.
? Some elements of the USSR's industrial and defense sectors are among
the most advanced in the world, yet Soviet production technology has
lagged behind technology in the West, and both productivity and product
quality have suffered. With continued rapid Western advances, the
Soviet lag in critical production technologies is likely to continue and
may indeed grow.
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- The best Soviet computer-operated machine tools lag about three to
four years behind Western models. We estimate that the United
States currently has 550 cells (combinations of one or more numeri-
cally controlled machine tools with pallets and robots for materials
handling, assembly, and checkout) in operation, while the USSR has
50.
- The growth of the robotics industry in the USSR is inhibited by
shortages of key electronic components and hardware and by quality
problems. Many industrial facilities are too antiquated and improper-
ly staffed to assimilate robots. Thus, the USSR lags considerably
behind the West both in the production of advanced robots and in
their integration into computer-integrated manufacturing.
- Progress in Soviet domestic production (coupled with imported for-
eign technology) cut the West's lead in microelectronics technology
from eight to 10 years in the mid-1970s to approximately four to six
years in 1985. Deficiencies in Soviet production technology, however,
are holding back advances in circuit complexity.
- Although the Soviets now have modern unified computer systems,
their progress in computer technology and production has been
dwarfed by advances in the West and Japan. The Soviets lag behind
the West by an estimated seven to eight years in mainframe
technology and four to six years in the development of minicomputers
and microcomputers. Only 8 percent of all Soviet industrial facilities
had mainframe computers in 1984, including one-third of the facili-
ties with over 500 employees. By comparison, virtually all US
industrial facilities with more than 100 employees have computers. In
addition to this shortage of equipment, computer applications have
been constrained by slow software development and severe shortages
of programers and repair technicians.
? Overall and in detail, Soviet labor is less productive than US labor;
Soviet GNP per worker is only 38 percent of the US level.
Soviet performance in other areas is brighter:
? In terms of overall nutrition, the diet now nearly matches that of the
United States. Although Soviet citizens on the average still eat only half
as much meat as US citizens do, their per capita consumption of meat
has increased by 40 percent since 1970.
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? While US manufactured goods are frequently of higher quality than
Soviet goods, the USSR is the world's leading producer of several basic
raw industrial products, such as pig iron, crude and rolled steel, certain
types of machine tools, electric generators, and cement.
? The USSR produced more energy in 1984 than any other country except
the United States, and was the world's largest producer of crude oil and
natural gas.
? Soviet per capita expenditures for consumer durables are less than 20
percent of the US level-but they have nearly doubled since 1960.
Almost every US family has a refrigerator and at least one TV set; two-
thirds of all Soviet families have refrigerators and three-fourths have TV
sets.
Despite some progress, the Soviet system has become less attractive as a
model for development. Several Communist countries, particularly China,
have in some sectors moved from centralized planning toward free markets,
suggesting that the influence of the Soviet system has already weakened.
The limited and largely experimental reforms of the Brezhnev, Andropov,
and Chernenko years did nothing to correct the basic systemic distortions
that ultimately prevent Soviet planners, managers, and consumers from
making economically efficient decisions. Three fundamental flaws are (1)
the lack of reliable price signals to guide economic decisions; (2) the limited
influence that consumers have on producers; and (3) the absence of real
competition among suppliers.
Comparisons between the US and Soviet economies are hampered by
several difficulties, many of which are common to all cross-national
comparisons. Most of the conceptual problems arise from the differences in
the structure and maturity of the two economies. A greater variety and
higher quality of goods generally are produced in the United States than in
the USSR, and these goods are produced in different proportions in each
country, with the proportions themselves varying from year to year. In the
area of data availability, Soviet data have been criticized on a number of
grounds, including their selectivity, the choice of weighting systems that
present achievements in the best possible light, and-occasionally-
outright falsification. These problems and others are elaborated on in
appendixes A and B.
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These problems notwithstanding, US-Soviet economic comparisons are
useful because (1) they illustrate the performance of the Soviet economy in
terms familiar to US policymakers (that is, US economic concepts) and (2)
they measure Soviet economic progress against a standard that the Soviets
themselves have chosen-the US economy. More important, in a world of
competing national interests and ideologies, such comparisons provide a
perspective on the relative economic strength of the two countries.
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Key Judgments v
?
How Big Is the Soviet Economy?
2
How Does the Distribution of Output by End Use Differ in the
USSR and the United States?
6
How Does Soviet Industrial Performance Compare With That of
the United States?
10
Why Did Soviet Industrial Production Fare Badly in the
Late 1970s?
12
How Well Do the United States and the USSR Develop and Apply
Technology?
13
Agriculture
19
How Do Soviet Natural Conditions and Agricultural Organizations
Compare With Those in the United States?
20
How Does Soviet Agricultural Performance Compare With That in
the United States?
22
Why Did Soviet Agricultural Production Slip in the 1970s?
26
How Does Energy Production in the Two Countries Compare?
32
How Do the United States and the Soviet Union Meet Their
Transport Needs?
38
Foreign Trade
41
What Is the Magnitude of Foreign Trade in the Soviet Union and
the United States?
42
Who Are the Principal Trading Partners of the Two Countries?
43
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How Have Labor Force Trends Diverged in the USSR and the 54
United States?
What Progress Has the USSR Made in Raising Factor Productivity 56
to World Levels?
Aggregate Trends in Per Capita Consumption 60
Housing 70
A. Derivation and Significance of the Geometric Mean Measure in 75
International Comparisons
B. Problems in Measuring Quality Differences
1. Selected Lines of Production in Which the US and USSR Lead 10
the World, 1984
2. US and USSR: Relative Standing in the 20 Most Important Basic 14
Technology Areas
8. Average Annual Growth of Output, Employment, and Capital Stock 56
9. US and USSR: Retail Sales of Major Consumer Durables, 1982 65
10. USSR: Lag in Production of Consumer Goods 65
12. US and USSR: Change in Mortality by Age Between 1966 68
and 1976
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1. Gross National Product (GNP), Selected Years
2. Ruble Difference Between US and Soviet GNPs, 1960-84 3
3. Dollar Difference Between US and Soviet GNPs, 1960-84 3
4. Components of GNP, 1960-83
5. Average Annual Growth of GNP, 1961-84
6. Defense Burdens, 1965-83
28. Composition of Freight Traffic, 1970 and 1984
7. Consumption and Investment as Shares of GNP, 1960 and 1983 7
8. Index of Industrial Production, Selected Years, 1965-84 11
9. Production of Minerals and Metals, 1984
10. Production of Chemicals and Rubber, 1984
11. Production of Selected Manufactured Goods, 1984
29. Stocks of Transportation Equipment
12. North American Climatic Analogs for Soviet Crop Regions 21
15. Agricultural Production, 1984
16. Number of Persons Supplied by One Farmworker, Selected Years 23
17. Labor Requirements for Agricultural Production, 1979-83 Average 24
18. Investment in Agriculture, 1976-83
19. Agriculture's Share of Real GNP, Labor Force, and Total 25
Investment, Selected Years
20. Value of Soviet Net Farm Output and Net Farm Product 27
Trade, 1970-84
21. Proved Energy Reserves, 1984
22. Shares of Proved World Energy Reserves, 1984
23. Areas of Current Soviet Oil and Gas Exploration
24. Production of Primary Energy, 1960-84
25. Energy Production, Selected Years
26. Energy: Dependence on Foreign Suppliers, 1974-83
27. Trends in Freight Traffic and GNP, 1970-84
30. Total Trade Turnover, Selected Years
31. Share of Foreign Trade by Type of Trading Partner, 1984 43
32. Exports, 1983
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34.
Rates of Population Change, 1951-84
35.
Soviet Regional Population Change, 1970-84
36.
Urban and Rural Populations, Selected Years
37.
Age-Sex Pyramids, 1981 and 2000
51
38.
Labor Forces, Selected Years
39.
Rates of Female Participation in the Labor Forces, Selected Years
55
40.
Average Annual Increments to the Working-Age Populations,
1970-84
55
41.
Agricultural Labor Forces, Selected Years
42.
Per Capita Consumption Expenditures, 1983
43.
Diets, Selected Years
44.
Per Capita Meat Consumption in Selected Countries, 1982
63
45.
Washing Machines in Use, Selected Years
46.
Refrigerators in Use, Selected Years
47.
Life Expectancy, 1960 and 1980
49.
Passenger Travel Between Cities by Common Carrier, 1982
73
50.
Private Ownership of Automobiles, 1960 and 1980
51.
Production of Passenger Cars, Selected Years
D
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Comparisons of Gross National Products
The development of the Soviet economy relative to that of the United
States since Khrushchev's day may be traced through a comparison of
trends in aggregate GNP and in the major categories of GNP (consump-
tion, investment, and defense). In this first section we set the stage for the
other comparisons in the paper by posing the questions:
? How big is the Soviet economy?
? How fast has the Soviet economy grown?
? How does the distribution of output by end use differ in the USSR and
the United States?
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How Big Is the Soviet Economy?
GNP
The gap between the Soviet and US economies nar-
rowed between 1960 and 1975, as Soviet GNP rose
from 49 to 57 percent of the US total.' The USSR lost
ground after that, however, as its GNP fell to 52
percent of US GNP by 1984 (figure 1). Viewed in
another way, Soviet GNP in 1984 was about as large
US
as
GNP was 20 years earlier.
Although the Soviet Union gained some ground over
the past two decades, the size of the absolute differ-
ence in annual production increased, whether mea-
sured in rubles or dollars (figures 2 and 3). In years of
recession in the United States (for example 1970,
1974-75, 1980, and 1982) the gap was narrowed, but
overall it widened noticeably after 1976. Between
1960 and 1984, US GNP grew more than Soviet
GNP by $450 billion or 385 billion rubles.
Defense 2
US defense spending declined in real terms during
1969-76 as the United States disengaged from the
Vietnam conflict. During approximately the same
period, consistent growth pushed total Soviet defense
costs to a peak about 40 percent higher than those of
the United States (figure 4). The annual rate of Soviet
defense growth slowed after 1976. With the accelera-
tion in US defense spending, the gap has closed
markedly, but the cumulative costs of Soviet defense
activities between 1976 and 1983 still exceeded those
of comparable US activities by about 30 percent. F_
As a result of these trends, the Soviet Union commit-
ted substantially more resources to defense activities
than did the United States over the last decade. The
To compare two economies, each country's goods and services are
priced in the other's currency. The "average" is obtained by
calculating the geometric mean of the comparisons in dollars and
rubles (see appendix A). See also appendix B for a discussion of how
quality differences between US and Soviet goods and services are
handled.
Soviets procured more weapons of almost every type,
operated larger forces, and pursued a greater research
Investment
Total Soviet investment in buildings, structures, ma-
chinery and equipment, and selected aspects of capital
repair grew almost twice as fast as that of the United
States during 1960-83; it averaged 5.5 percent annu-
ally, while that of the United States averaged 3
percent. Soviet investment stayed at about three-fifths
of the US level through the mid-1960s, rose to three-
quarters by the early 1970s, and slightly exceeded US
investment in 1975, 1976, 1982, and 1983.
Consumption
The Soviets have gained slightly in total consumption
since 1960. Their consumption over the period rose
from 37 percent of the US level in 1960 to 41 percent
, Comparisons of per capita consumption-widely used as measures
of standards of living-will be presented in the Living Standards
section. The pattern of growth in per capita consumption is
essentially the same as in total consumption because the two
populations have grown at roughly the same rate since 1960. Soviet
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Figure 1
Gross National Product (GNP),
Selected Years
Figure 2
Ruble Difference Between US
and Soviet GNPs, 1960-84
Soviet as a percentage of US Billion 1970 rubles
100 US level 1,400
Note: The Soviet level is the geometric mean of the dollar
and ruble comparisons (see appendix A).
Figure 3
Dollar Difference Between US
and Soviet GNPs, 1960-84
Absolute
difference
-Absolute
difference
Soviet
Figure 4
Components of GNP, 1960-83
I I I I I I I i i i l l l l l l I l l l
0 1960 65 70 75 80 83
Note: The Soviet level is the geometric mean of the dollar
and ruble comparisons (see appendix A). The defense
comparison begins in 1965 because we are less confident
in our estimates for 1960-64.
Soviet
consumption
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How Fast Has the Soviet Economy Grown?
Official Soviet Statistics Compared With
Western Estimates
Both the official Soviet statistics on national income
and the various Western estimates of Soviet GNP
have shown a slowdown in economic growth in the
USSR since the mid-1960s, even though the measures
are different. (The Soviets use a Marxist concept of
national income-net material product-that ex-
cludes most of the value of services and depreciation.)
Soviet GNP Growth Compared With
US GNP Growth
Through the 1960s and up to the mid-1970s, Soviet
real growth rates were higher, on average, than US
rates (figure 5). The pattern shifted in favor of the
United States between 1976 and 1984, when Soviet
average GNP growth was less than that of the United
Short-term variations in the relative size of US and
Soviet GNP have had various causes. Ups and downs
in the United States have generally reflected business
cycles. The major cause of annual swings in Soviet
GNP, on the other hand, has been variation in
agricultural output-agriculture being influenced by
weather in spite of planning. (Planning tends to
promote economic stability by controlling fluctuations
in demand-although plan goals may not be met, for
a variety of reasons.) As a rule, though, Soviet GNP
has been less volatile than US GNP.
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Figure 5
Average Annual Growth of
GNP, 1961-84
Note: Both GNPs are measured in own prices. The base years
for these periods are 1960, 1965, 1970, 1975, and 1980.
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How Does the Distribution of Output by End Use
Differ in the USSR and the United States?
Defense
Changes in shares of defense spending in GNP have
produced the greatest changes in the distribution of
GNP in the two economies in the last two decades.
After the Vietnam war the United States halved the
share of GNP going to defense-from 10 percent in
the late 1960s to 5 percent by the mid-1970s (figure
6). Then US defense spending increased in the early
1980s, pushing the defense share of GNP to 6 percent
in 1983. The Soviets, on the other hand, allocated to
defense a fairly steady share of GNP-between 12
and 13 percent-over the whole 1965-83 period.
These burden estimates are based on a US definition
of defense that includes the following US activities
(and their Soviet counterparts): national security
programs funded by the Department of Defense,
defense-related nuclear programs funded by the
Department of Energy, Selective Service activities,
and the defense-related activities of the Coast Guard.
It does not include those activities that might be
considered to be related to a broader concept of
national security, such as strategic reserves, industrial
surge capacity, civil defense, and military aid. Inclu-
sion of such activities in a definition of defense would
result in a higher burden for both countries.
Investment
Since 1960 the USSR has devoted a greater share of
its economic resources to investment than has the
United States (figure 7). In the USSR, investment
climbed steadily from 20 percent of GNP in the early
1960s to 28 percent by 1983, while in the United
States it fluctuated between 17 and 20 percent. Soviet
investment in machinery and equipment increased
from 4 to 12 percent of GNP, while investment in
construction remained fairly steady around 15 to 16
percent of GNP. In the United States, investment in
machinery increased from 5 to 9 percent of GNP,
while construction's share steadily decreased from 13
to 9 percent.
Consumption
Consumption accounts for a much larger portion of
GNP in the United States than it does in the Soviet
Union-71 and 57 percent, respectively, in 1983.
Within the consumption category, the US economy
has increasingly shifted toward the provision of ser-
vices, while the Soviet economy has not. The Soviet
service sector remained at a relatively steady 12
percent of GNP over the last two decades, while the
US service sector increased from 34 to 39 percent of
GNP by 1983. In both countries, the share of GNP
devoted to durables increased while the share devoted
to soft goods remained about the same. As incomes
rose, the share going to food decreased, as would be
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Figure 6
Defense Burdens, 1965-83
Soviet
US
0 1965 70 75 80 83
Note: US data are in 1976 dollars; Soviet data are
in 1970 rubles.
Figure 7
Consumption and Investment as Shares of
GNP, 1960 and 1983
Consumption
Investment
Consumption
Investment
Defense and othera
a "Other" includes administration (bodies providing municipal,
state, and federal government services), net exports, inventory
change, foreign military assistance, and any statistical discrepancy.
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Defense and othera
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Industry
Rapid expansion of the industrial sector has long been a priority goal in
the USSR, because Soviet economic doctrine holds that industry is the
base from which economic development springs. In this connection, the
Soviets have frequently used the industrial output of the United States as
a benchmark of their progress. For example, Khrushchev predicted in
1959 that Soviet industry would outproduce US industry by 1970. In
1982, by Soviet calculations,' Soviet industrial output reached 80 percent
of US output-a remarkable achievement, but still short of Khrushchev's
mark. Soviet industrial growth, moreover, slowed unusually sharply after
1975. This section addresses the questions:
? How does Soviet industrial performance compare with that of the United
States?
? Why did Soviet industrial production fare badly in the late 1970s?
? How well do the United States and the USSR develop and apply
technology?
Comparisons of GNP by sector of origin (for example, industry or agriculture) are not gen-
erally made in the West. This is because such comparisons would require price deflators and
an array of ruble-dollar ratios for intermediate products that are not now available or likely
to become available, given the Soviet policy of not releasing the necessary information. F
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How Does Soviet Industrial Performance Compare
With That of the United States?
Rates of growth of industrial production have been
higher in the USSR than in the United States through
most of the postwar period (figure 8 shows the recent
years). The sector that produces goods for other
industries has received particular emphasis. The Sovi-
et Union now outproduces the United States in such
basic products as crude and rolled steel, pig iron, and
cement (figures 9, 10, and 11). While it lags far
behind in several categories of modern technology,
such as electronics and computers, it has become the
world leader in many other industrial areas (table 1).
Limited variety and poor quality control detract from
the otherwise impressive Soviet industrial perfor-
mance. Low-quality metallurgy and fabrication are a
continuing problem. For example, the poor quality of
Soviet-produced drilling and pumping equipment and
large-diameter pipe has hampered Soviet production
of oil and gas and increased the petroleum industry's
demand for better equipment imported from the
West. In 1984 the USSR produced over five times as
many metal-cutting machine tools as the United
States, but most of them were of less sophisticated
types. The inferior durability, reliability, and work-
manship of Soviet consumer goods is widely acknowl-
edged.
Table 1
Selected Lines of Production in Which the US
and the USSR Lead the World, 1984
Refined copper
Primary aluminum
Woven woolen
Plastics
Synthetic ammonia
Caustic soda
fabrics
Pig iron
Primary magnesium
Synthetic rubber
Mineral fertilizer
Sulfuric acid
Woven rayon and
Crude steel
Molybdenum
acetate fabrics a
Synthetic fibers
Nitrogen fertilizer
Phosphate fertilizer
Rolled steel
Electric generators b
TV receivers b
Potassium fertilizer
Refined nickel
Turbines b
Rubber tires
Smelted lead
Metal-cutting
Plywood
machine tools
Refined zinc
Passenger
Metal-forming
automobiles
Titanium sponge
machine tools
Platinum
Grain combines b
Chromite
Tractors
Tungsten ore
Railroad freight
cars
Iron ore
Cement
Manganese.ore
a 1982 figure.
b 1983 figure.
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Figure 8 Figure 9
Index of Industrial Production, Production of Minerals and
Selected Years, 1965-84 Metals, 1984
Figure 10
Production of Chemicals and
Rubber, 1984
Caustic soda
Plastics
Sulfuric acid
Synthetic rubber
Synthetic ammonia
Fertilizer
Molybdenum
Primary aluminum
Magnesium
Refined copper
Smelted lead
Rolled steel
Crude steel
Pig iron
Refined zinc
Titanium sponge
Iron ore
Gold'
Refined nickel
Tungsten ore
Bauxite
Smelted tin
Platinum
Figure 11
Production of Selected Manufactured
Goods, 1984
0 250 500 750 1,000
Passenger autos
Synthetic fibers
Trucks and buses
Rubber tires
TV receivers'
Electric generators a
Turbines a
Metal-forming machine tools
Cement
Woven cotton fabrics'
Woven rayon and acetate fabricsb
Railroad freight cars
Metal-cutting machine tools 21
Woven woolen fabrics'
Tractors
Grain combines'
1983 figure.
b1982 figure.
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Why Did Soviet Industrial Production
Fare Badly in the Late 1970s?
In every five-year plan since 1950, Soviet industrial
output has grown more slowly than in the preceding
plan period. The 1976-80 plan called for an average
annual rate of output only about half as great as that
in the previous period. The actual rate in 1981-84 was
even lower-3.1 percent:
Average Annual
Growth of
Industrial Output
1951-55
1956-60
8.4
1961-65
6.7
1966-70
6.4
1971-75
5.9
1976-80
3.2
1981-84
3.1
A decision made in 1975 and implemented in 1976
radically altered Soviet economic growth strategy.
Until 1975 the leaders achieved increased production
mainly by "extensive" means-feeding industry large
increments of plant, equipment, and labor. But labor
reserves were diminishing, and the amount of new
fixed capital required to provide a ruble's worth of
additional production began to climb steeply in the
early 1970s. The Soviets decided to put some teeth in
their much-talked-of program to achieve economic
growth by increasing productivity. They apparently
decided to try reducing the targets for production
growth so that efficiency could be improved, expect-
ing the greater efficiency to lay the foundation for
future growth. They implemented this decision by
cutting the planned rate of growth of new fixed
investment to one-half of the 1975 level.
The strategy failed-the combined productivity of
labor and capital in industry fell sharply in 1976-80.
The plan had set unrealistic goals for the production
of industrial materials and energy, and, when these
basic sectors faltered in the late 1970s and failed to
meet their requirements, they created bottlenecks in
production elsewhere. Disruptions caused by rail
transport problems exacerbated the shortage problems
and helped reduce growth in industrial output.
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How Well Do the United States and the USSR
Develop and Apply Technology?
Technological Lag
Soviet production technology generally has lagged
behind technology in the West, and both productivity
and product quality have suffered. Soviet commercial
goods have rarely been competitive in Western mar-
kets, where even below-market pricing has not over-
come the disadvantages of poor quality. Table 2
illustrates the Soviet lag behind the United States in
areas of technology that are important to the perfor-
mance of defense and defense-supporting industries;
the six highlighted areas are also of particular impor-
tance to long-term industrial development and eco-
nomic performance.
Defense industries (particularly those in the more
technically stressing sectors-aircraft, missile, space,
and shipbuilding) traditionally have compensated for
their technological shortcomings by designing weapon
systems that emphasize simplicity and ease of manu-
facture in labor-intensive factories. They have gener-
ally offset the weapons' inferiority in one-for-one
performance comparisons with Western weapons by
larger production runs and inventories.
Beginning in the mid-1970s, however, Soviet industry
has increased its emphasis on more complex and
competitive weapons, aided by an aggressive program
to acquire and exploit Western technologies for mili-
tary and for dual (military and civilian) use. This has
narrowed the gap in some important technologies, but
it has not led to dynamic and innovative technology
development in Soviet support industries. With con-
tinued rapid Western advances, the Soviet lag in
critical production technologies is likely to continue
and may indeed grow.
Computers and microelectronics are of critical impor-
tance to advances in productivity and product quality,
both in the end products and in more capable produc-
tion equipment (such as numerically controlled ma-
chine tools, flexible manufacturing systems, and com-
puter-aided design and manufacturing equipment).
These have their most substantial impact when they
are combined in computer-integrated manufacturing
(CIM) systems, which centralize control of plant
production. In their most advanced variants, CIM
systems integrate computer-based management and
design systems with computerized machining, robot-
ics, automated inspection, automated material han-
dling and warehousing, and automated stock control
and planning. In the West they are being widely
applied in automotive, machine tool, electronics, com-
puter, and weapons production. They have led to
substantial economies in labor and inventory costs,
while enabling manufacturers to respond quickly and
economically to changing demands.
The interdependence of these technologies spurs ad-
vances in related fields. Progress in microelectronics,
for example, feeds advances in the entire range of
advanced machine tools, robotics, industrial process
control systems, telecommunications systems, and
computers. Telecommunications and computer hard-
ware or software advances expand the application of
automated manufacturing either by pushing the state
of the art (through robotic vision systems and pattern
recognition, for example) or by reducing cost. Ad-
vances in machining, robotic assembly and inspection,
and computers in turn fuel new rounds of improve-
ment in electronic components and systems. This kind
of feedback and interaction underpins the dynamic
growth of these industries in the West and Japan but
is not generally characteristic of Soviet development.
In a June 1985 speech, General Secretary Gorbachev
singled out advanced technologies as having a "revo-
lutionary" role in transforming the Soviet economy.
His initiative accelerates the major Soviet technology
development programs begun in the mid-1960s and
responds to the manufacturing revolution well under
way in the West. By Western assessment, the USSR
has kept pace with the rate of Western technological
advance, though it lags considerably in such key areas
as microelectronics and computers (table 3). The
Soviets' own assessments confirm this; they know they
have made great strides, particularly in microelec-
tronics-in which they have moved (often using West-
ern technology) from almost total dependence on
Western sources for both circuit design and produc-
tion equipment to a position from which they can go
forward using indigenous resources. Whether the
25X1
25X1
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Table 2
US and USSR: Relative Standing
in the 20 Most Important
Basic Technology Areas
Aerodynamics and
fluid dynamics
The United The United The USSR Is
States Is States and Superior
Superior the USSR
Are Equal
Computers and soft-
gation
Life sciences (human X
factors and biotech-
nology)
Materials (light- X>
weight, high strength,
high temperature)
Microelectronic ma- X
terials and integrated
circuit manufactur-
ing
Notes: These 20 technologies provide a range for comparing overall
US and Soviet basic technology. The list is in alphabetical order.
These technologies are "on the shelf' and available for application.
(The list is not intended to compare technology levels in currently
deployed military systems.)
The technologies shown have the potential for significantly
changing the military capability in the next 10 to 20 years. They are
not static; they are improving or have the potential for significant
improvements. An arrow indicates that the relative technology level
is changing significantly in the direction indicated. The six high-
lighted areas are also of particular importance to long-term indus-
trial development and economic performance.
Source: The FY 1986 Department of Defense Program for Re-
search, Development, and Acquisition, Statement by the Under
Secretary of Defense, Research and Engineering, to the 99th
Congress, First Session, 1985, P. 11 4.
The United The United The USSR Is
States Is States and Superior
Superior the USSR
Are Equal
Nuclear warheads
Optics X>
Power sources, mo-
bile (including ener-
gy storage)
Production and man- X
ufacturing (including
automated control)
Propulsion (aero- X>
space and ground
vehicles)
Robotics and ma- X
chine intelligence
Signal processing X
Signature reduction X
("Stealth" aircraft)
Submarine detection X>
Telecommunications X
(includes fiber optics)
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Table 3
USSR: Lag in Advanced Technologies
Technology Area Years Behind the
United States
Memories (dynamic random-access memory 3 to 5
circuits)
Flexible manufacturing systems 5 to 6
Mainframe computers 6 to 8
Large scientific computers more than 8
Magnetic disk units 8 to 10
USSR can extend these successes in basic technol-
ogies so as to reap the benefits of their application in
manufacturing, however, will depend in large measure
on the ability of Soviet industry to overcome its
systemic problems. In the meantime, accelerating
Western progress in both support industries and appli-
cations will make it difficult for the Soviets to prevent
the lag from widening in both productivity and the
quality of industrial products.
Factors Inhibiting Soviet Advance in Civil
and Support Technologies
Slow technological advance in Soviet civil industry is
attributable to a number of factors that affect all
phases of the research-design-production process:
? Military priority status. The Soviet leadership con-
tinues to favor the military with generous funding
and priority access to resources and foreign technol-
ogy, despite serious problems in the civilian econo-
my. Military research and development (R&D) now
account for a significant portion of the USSR's total
R&D spending and manpower. Spillovers from mili-
tary R&D to civilian industry, moreover, have been
less important than in the United States.
? Inefficient research and a lack of effective coordi-
nating mechanisms between science and civil indus-
try. In the absence of such mechanisms, Soviet
science has been biased toward theoretical work,
with little push for industrial applications; for exam-
ple, there is no parallel in the USSR to the Western
phenomenon of commercial spinoffs from academic
biotechnology research. Military industry also has
difficulty in enlisting academic R&D support, but
its high-priority status allows Soviet planners to
overcome this problem in most instances.
? Insulation of production sectors. Industry seeks to
minimize production problems and has been reluc-
tant to accept the risks inherent in the introduction
of new technology. The bias of the production sector
against the fruits of R&D reinforces the division of
science and industry into two separate communities.
? Lack of incentives for technological innovation or
increased productivity. The current system of bonus
incentives makes innovation unrewarding. Plants
receive performance awards not for productivity
gains in comparison to similar plants but for pro-
duction gains in comparison to their own past
figures. Even a temporary failure to match past
production is punished more severely than a failure
to increase productivity.
? Lack of close working cooperation between design-
ers of the product and planners of the production
process. This is of increasing importance as
computer-aided design and manufacturing systems
allow major production economies and improved
product quality through integration of product and
process design.
Technological Innovation Discouraged
Some of the strengths of the Soviet planning and
management system hinder technological advance.
Lacking the technological entrepreneurs who in West-
ern market economies respond to new market oppor-
tunities without being directed, the Soviet system
depends on its planners to have sufficient vision to
anticipate future demands. Development by directive,
however, tends to focus the planners' attention on the
product and frequently neglects the needs of support
industries, in both the military and civilian ministries.
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In high-priority programs, this has meant that tech-
nologies related to the product are developed faster
than technologies related to materials and production
processes. Lack of development in these basic areas
constrains product design by impeding fulfillment of
the manufacturing requirements that all designs must
meet, and it causes delays and bottlenecks in produc-
tion. This lack of integration between product and
process designers plagues both civil and defense indus-
tries.
Ironically, therefore, the greatest deficiency of the
Soviet centrally planned industrial system is not that
it plans too much but that it cannot plan enough. The
staffs that supervise industrial planning and program-
ing are quite small, considering the size and complex-
ity of the resources to be planned. When planners give
instructions for the development of production tech-
nology and industrial infrastructure, these are almost
never as detailed as the instructions dealing with
product characteristics and production schedules.
it may counteract the industrywide preoccupation
with meeting current production schedules at the
expense of industrial modernization.
Technology Acquisition and Assimilation
Pressed by R&D resource constraints and driven by
the need to compete in weapons quality with the
rapidly advancing West, the Soviets will continue-
and intensify-their effort to acquire and exploit
Western technologies. This effort has been elevated to
a national-level program, but it is not set up to deal
with the inefficiencies inherent in the Soviet R&D
system-which the Soviets must overcome if their
economy is to become more productive. Acquired
technologies face the same assimilation and diffusion
problems as the Soviets' indigenously developed tech-
nologies, plus special handicaps that often arise from
the acquisition process itself. If an item is COCOM
restricted or illegally acquired, for example, the Sovi-
et technicians will lack the Western manufacturer's
usual documentation, maintenance, and support. An-
other special handicap is the delay in the handling and
distribution of items whose origins must be disguised
To compensate for their inability to plan everything,
the Soviets constantly check performance against
various standard indicators-one of the simplest being
the number of items produced on schedule-and they
base incentive rewards for managers and workers on
their enterprise's achievement of its assigned indica-
tors. Such simplistic criteria have caused distortions
and inefficiencies in Soviet industry, however, as
managers focus on their indicators to the neglect of
quality, investment, and the development and assimi-
lation of new technology.
Reform Measures
Recognizing these problems, Soviet leaders have been
experimenting for as long as two decades with ways to
improve performance in the R&D sector. In the last
several years the Central Committee and the Council
of Ministers have made a number of changes in the
structure and management of R&D, including mea-
sures to stimulate innovations and their adoption in
industry and the economy. The Soviets themselves
note that these have not yet made a difference. F_
before transfer to end users.
A particular difficulty is that piecemeal acquisition of
automated production equipment often causes com-
patibility problems in an enterprise trying to set up a
new production line. Product quality may be im-
proved, as planned, but the delays and inefficiencies
caused by such mismatches can eliminate the produc-
tivity gains that a Western plant would expect from
automated production; they may even reduce produc-
tivity.
Nevertheless, the program for technology acquisition
will continue to provide benefits. It does introduce
innovation, however haltingly; and it reduces R&D
risk and eliminates false research starts by allowing
Soviet industry to follow or copy proven Western
designs and process approaches. This saves develop-
ment time and costs and improves product quality,
and it will satisfy to some extent the need to catch up
or maintain technological parity with the West. F
A decree issued in 1985 may be more effective,
however. By allowing plants to reduce their produc-
tion quotas in compensation for time lost in retooling,
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Agriculture
Agriculture is vitally important to the domestic economy of the USSR and
is a way of life for 10 percent of the Soviet citizenry. In recent years, as the
Soviet role in international commodity trade has expanded significantly,
Soviet agriculture has also taken on much greater international political
and economic importance. This section examines the following questions:
? How do Soviet natural conditions and agricultural organizations com-
pare with those in the United States?
? How does Soviet agricultural performance compare with that in the
United States?
? Why did Soviet agricultural production slip in the 1970s?
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How Do Soviet Natural Conditions and Agricultural
Organizations Compare With Those in the United
States?
Environmental Limitations
Agriculture in the USSR faces severe environmental
limitations. Because most of the sown area is climati-
cally comparable to the northern Great Plains areas in
the United States and the Prairie Provinces of Cana-
da (figure 12), the average productivity of land is
lower in the USSR than in the United States as a
whole. Even where soil and climate conditions are
similar, crop yields are lower in the USSR. More-
over-mainly because of differences in the environ-
ment and cropping practices-the year-to-year varia-
tion in farm output is three times as great in the
USSR as in the United States.
Productive cropland in the USSR is squeezed between
the cold north and the and south. Farming is possible
outside this agricultural zone, but it is risky and
expensive. The growing season in most of the Soviet
Union is short compared with that in most of the
United States; late frosts and early snows are common
in the major graingrowing areas, which lie at the
same latitudes as the Prairie Provinces of Canada
(figure 13). The southernmost part of the USSR-
which lies at the same latitude as Tennessee-has a
longer growing season, but much of it is semidesert
and desert.
Even though the surface area of the Soviet Union is
more than twice as large as that of the United States,
a much smaller share is suitable for agriculture:
nearly one-half of US land is cultivated or under
pasture and only about one-fourth of Soviet land
(figure 14). In absolute terms, however, the USSR has
40 percent more land under cultivation or pasture.F_
No Soviet region has the ideal mix of soil, moisture,
and warmth that is found in the US cornbelt. About
half the total area of each country has adequate
moisture, but only 10 percent of the USSR has
sufficient heat as well. About 30 percent of the USSR
is too cold for any agriculture, and another 40 percent
is so cold that only hardy early-maturing crops can be
grown. In the United States, cold is a limiting factor
in about 20 percent of the area.
Agricultural Organizations
Even greater than the environmental differences are
the institutional differences between US and Soviet
agriculture. The collectivization of Soviet agriculture
has created two sectors-socialized (consisting of
state and collective farms), which accounts for three-
fourths of the farm output, and private, which ac-
counts for one-fourth.
Private agriculture in the USSR is carried out on 40
million small plots of land (up to 1 acre), where
households grow crops and usually keep a few head of
cattle or pigs and a small flock of poultry. Most
people with private plots have other jobs and produce
food as a secondary occupation. Nevertheless, Soviet
consumers rely either on their own plots or on direct
purchases from private producers for a major share of
their consumption of vegetables, meat, dairy products,
and other perishable produce.
In comparisons of farm organization and resource use
in the United States and the USSR, the degree of
managerial freedom is critical. Many commentators
compare decisionmaking by collective and state farm
managers to that by managers of very large
corporate-type farms in the United States; but the
evidence indicates that continual intervention by Sovi-
et central officials and planners leaves very little
decisionmaking latitude for individual Soviet farm
managers. Collective and state farm managers, accus-
tomed to almost daily administrative interference
"from above," would be bewildered at the depth and
pattern of on-farm decisions made by US farmers and
farm managers.
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Figure 12
North American Climatic Analogs for Soviet Crop Regions
Minnesota
IUlontana f'enitoba
Montana
Wesiarn
Nebraska North Dakota
South
Dakota
) Wyoming
Nebraska
Southerp`?-. N' f.>irona
California
i Central
Alaska
13ii_'isi; f-16er=J
fl.iarta
Scsketchetian
asketch_-!.xn
f.Oarta
New Menico Rranitoba
Figure 13
Comparative Area and Latitude
Wyoming Year-round climatic analog (for winter and spring crops)
Alberta April-October analog (for spring crops only)
Figure 14
Land Use, 1984
Total: 9.4 million
square kilometers
Total: 22.4 million
square kilometers
a "Other" includes mountain, swamp, desert, industrial,
and urban areas.
Note: Totals do not add to 100 because of rounding.
vated 19
Othera 22 Forest 32
Pasture 27
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How Does Soviet Agricultural Performance
Compare With That in the United States?
Overall, Soviet net farm production rose from 60
percent of US output in 1950 to a peak of 90 percent
in the early 1970s. But slower growth in the 1970s
and early 1980s, combined with substantial US gains
(table 4), dropped Soviet agricultural production to
two-thirds of US output in 1982.
Even in climatically similar areas, yields for most
major crops in the USSR are below those in the
United States, as shown in table 5. Nevertheless, by
1983 the USSR had outstripped the United States in
the production of several important agricultural com-
modities, such as wool, potatoes, milk, hogs, wheat,
and cattle (figure 15).
Table 4
US and USSR: Changing Productivity
in Agriculture
Soviet agriculture has been on average far less effi-
cient than its US counterpart. Increases in the factors
of production-land, labor, fixed capital, and materi-
als purchased from outside agriculture-have been
larger than increases in output. This is because the
Soviets use these factors relatively inefficiently. In
contrast, growth in farm output in the United States
has consistently been more rapid than growth in goods
and services used in production.
Western scholars, furthermore, have estimated that
the combined productivity of labor, land, and other
productive assets in Soviet agriculture is about one-
half to two-thirds of that in comparable areas of
North America. Higher US productivity meant that
in 1983 one US farmer supplied 66 people-more
than seven times the number of people supplied by a
Soviet farmer (figure 16). Part of the reason for the
USSR
2.7
US
0.1
Factor productivity
USSR
2.5
1.3
-1.0
-1.4
0.4
US
1.9
1.1
1.9
0.2
6.2
a Inputs include labor, fixed capital (buildings, structures, machin-
ery, and equipment), materials purchased from outside agriculture
(fuels and lubricants, electric power, fertilizer, some processed
feeds, and current repairs of machinery and buildings), land, and
livestock herds. The several inputs are aggregated into a geometric
production function of the Cobb-Douglas type, in which each input
is weighted according to its relative contribution to total output in
the period.
Note: Growth rates are measured in indigenous currencies. Because
of wide fluctuations in annual farm output, we calculated the Soviet
data using a three-year moving average for the base and terminal
year in each period. Farm output includes all crops produced during
the year except hay and pasture, hayseeds, pasture seeds, and
covercrop seeds. It also includes the net production of livestock
other than draft animals. Net livestock production is the gross
production of livestock products and inventory change minus the
value of products (grain, potatoes, vegetables, and milk) fed to
livestock and minus the value of hatching eggs. These deductions
were made to avoid counting feed crops twice-in the production of
both livestock and crops-and to avoid counting hatching eggs as
part of poultry meat production as well as of egg production. For
1984 production, see figure 15.
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Table 5
US and USSR: Average Annual
Crop Yields, 1976-80 a
Figure 15
Agricultural Production, 1984
USSR United Soviet Yield
(metric tons States as a Percent-
per hectare) (metric tons age of US
per hectare) Yield
Wheat 1.5
1.8 83
Potatoes 11.8
17.3 68
Sunflower seed 1.2
1.4 86
Hay 1.8
4.0 45
a Selected crops in US and Soviet regions with similar soil and
climate.
Figure 16
Number of Persons Supplied by
One Farmworker, Selected Years
Coarse grains
Rice
Meat
Ginned cotton
Wheat
Eggs
Milk
Potatoes
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Connaenttat
Figure 17
Labor Requirements for Agricultural
Production, 1979-83 Average
Figure 18
Investment in Agriculture,
1976-83
US farms
Soviet collective farms
Soviet state farms
0
l ULAL. O14.J
billion 976 US $
USSRa
Total: 663.1
billion 1976 US S
Machinery 37
a Total investment for the USSR reflects the geometric
mean of the ruble and dollar comparisons. Shares for
machinery and construction are derived from invest-
ment data in rubles.
Table 6 a
USSR: Incremental
Capital-Output Ratios
Percentage change
by five-year period
From 1966-70 to 1971-75 13
6.8 12.0
From 1971-75 to 1976-80 21
7.8 39.3
From 1976-80 to 1981-83 14
6.9 74.4
a With the incremental capital-output ratio for a given period
calculated, for example, as:
Average capital stock (1966-70) - Average capital stock (1961-65)
Average output (1966-70) - Average output (1961-65)
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Figure 19
Agriculture's Share of Real GNP,
Labor Force, and Total Investment,
Selected Years
Percent
4
0
40
20
6
13 18 20
40 1& 6
lower productivity of Soviet agriculture is that it is
highly labor intensive (figure 17). The relatively great-
er share of agricultural investment devoted to machin-
ery in the United States has reduced the amount of
labor required in agricultural production; two-thirds
of US agricultural investment during 1976-83 went to
machinery, compared with only one-third in the
USSR (figure 18).
The Soviet agricultural sector contributes much more
to Soviet GNP than US agriculture does to US GNP.
During the last decade, it was the third-largest sector,
after industry and services. Agriculture is a major
claimant on Soviet resources (figure 19). It absorbs
roughly 20 percent of the labor force (almost seven
times the proportion in the United States). Agri-
culture's share of total Soviet investment increased
from 15 percent in 1961-65 to 20 percent in 1976-80
(and is about 20 percent in the 1981-85 Plan). The
productivity of capital invested in agriculture is lower
than in industry, and falling. The USSR has to invest
increasing amounts of capital per unit of output and
must do this at a higher rate in agriculture than in
industry (table 6).
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LVUUucuutu
Why Did Soviet Agricultural Production
Slip in the 1970s?
The Record
During the 1970s, average annual rates of growth in
Soviet farm output fell below rates achieved in the
United States, Canada, and all of the East European
countries. This was a significant reversal: in the late
1960s the Soviet rate exceeded that of those countries.
As a result of this deceleration, growth in farm output
(especially in the output of livestock products) has
failed to match the rapid growth in the Soviet demand
for food since the mid-1970s (figure 20). The regime,
continuing its emphasis on the need to increase pro-
duction of livestock products, began to import record
quantities of grain to boost feed supplies, but meat
production in 1980 was less than 1 percent higher
than it had been in 1975. Milk production declined
steadily during 1978-80.
Moscow responded to the deteriorating performance
in agriculture by increasing its hard currency outlays
on farm products. In the late 1960s and early 1970s,
the USSR was a net exporter of grain and meat, but
within 10 years it became the world's largest import-
er; by crop year 1981/82, grain imports reached 46
million tons and meat imports nearly I million tons.
During 1979-84, Moscow spent nearly 56 billion
rubles (more than one-third of its total hard currency
import bill) on imports of farm products. In 1983 net
imports were equivalent to 10 percent of total farm
product availability. Per capita availability of farm
products increased during 1976-80-and nearly all of
the boost was attributable to a doubling of net
agricultural imports.
Causes of the Downturn
The near stagnation of Soviet farm output in the last
half of the 1970s and the early 1980s is related partly
to a deterioration of weather conditions. Climate data
suggest that unusually favorable weather was a major
source of growth in output of farm products from
1964 to 1974. The weather during 1979-82 was on
average much less favorable than that in 1964-74 and
was also less favorable than the long-term average.
Nevertheless, in recent speeches, Soviet leaders have
indicated that yields should have been higher despite
the weather.
Inefficiency, poor management, and other factors
unrelated to climate have contributed to the slowdown
in production growth. In general, these factors can be
summarized as:
? A failure to keep up the rate of growth in inputs-
the goods and services used in farm production.
? Less efficient use of these inputs-a decline in their
productivity. Machinery downtime increased, and
weight gain per unit of livestock feed declined.
? Agriculture's increasing dependence on the rest of
the economy for inputs and the efficient distribution
of its products. Synchronizing the supply of inputs
and the processing of outputs became increasingly
difficult, partly because of inadequate rural infra-
structure, especially roads.
The principal barriers to more efficient use of re-
sources in Soviet agriculture are:
? Centrally determined quotas for output of farm
products and for goods and services used in farm
production.
? Interference by party officials and bureaucrats in
day-to-day farm operations.
? The administratively controlled prices, both for
goods and services sold to farms and for farm
products.
? Lack of an indicator that takes into account product
quality and production cost to replace gross farm
production as the most important determinant of
success.
? Poor rural living conditions, which encourage skilled
farmworkers to leave farms and migrate to urban
areas.
Soviet leaders are carefully watching moves toward
decentralizing management of agriculture in Hungary
and China. In these countries:
? Centrally determined procurement plans have been
reduced or abolished.
? Farm managers and private producers make some
production decisions.
? The government controls the mix of farm products
indirectly by manipulating procurement prices.
25X1
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Figure 20
Value of Soviet Net Farm Output
and Net Farm Product Trade, 1970-84
Total domestic
supply of farm
products
Net imports
Net farm
output
I I I I I I I I
0 1970 72 74 76 78 80 82 84
In debating the advantages of less centralized man-
agement, Soviet writers have noted such undesirable
side effects of the Chinese reforms as rural inflation,
and they often have rejected Hungarian and other
East European experiments on the justifiable notion
that solutions appropriate for the small countries of
Eastern Europe are not suitable for a country the size
of the USSR.
More important, however, Soviet leaders have a firm
belief in their own system. Movement toward market-
oriented systems appears to be unacceptable on ideo-
logical grounds. The leaders perhaps consider that
raising efficiency and lowering costs are less impor-
tant than avoiding the political risks of weakening
central control over economic activity in the impor-
tant farm sector. Furthermore, Soviet officials for the
most part do not share the confidence of Chinese and
Hungarian leaders in the ability of local farm manag-
ers and private producers to make the "correct"
production decisions. For example, local party offi-
cials continue to interfere in day-to-day farm opera-
tions, even though their interference has been con-
demned by Khrushchev, Brezhnev, Andropov, and
now Gorbachev as reducing farm efficiency.
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Energy
Energy is vital to economic growth. The USSR is giving increasing
attention to its search for reliable and plentiful energy sources, as well as
for ways to conserve energy. Energy exports are a particularly critical
component of its trade; oil and gas provide over one-half of Soviet hard
currency earnings. This section focuses on two fundamental questions:
? How large are Soviet and US energy reserves?
? How does energy production in the two countries compare?
The size of the Soviets' energy reserves is important because it establishes
their potential to meet domestic requirements and to support exports to
client states and hard currency markets. The quality and accessibility of
the reserves are key factors affecting the extent to which this potential can
be realized. Because of the long leadtimes required for developing energy
resources, choices made today will shape the course of Soviet economic
growth for a decade or more.
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How Large Are Soviet and US Energy Reserves?
The Soviet Union is exceptionally well endowed with
energy resources. For example, its proved oil reserves
are the largest in the world outside the Persian Gulf
region; in 1984 they were estimated to be over twice
as large as those of the United States (figure 21).
Soviet natural gas reserves are the largest in the
world, accounting for over 40 percent of the world's
total (figure 22); in 1984 they were over six times as
large as US reserves. The USSR and the United
States together control two-thirds of the world's coal
reserves.
The possession of a large resource base means the
USSR will continue to be one of the leading energy
producers in the world. But the quality and accessibil-
ity of the resources, as well as the quality of technol-
ogy and equipment and the nature of prevailing
economic conditions, are crucial determinants of de-
velopment potential. For example, the Soviet oil de-
posits exploited thus far have been of relatively good
quality, but most of the remaining reserves are said to
be in deeper deposits with lower porosity and perme-
ability and smaller well flow rates. This will hamper
extraction in the future-unless better technology
becomes available or the Soviets make new discover-
ies. Accessibility is becoming more of a problem as
depletion of the deposits located near centers of large
demand forces the Soviets to turn to those in remote
regions with harsh climates (figure 23). The costs of
extracting and transporting energy increase dramati-
cally with distance from industrial centers, making
the energy more expensive and requiring increasingly
more investment resources to obtain a given increase
in output.
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Figure 21
Proved Energy Reserves, 1984
Note: Estimates of the size of Soviet crude oil reserves are controversial.
The estimate appearing here is the midpoint of a range between 60 and 80
billion barrels. Most recently published US and West European estimates
fall within this range.
Figure 23
Areas of Current Soviet Oil and Gas Exploration
Ukraine
Volga-
Urals
Central`
Asia
Figure 22
Shares of Proved World Energy
Reserves, 1984
Total: 640
billion barrels
Total: 2,760
trillion cubic
feet
Total: 415
billion metric
tons
Lena-
Tunguska
Boundary representation Is
not necessarily euthorirstioa.
25X1
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How Does Energy Production
in the Two Countries Compare?
In 1984 the Soviet Union produced more energy than
any other country except the United States (US
production of primary energy exceeded Soviet produc-
tion by about 10 percent-figure 24). The USSR is
the world's largest producer of crude oil and natural
gas: in 1984 its oil production was 19 percent higher
than US production, and in 1983 its production of
natural gas surpassed that of the United States for the
first time (figure 25). The United States, on the other
hand, produced about 55 percent more hard coal,
generated almost 75 percent more electricity, and had
nearly three times as much installed nuclear electric
generating capacity.
The United States finds it economical to import some
energy to meet the needs of its domestic economy,
whereas the Soviet Union does not. In 1983, US
primary energy consumption outstripped production
by 13 percent, while the Soviets produced nearly 20
percent more energy than they consumed (figure 26).
Trends in energy use in the two nations are different,
however.. US energy consumption per unit of GNP
has fallen more than 20 percent since the oil price
rises of 1973, while the Soviet ratio increased 9
percent during 1971-80 and has since stabilized. As
the US economy shifts away from energy-intensive
basic industries toward the provision of services, it
uses energy more efficiently. The USSR, on the other
hand, continues to develop industry and has failed to
institute effective conservation measures.
Earnings from energy exports are an important source
of hard currency to the Soviets. Oil and gas provide
more than one-half of these earnings. The Soviet
Union was the world's largest oil exporter in 1984,
and it supplies the bulk of Eastern Europe's energy
Confidential 32
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Figure 24
Production of Primary Energy,
1960-84
I I I I I I I I I I I I I I I I I I I I I I I I
1960 65 70 75 80 84
Note: Data are for coal, crude oil, natural gas, natural gas
liquids, and hydroelectric and nuclear power, expressed in
terms of standard fuel.
Figure 25
Energy Production, Selected Years
1960
70
80
84
Natural gas 1960
70
80
84
Hard coal 1960
70
80
84
Electricity 1960
70
80
84
Nuclear
generating
capacity
1960
70
80
84
Figure 26
Energy: Dependence on Foreign Suppliers, 1974-83
500
0 1974 76 78 80 82 83
Consumption
Production
Production
2,000 - ~~ Consumption
500'
0 1974 76 78 80 82 83
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Transportation
A modern industrial nation needs a well-developed transport system to
move raw materials to production centers and final products to market.
This section examines the following questions:
? How much freight does the Soviet transport system carry?
? How do the United States and the Soviet Union meet their transport
needs?
? How much spare capacity is there in the two systems?
35 Confidential
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Contiuentiai
How Much Freight Does the Soviet
Transport System Carry?
The USSR's transportation system carries more
freight than any other system in the world. Domestic
freight traffic reached 5.7 trillion ton-kilometers in
1984, exceeding the US volume by more than 60
percent.
The Soviet Union depends more on freight traffic
than the United States because the development of
heavy industry has been given priority, which creates
huge requirements for the movement of raw materials
and fuels. Moreover, the distances between producers
and raw material suppliers are great and increasing,
while Soviet policies to economize on freight ship-
ments and to streamline service have been largely
ineffective. During 1971-84, the USSR's freight traf-
fic increased by 80 percent-1.6 times Soviet GNP
growth (figure 27). In the same period, growth of US
freight traffic (34 percent since 1970) was only about
67 percent of US GNP growth. The United States
depends less heavily on freight traffic than the USSR
because its economy is more oriented to providing
services than to heavy industry.
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Figure 27
Trends in Freight Traffic and GNP, 1970-84
I ~ I
2 1970 71 72 73 74 75 76 77 78 79 80 81 82 83 84 0.35
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How Do the United States and the Soviet Union
Meet Their Transport Needs?
Transport demands of heavy industry are best met by
railroads, waterways, or pipelines. Moscow has em-
phasized railroads and oil pipelines, which have ac-
counted for the bulk of Soviet freight traffic-87
percent of the total in 1984 (figure 28). Emphasis on
pipelines since 1970, however, has reduced the burden
of traffic growth on the railways. In 1970, railroads
accounted for 79 percent of all freight traffic and
pipelines for 9 percent; in 1984 railroad traffic
dropped to 63 percent and pipeline movements rose to
24 percent of the total. Although the USSR is richly
endowed with water resources, many of the navigable
rivers are unfavorably located or frozen over for long
periods of the year. Soviet highways-still in their
infancy-carry only a small fraction of all freight
The United States has more favorably located water
routes, and its production structure places more em-
phasis on light industries and services. Meanwhile,
US firms have greater incentives to speed up freight
service and hold down costs. These factors have
promoted intense competition and have created a
more balanced distribution among freight carriers.
US railroads carry more than one-third of freight
traffic, highways and pipelines about one-quarter
each, and waterways about one-tenth.
USSR motor vehicle
USSR oil pipeline
USSR rail
Confidential 38
Figure 28
Composition of Freight Traffic,
1970 and 1984
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How Much Spare Capacity Is There
in the Two Systems?
A large part of the USSR's investment in transporta-
tion in the last 15 years has gone to pipelines. Since
1970 the length of its petroleum pipelines has dou-
bled, to 76,200 kilometers (km). Although the Soviet
system appears to be dwarfed by that of the United
States, which is more than three times as long, it
carries 55 percent more traffic: the Soviet pipeline
system moves crude oil through large-diameter pipe
over long distances to refineries, leaving the transport
of refined products largely to the railroads. In the
United States, on the other hand, more of the refiner-
ies are near crude oil production areas or receiving
terminals, and more of the pipeline capacity is used to
deliver refined products through smaller diameter
As already noted, the USSR lags far behind the
United States in the use of roads and rivers for
moving freight. The total length of its road system,
despite the USSR's vast area, is only 20 percent that
of the US system. Hard-surfaced highways-under
the liberal Soviet definition-account for only about
55 percent of the USSR's road system; the United
States has more than six times as much mileage in
hard-surfaced roads. Although the Soviets have an
advantage in potential water routes, many of these are
located in Siberia far from where transport services
are needed. Even on the more accessible rivers, much
investment in docks, dredging, ice clearing, and all-
weather navigational devices would be necessary be-
fore the rivers could become a significant alternative
to the railroads for most freight shipments.
pipe.
Although development of oil pipelines reduced the
traffic burden on the Soviet railways, it probably also
robbed the railroads, as well as other carriers, of
capital needed for expansion. Soviet railroads carry
three times as much freight as their US counterparts,
but because investment has been required elsewhere,
they have not developed a comparable advantage in
either inventory of rolling stock or rail trackage. The
USSR maintains 144,000 km of railway lines-only
53 percent of the US system (figure 29). It has an
estimated 1.9 million freight cars; this is 23 percent
more than the United States has, but the cars are
smaller, and the fleet's aggregate carrying capacity
(118 million tons) is 7 percent smaller than that of the
US fleet.
Figure 29
Stocks of Transportation Equipment
Petroleum pipeline
length (1984)
Locomotives in
service (1980)
Rail line length
(1984)
The working fleet of Soviet locomotives is about half
the size of the US locomotive fleet. More than half
the Soviet fleet is composed of powerful electric
locomotives, which push the total horsepower of the
Soviet fleet above that of the diesel-electric US fleet.
This small advantage in horsepower pales, however, in
comparison with the relative traffic burdens of the
two countries. These factors suggest that the United
States has ample capacity throughout its rail system
to support additional traffic requirements, while the
Soviet system is pushed to its limits. Traffic densities
(measured in ton-kilometers per kilometer of track) in
the USSR are five times those in the United States,
and the Soviets are struggling with chronic shortages
of freight cars.
Freight car
inventory (1983)
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Foreign Trade
The role of1oreign trade in the Soviet and American economies can be il-
lustrated in general terms by the answers to the following questions:
? What is the magnitude of1oreign trade in the Soviet Union and the
United States?
? Who are the principal trading partners of the two countries?
? How does the composition of US and Soviet foreign trade differ?
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What Is the Magnitude of Foreign Trade in
the Soviet Union and the United States?
Figure 30
Total Trade Turnover, Selected Years
The USSR plays a relatively minor role in interna-
tional trade. In 1983, Soviet trade turnover was equal Soviet as a percentage of US (current US $)
to only 37 percent of that of the United States, and in ioo
earlier years it was even less (figure 30).5 In both
countries, however, total trade turnover accounts for
less than 20 percent of GNP.
During the 1970s, the value of both US and Soviet
foreign trade grew by about 19 percent per year
(expressed in current dollars). While annual growth in
US trade was relatively steady throughout the period,
the annual rate of increase of Soviet foreign trade fell
from 24 percent during 1971-75 to 16 percent during
1976-80. Since 1980, US foreign trade has leveled off
while Soviet foreign trade has continued to rise-
4 percent per annum between 1980 and 1984.F_
' Soviet foreign trade figures are estimated in terms of the value of
the trade ruble, which differs from the domestic ruble. There is
considerable dispute in the West about the relationship between the
values of trade and domestic rubles; we have yet to estimate the
value of Soviet foreign trade in terms of actual purchasing power,
which would allow for an estimate of the share of foreign trade in
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Who Are the Principal Trading Partners
of the Two Countries?
Both the United States and the USSR trade primarily
with countries that have economic systems and levels
of development comparable to their own (figure 31).
In 1984, for example, 57 percent of Moscow's trade
was with other socialist countries (notably Eastern
Europe), and 62 percent of US trade was with other
developed countries (the OECD members). East Ger-
many and Czechoslovakia headed the USSR's trade
list, accounting respectively for 10 percent and 9
percent of the total Soviet trade turnover. West
Germany was Moscow's largest Western trade part-
ner, with 6 percent of total trade turnover. Canada
and Japan are the United States' largest trading
partners. Together they account for one-third of the
total US volume of trade.
For both countries, however, the current trade situa-
tion is more diversified than it was in the early 1970s.
Moscow's diversification has been toward the devel-
oped West, while its share of trade with the less
developed countries (LDCs) has increased little. Most
of the 1970s shift in US trade favored the LDCs,
chiefly OPEC countries; oil and manufactures were
the most important commodities represented in this
shift. US trade with socialist countries remained
minimal-2 percent in 1984.
Figure 31
Share of Foreign Trade by Type
of Trading Partner, 1984
? Developed West
M Less developed countries
Socialist countries
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Connaentiai
How Does the Composition of US and
Soviet Foreign Trade Differ?
US and Soviet export wares are distinctly different
(figures 32 and 33). The United States exports mostly
manufactured goods, particularly machinery and
equipment; the Soviet Union is more like an LDC in
that it exports mostly raw materials, particularly
energy. This concentration of trade has become par-
ticularly prominent since the mid-1970s, as a result of
rapidly rising fuel prices. The only raw material
products exported by the United States in sizable
quantities just over 20 percent of total exports-are
agricultural commodities. Only 5 percent of Soviet
exports are agricultural goods. Arms exports are not
specified in Soviet trade statistics, but we estimate
that this trade accounted for more than 10 percent of
Soviet exports in 1983.
Both the United States and the USSR are primarily
importers of manufactured goods. In 1983 these made
up more than 60 percent of imports by both countries.
In 1980 the US share was below 50 percent, because
rising fuel prices had boosted the share of raw
materials in total imports. Among raw materials, the
USSR imports mostly agricultural products, the Unit-
ed States mostly fuels.
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Figure 32 Figure 33
Exports, 1983 Imports, 1983
Other manufactured
goods
Agricultural
products
Machinery and
equipment
Other raw materials
Ferrous metals
Fuels
Fuels
Other raw materials
Other manufactured
Machinery and
equipment
Agricultural
products
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Demographic Trends
Demographics arefundamental to the environment in which economic
policy choices must be made. Such demographic factors as the age
composition of the population and the rate of urbanization are important
because they affect the economy in many ways: for example, they play a
major role in determining the size, location, and composition of the labor
force, and they influence the demand for consumer goods and services and
health care. This section examines the direction of demographic change in
the two countries.
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Population growth in both countries has been declin-
ing since the 1950s, but recently the decline has been
somewhat more pronounced in the Soviet Union
(figure 34). In the 1970s the Soviet population grew on
average by less than 1 percent a year, slightly less
than the average US rate. The shift is due to declining
birth rates in both countries-changes in the death
rate had a minimal effect. By 1984 the Soviet popula-
tion was 16 percent larger than the US population
(table 7).
During the 1970s, population growth was rapid in the
southern regions of both countries, for different rea-
sons. It was the result of internal migration and
immigration in the southern and western United
States and of high birth rates in the Soviet Central
Asian republics, the Transcaucasus, and Kazakhstan
(figure 35).
The disparity in regional growth causes more prob-
lems for the Soviets than for the United States
because the work force is so much less mobile. In
Figure 34
Rates of Population Change, 1951-84
addition, workers in the high-birth-rate republics gen-
erally have less education, fewer skills, and less
capital to work with than those in other parts of the
country. More important, the greatest demand for
workers in the 1980s will be in the western USSR,
where the labor force is expected to decline. During
the 1980s, nearly all of the labor force growth will be
in the southern republics-in a conservative cultural
group whose young people are unwilling to move to
Slower population growth is aging the population
structure in both nations. The median age in the
United States fell from 30.2 years in 1950 to 27.9 in
1970 but rose to 31.2 in 1984. The Soviet median age
increased from 24 years in 1950 to 29 in 1980. By the
year 2,000, the Soviet population will have aged more
rapidly than the US population. The proportion of
those 60 and over will rise from 13 to 17 percent in
the USSR and from 16 to 17 percent in the United
States. Aging populations place greater demands on
health care services and social security funds, and
Table 7
US and USSR:
Population in Selected Years
USSR
United
States
Soviet Population as a
Percentage of US
Population
1960
214.3
180.7
119
1970
242.8
205.1
118
1984
275.0
236.7
116
25X1
25X1
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Figure 35
Soviet Regional Population Change, 1970-84
Sus
ics
Transc
Rep 1
+2 1
Kazakh SSR
+20.3
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Figure 36
Urban and Rural Populations, Selected Years
0 Urban
Rural
611
Note: The US and Soviet definitions of urban and
rural populations are not strictly comparable.
~39 51//",-
~49 44//"-
56 37r
fulfilling these demands requires that national re-
sources be diverted from other uses. This change will
have an especially large impact in the Soviet Union,
where workers retire earlier than in the United
States-women at 55 and men at 60.
The rate of urbanization in the Soviet Union over the
last three decades has been remarkable (figure 36)-
the urban population climbed by 140 percent (almost
twice the US rate), and its share of the total popula-
tion is now about equal to the urban share in the
United States in 1950. The speed of this change has
strained the labor-intensive Soviet agricultural base
by drawing off young and better educated farm
workers, thereby lowering farm productivity, and has
raised the demand for services-which in the Soviet
Union means pressure on the government to allocate a
greater share of resources to consumption.
In the USSR, extraordinarily large losses of people
during World War I, the Civil War, Stalin's purges
and forced collectivization, and World War II altered
the age and sex distributions of the population. The
effect is particularly noticeable among males in the
60-74 age group, who are outnumbered more than
2 to 1 by females of that group (figure 37). By
comparison, in the United States, females in the 60-
74 age group outnumbered males by five to four in 25X1
1981. The major aftereffect in the USSR of those
large population losses is the reduced number of
entrants into the Soviet labor force in the 1980s; in
part this is a legacy of the drop in births during World
The proportion of the population living in the country-
side and working in agriculture is still far greater in
the USSR than in the United States. The nature of
rural settlement also differs: most US farm workers
live in scattered single-family farmsteads and travel
into town for entertainment and shopping; in the
USSR most rural settlement consists of villages whose
inhabitants disperse daily to tend the outlying fields.
This difference is being intensified by Soviet efforts to
consolidate the smallest villages into larger towns with
housing and other amenities more comparable to
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Figure 37
Age-Sex Pyramids, 1981 and 2000
Male
Female
75+
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
USSR 1981
15 10
75+
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
75+
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
75+
70-74
65-69
60-64
55-59
50-54
45-49
40-44
35-39
30-34
25-29
20-24
15-19
10-14
5-9
0-4
2000
15 10
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The size and character of the labor force are important determinants of a
country's potential for economic growth. Soviet economic development in
the past was based to a substantial degree on rapid growth in the labor
force, which in turn was supported by the assimilation of large labor
reserves among the rural and female populations and by high rates of
population growth. Lately the Soviet advantage over the United States in
available labor has diminished. In recent years the primary focus of the
USSR's manpower policy has been to bring labor force productivity closer
to Western levels through education, organizational change, and-espe-
cially-investment in laborsaving capital stock. Although progress has
been made in this direction, labor productivity in the USSR remains at a
markedly low level compared with the United States. Here we examine
these two questions:
? How have labor force trends diverged in the USSR and the United
States?
? What progress has the USSR made in raising factor productivity to
world levels?
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How Have Labor Force Trends Diverged
in the USSR and the United States?
In 1984 the Soviet population was 16 percent larger
than that of the United States, but the Soviet labor
force was 32 percent larger (figure 38). This differ-
ence arises from the different rates of female partici-
pation (figure 39); the Soviet rate is the highest in the
world. An increasing share of females of working age
have been entering the US labor force, however-a
shift that largely explains the gradual fall in the ratio
of the Soviet to the US labor force.
Increments in the working-age population of the
Soviet Union have dropped sharply in the 1970s and
1980s (figure 40). Fewer children are reaching work-
ing age, as a result of the sharp fall in birth rates in
the early 1960s, and more adults are reaching retire-
ment age. In addition, males in the prime working
years (25 to 44) have been hit by rising mortality rates
caused by an increased incidence of alcoholism, indus-
trial accidents, and cardiovascular disease.
Soviet planners can no longer rely on additions to the
labor force to support economic growth. Rates of
participation in the labor force are already higher in
the USSR than in any other industrialized nation
(more than 90 percent of working-age adults are at
work or in school, 73 percent in the United States),
and there is little room for increase. The Soviets have
adopted several strategies to increase the labor pool:
revising pension laws to make it profitable to work
longer, providing child-care services to attract more
women, and tapping the military for workers in the
civilian sectors. They are also trying to reduce the
demand for labor by placing ceilings on the numbers
of workers in certain sectors and introducing a variety
of incentive schemes. To make young people available
for employment at an earlier age, the Soviets in 1984
announced a reform of the educational system. This
gives more emphasis to vocational training-a short-
term option that may in the long term reduce the
supply of highly trained manpower. All these strate-
gies together, however, probably have not offset the
changes in the birth and mortality rates.
civilian work force.
Population growth is also decelerating in the United
States, but the labor supply outlook is much brighter
than in the USSR. Average annual increments to the
working-age population increased during the 1970s as
members of the postwar "baby boom" entered the
work force. The rate of increase in the size of the US
labor force has been almost steady over the last two
decades, in large part because of the rapidly rising
entry of females into the work force. And female
participation rates could continue to rise, since in
1982 only 74 percent of all US women of working age
(using the Soviet definition, 16 to 54 years) were in the
Much more of the Soviet than of the US labor force is
engaged in agriculture. In 1984 more than eight and a
half times as many people worked in Soviet agricul-
ture as in US agriculture (figure 41); agriculture
employed 20 percent of the Soviet and only 3 percent
of the US labor force. In both countries, however, the
share of the labor force involved in agriculture in
1984 was only half of what it had been in 1960. F_
Large differences in regional population growth rates
are a serious problem for the Soviets, because many
workers are reluctant to leave their native republics.
The growing labor surplus in the southern republics is
therefore not relieving the demand for labor in the
western USSR, where the labor force is declining. In
addition, workers in the high-growth republics gener-
ally have less education, fewer skills, and less capital
to work with and are therefore less productive than
workers elsewhere.
25X1
25X1
25X1
25X1
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Figure 38
Labor Forces, Selected Years
Figure 39
Rates of Female Participation in
the Labor Forces, Selected Years
Note: These figures are based on a Soviet definition of the
working age for females: 16-54 years.
Figure 40
Average Annual Increments to the
Working-Age Populations, 1970-84
Note: The working-age population, according to a Soviet
definition, includes males aged 16-59 years and females
16-54 years. Bars show average increments; the base year
in each period is the year preceding the one listed.
Figure 41
Agricultural Labor Forces,
Selected Years
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What Progress Has the USSR Made in Raising
Factor Productivity to World Levels?
During 1961-83, Soviet output (GNP) per employee
gained on that of the United States but lost ground to
the European Community and Japan (table 8). Never-
theless, the level of Soviet GNP per employee is low
by US standards; in 1983 it was 38 percent of the US
level.
In Western Europe, the emphasis in the 1970s clearly
was on increased productivity. The region faced a
much slower rise in the size of the working-age
population and a much smaller increase in female
participation in the labor force than did the United
States. In addition, the number of "guest" (foreign)
workers in Western Europe declined after 1973. Even
so, not enough new jobs were created to keep unem-
ployment from climbing sharply. By 1980 most Euro-
pean countries had jobless rates that matched those of
the United States, while in the early 1970s European
unemployment had hovered at a low level. In recent
years, West European unemployment often has sub-
stantially exceeded that of the United States, and
there is little prospect for improvement. West Europe-
an firms focused heavily on laborsaving capital invest-
ments because of considerable union and public agita-
tion for much higher wages and greater social-welfare
benefits. In fact, real wages were pushed up, well
beyond the gains in productivity. Until recently, this
factor helped boost economic growth, but it is now
undercutting the region's ability to grow and its
international competitiveness. The Europeans also
have been slower than either the United States or
Japan to move from mechanically to electronically
based technologies.
In Japan, rapid technological improvements, coupled
with forward-looking management, brought a rapid
rise in productivity in the 1970s. This permitted large
increases in real wages over the years. The demo-
graphic pressure for creation of new jobs in Japan was
much less than in the United States; indeed, the
Japanese female participation rate declined in the
1970s. In addition, the Japanese labor force contains
few foreign workers. For much of the decade, the
Japanese feared labor stringencies, a factor that gave
emphasis to increased investments in laborsaving
Table 8
Average Annual Growth of Output,
Employment, and Capital Stock
GDP/GNP
US 4.0
2.0
3.1
USSR 5.0
2.7
4.0
EC a 4.6
1.6
3.3
9.6
3.5
6.9
US
1.9
1.4
1.7
USSR
1.4
1.4
1.4
EC
0.2
-0.3
0
Japan
1.3
0.9
1.1
GDP/GNP per employee
US
2.1
0.6
1.4
USSR
3.5
1.3
2.5
EC
4.4
1.9
3.3
Japan
8.3
2.6
5.8
Capital stock
US
2.9
1.7
2.4
USSR
8.1
6.9
7.5
EC
4.0
2.7
3.5
3.5
4.2
3.8
Capital stock per
employee
US
1.0
0.3
0.7
USSR
6.6
5.5
6.1
EC
3.8
3.0
3.5
Japan
2.2
3.3
2.7
Note: GDP (gross domestic product) measures the value of final
production produced by resident producers. It differs from GNP in
that it excludes the value of production by domestic firms abroad
and includes the value of production by resident foreign firms. The
value of these differences is relatively small compared with total
output, so that for analytic purposes GNP and GDP can be used
interchangeably. US, EC, and Japanese data are in 1975 prices.
Soviet data are in 1970 prices.
a The 10 full members of the European Community (EC) are:
Belgium, Denmark, France, West Germany, Greece, Ireland, Italy,
Luxembourg, the Netherlands, and the United Kingdom.
equipment.
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In the United States, many of the economic gains in
the 1970s were attributable to putting people to work
rather than to increasing productivity. This country
was coping with the jobseekers born at the end of the
baby boom, a large jump in female workers, and a
major influx of immigrants, especially from Hispanic
countries. Because labor was relatively cheap, many
US firms found it more profitable to increase output
by hiring more workers than by investing in new plant
and equipment. Other factors slowing the growth of
US labor productivity were the end of the shift of
labor from the farm to the nonfarm sector, a slow-
down in the rate of research and development expen-
ditures, and a decrease in the number of hours worked
relative to hours paid.
In the USSR, productivity growth is declining in all
economic sectors. The decline has been sharp in
practically all branches of industry, from iron and
steel to food processing. There are a number of
reasons for this poor performance-some related to
worker attitudes and motivation and others to prob-
lems in particular sectors. In both cases, the effects
reverberate throughout the economy, magnifying en-
demic problems and creating new ones.
Worker morale in the USSR is generally poor, and
through the early 1980s, at least, it was getting worse.
Until recently, the regime has relied on improvements
in the standard of living to motivate workers to
produce more. Their expectations, however, have far
surpassed the regime's ability to provide the good life.
Improvements in the quality of the diet-a key indica-
tor by which Soviet consumers judge their level of
well-being-have failed to maintain their momentum
of the 1970s. Shortages of quality foods, particularly
meat and dairy products, have become chronic and
are worsening. Having to stand in food lines is
reducing workers' efficiency-directly, when they do
it during working hours, and indirectly, by causing
general frustration and irritation. Getting more mon-
ey and finding goods and services in short supply has
blunted the incentive of additional wages. Another
indicator of low worker morale is rising alcoholism,
which causes production slowdowns, shoddy work-
manship, and growing absenteeism. The effect of low
morale on production levels is difficult to quantify,
but a saying popular in the USSR and Eastern
Europe captures the probable effect: "Since the gov-
ernment pretends we live better, we will pretend to
work harder."
The physical condition of industrial facilities in the
USSR also holds down productivity. Construction
delays have held back expansion and modernization of
plant and equipment for producing a wide array of
industrial products. Equipment shortages and trans-
portation bottlenecks-occurring with increasing fre-
quency and intensity-have aggravated the construc-
tion delays. In addition, capital is used inefficiently,
with the result that the growth of GNP per employee
is lower in the USSR than in the EC or Japan despite
higher annual growth rates in capital stock per em-
ployee in those countries. For all these reasons, plus a
lack of replacement investment and incentives to
encourage modernization, Soviet enterprises continue
to use obsolete equipment that requires frequent,
costly, and labor-intensive repairs. Indeed, the em-
ployment of repair workers in industry has grown
nearly three times as fast as overall industrial employ-
ment.
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Living Standards
This section addresses a simple question: How well ofj?is the typical
Soviet citizen compared with his or her American counterpart? A simple
answer cannot be given, yet it is a question offundamental importance, be-
cause it goes to the heart of any comparative study: how well does a
country provide for its people? Agricultural and industrial output and
GNP growth are yardsticks that have more meaning in the context of their
impact on people's material well-being. This section, then, attempts the
many-sided task of comparing the relative levels of prosperity enjoyed by
Soviets and Americans. First it compares trends in aggregate per capita
consumption as a way to combine diverse activities into a single measure.
To flesh out this stick-figure answer, however, we then present separate
comparisons of diet, stocks of consumer durables, health care, housing,
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Aggregate Trends in Per Capita Consumption
The USSR has made some small progress toward
catching up with US consumption levels. Over the last
two decades, real Soviet per capita consumption
inched up relative to that in the United States, though
it is still only about one-third the US level (figure 42).
Living standards in the USSR remain low by Western
standards and even compare unfavorably with those in
much of Eastern Europe.
Soviet per capita consumption, which grew more and
more slowly after the mid-1960s, slowed especially
sharply in the early 1980s.6 This has been the case in
all major categories of consumption, particularly in
consumer durables. Moscow has been importing more
consumer goods-their estimated share in total retail
sales nearly doubled during the 1970s-but this was
not enough to offset the growing demand for goods
and services. As average income increased, wide-
spread gaps between the demand for consumer goods
and their availability became increasingly evident.
The year 1982 was particularly bad-per capita
expenditures on food, soft goods, and durables actual-
ly declined from their 1981 levels. All major catego-
ries of per capita consumption rebounded somewhat in
1983 and 1984, however.
6 Growth in real per capita consumption is a good general measure
of changes in a nation's standard of living because it compares over
time the increase in real purchases of goods and services. It cannot
indicate the lot of a particular citizen, however, because it cannot
account for distribution disparities or regional differences or for the
differences in accumulated stocks of housing and consumer dura-
bles that help determine living standards.
Confidential 60
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Figure 42
Per Capita Consumption
Expenditures, 1983
Total consumption
Durables
Household services
Health
Soft goods
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Food is perhaps the brightest area in the comparative
living standards picture. In 1981 the daily caloric
level of the Soviet diet nearly matched that of the
United States (figure 43). Soviets consumed more
starchy staples than Americans, but the gap had
narrowed somewhat. Meanwhile, more livestock prod-
ucts were available; per capita consumption of meat
increased 40 percent during 1970-82, although Soviet
citizens on average still ate only half as much meat as
Americans (figure 44). Soviet per capita protein levels
nonetheless nearly matched US levels. Protein in the
Soviet food supply increased from one-third to one-
half, and recommended daily per capita caloric levels
in the USSR were exceeded. The Soviet levels are
higher than the US recommended calorie allowances
for adults.
Nevertheless, the large Soviet demand for quality
foods remains unmet. Because output of these quality
foods is insufficient and state retail prices are low in
relation to money incomes, long queues and informal
rationing are widespread. In some places, the authori-
ties have invoked a mild form of rationing limiting the
purchases of certain foods by state store customers.
The excess demand for quality foods is reflected in
prices at collective farm markets (CFMs), where
individuals sell surplus from their private plots and
where prices vary according to supply and demand.
Prices paid in CFMs are on average more than double
the state retail prices. Part of the price difference
reflects the superior quality of the products sold in
CFMs, and part reflects supply-demand imbalances
that have put considerable upward pressure on free
market prices.
The United States does a great deal of food process-
ing-canning, freezing, and drying, as well as special-
ized processing and packaging. The universal use of
refrigeration and a flexible distribution system make
fresh foods widely available throughout the year and
give US consumers a wider choice than their Soviet
counterparts. The USSR's food industry is heavily
oriented toward processing food into more storable
forms-canning vegetables and making sausage,
cheese, and similar products. Freezing and packaging
are at an embryonic stage in the Soviet Union; in
1976, for example, only one-quarter of the food
products marketed were packaged. Fresh fruits and
vegetables (other than the storable potatoes, cabbages,
carrots, beets, and onions) are scarce outside the short
harvest season, July through October.
The most notable Soviet dietary "advantage" is in the
consumption of alcoholic beverages. Total per capita
consumption of alcohol in the USSR exceeds that in
the United States by only an estimated 40 calories per
day, but the consumption patterns differ. Soviets
drink mostly hard liquor, while Americans drink
mostly beer and wine. Hard liquor, mainly vodka,
accounted for 70 percent of total consumption of
alcoholic beverages in the USSR (it was 20 percent of
the US total in the mid-1970s). More important, the
Soviet figures omit samogon (homemade hard liquor),
which has been estimated to be as much as 30 percent
of alcohol consumed in the USSR.
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Figure 43
Diets, Selected Years
M Grain products and potatoes
Meat and fish
Fats and oils
3,310 calories per
day per person
1967-69
D Grain products and potatoes
Meat and fish
Fats and oils
3,065 calories per
day per person
1965
Dairy and eggs
Sugar
Other
Dairy and eggs
Sugar
Other
3,248 calories per
day per person
1981
Figure 44
Per Capita Meat Consumption in
Selected Countries, 1982
USSR
Poland
Hungary
Czechoslovakia
West Germany
East Germany
United States
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The gap between US and Soviet purchases of durable
goods is still enormous, although it is slowly closing.
Overall Soviet per capita expenditures for consumer
durables are less than 20 percent of the US level, but
they have nearly doubled since 1960. Relative levels
of expenditures on durables are generally corroborat-
ed by the retail sales data shown in table 9.
Consumer items incorporating recent technological
advances-digital electronic watches, quartz watches,
calculators, and video recorders-are common in the
West but are not generally available in the USSR.
Possession of such items is a mark of prestige. Many
of them were not domestically produced until several
years after commercial production began in the Unit-
ed States (table 10).
The USSR mounted a substantial program for pro-
ducing washing machines in the 1960s and refrigera-
tors in the 1970s (figures 45 and 46). By the mid-
1970s, two-thirds of all Soviet families had both, and
three-fourths had a television set; in the United
States, almost every family has a refrigerator and TV
set and about three-fourths have washing machines.
Soviet writers are becoming increasingly alarmed over
the inability of the production system to produce the
mix of goods that would satisfy consumer demand at
prices close to present levels and over the failure of
quality controls at all stages. According to one Soviet
economist, "A significant portion of the population
consumes much of its time searching for scarce
goods."
Some typical product-mix problems have been noted
recently in the Soviet press. According to Soviet
figures, about 75 percent of the consumers who wish
to purchase refrigerators want models with a capacity
of 200 to 240 liters (7 to 8.5 cubic feet), yet only 12
percent of the units produced are of this size. (In
contrast, most US refrigerators are twice as large and
have freezers.) The industry is manufacturing about
150 percent more small-capacity refrigerators than
are needed. Meanwhile, the demand for desired types
of furniture is being met at a level of only 85 percent,
according to Soviet figures, while inventories of un-
sold furniture have increased. Furniture sets of mod-
ern design are in high demand. Only 60 percent of the
demand for furniture sets is being met; the sale of
furniture for the kitchen, such as dinette sets, meets
less than 70 percent of the estimated demand. Of the
4 million washing machines produced every year, only
5 percent are fully automatic-little help to harried
working women with families; most washing machines
require the operator to wring the clothes by hand at
least once during the washing cycle. Virtually all US
washers are automatic.
In recent years Soviet planners have stepped up their
efforts to ascertain the structure of consumer demand.
But even in instances in which demand is predicted
correctly, the trade network often is not able to obtain
the needed goods. Orders from the trade network for
many goods are only fulfilled at a level of 60 to 80
percent by industry; meanwhile, other goods are
delivered in excess quantities-including goods not
ordered, according to trade officials.
Just as local party officials often blame the trade
network for consumer-goods supply problems, retail
trade officials are fond of reproaching industry for
delivering the wrong quantity and assortment. Indus-
try officials in turn point to insufficient or late
deliveries of the raw materials they need to manufac-
ture consumer goods. There is merit in all of these
complaints. But the key to the side-by-side existence
of shortages and surpluses is the lack of strong
interest by factories in the marketing side of their
operations.
Furthermore, gross value of output and sales indica-
tors used to measure enterprise plan fulfillment have
caused additional product-mix distortions. In several
cases, industry has been able to increase the value of
ruble output without increasing the actual amount of
production by raising the share of higher cost goods or
by introducing "new" goods with a price higher than
justified by changes in production costs. Manipulating
the assortment plan in this way leads to retail price
inflation, as consumers pay higher prices for goods
that are essentially the same as lower priced items no
longer available.
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Table 9 Million units Figure 45
US and USSR: Retail Sales of Washing Machines in Use,
Major Consumer Durables, 1982 Selected Years
Radios
6.0
44.1 c
Refrigerators
4.6
4.4 d
Washing machines
3.7
6.4 d
Vacuum cleaners
2.9
7.6 d
Tape recorders
3.2
28.9 d
Note: In 1982 the Soviet population was 16 percent larger than the
US population (270 million persons in the USSR and 232 million in
the United States).
a New and used cars; about 80 percent were new.
b New cars only.
c Production.
d Manufacturer's shipments.
rcentage of US (units per 1,000 population)
US level
Q
Table 10
USSR: Lag in Production
of Consumer Goods
Figure 46
Refrigerators in Use, Selected Years
Soviet as a percentage o
f US (units per 1,0
00 population)
D
ate of ~-
--
inn
U
SSR
West
Color tel
i
i
ev
s
on 1
967
1954
Digital electronic watch 1975
1972
Hand-held calculator 1
975
1971
Video recorder 19
75
1968-69
Quartz electro- 19
mechanical watch
77
1972
Source: R. Amann, J. Cooper, and R. Davies (eds.), The Techno-
logical Level of Soviet Industry, Yale University Press, New
Haven, 1977.
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Despite much official rhetoric devoted to the need to
increase product quality, the results have not been
impressive. An article in an issue of the official retail
trade journal declared, "The situation with regard to
the quality of consumer goods, in our view, not only is
not improving, but on the contrary is giving cause for
more anxiety as time goes on." The share of output
from light industry with the "Seal of Quality"-
meaning that the product meets international stan-
dards-was 13 percent in 1981.
Although this is better than the 2 percent cited in the
Soviet press for 1975, complaints about product quali-
ty at all levels are still endemic and show no tendency
to abate. The USSR Ministry of Light Industry, for
example, considers 40 percent of the textile industry
output in the Russian Republic (as well as several
other republics) to be substandard. According to data
gathered by trade inspectorates, 15 percent of the
furniture produced in the USSR is defective. In 1981,
according to USSR Minister of Trade Struyev, spot
checks by trade inspectorates of goods delivered to the
trade network showed 9 percent of the fabrics and
leather footwear and 7.5 percent of the clothes to be
of unacceptably low quality.
Although trade enterprises have the right to reject
goods that do not meet the quality standards claimed
for them and to exact fines in return, they seldom
exercise it. Only obviously defective goods are turned
away, and fines usually are not sufficient to compen-
sate for the quality differences. In addition, retail
trade organizations must meet sales targets and are
thus reluctant to reject goods that they stand some
chance of selling. Consumer dissatisfaction with the
trade network is not limited to the poor quality of
goods. Some of the chronic spot shortages and erratic
distribution occur because there is not enough inven-
tory in wholesale organizations to shift goods quickly
in response to the shifting requirements of retail
outlets.
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The USSR has made significant improvements in
health care over the past 25 years, but lately it has
been having increasing difficulty coping with the
changing health patterns of an older, more urban, and
more industrial population. As noted in the demo-
graphic section, the population in both the United
States and the Soviet Union is getting older because
of slower population growth. Between 1960 and 1981,
the proportion of those 60 and older increased by
roughly similar amounts in both countries (table 11);
but from 1981 to 2000 aging in the USSR will
accelerate, with the share rising from 13 to 17
percent, while the United States will be changing
more slowly-rising from 16 to 17 percent.
Changing patterns of residence and occupation also
affect health status. Rural-to-urban migration and
industrialization can increase the population's expo-
sure to harmful substances. Changing patterns of
consumption, particularly increasing tobacco use and
alcohol abuse, also pose health care problems.
Maintaining health standards in the face of these
demographic and social changes calls for devoting a
larger percentage of national resources to health care.
In the United States, the share of GNP used for
health care increased from 5 percent in 1960 to 8
percent in 1983. In contrast, the Soviet share stayed
constant at only 2 percent. In comparative terms,
Soviet per capita health expenditures fell from less
than two-thirds of the US level in 1960 to about one-
The resources devoted to health care in the Soviet
Union were not enough to prevent rising mortality in
nearly every population-age group (table 12). The
USSR is the only major industrial nation in which life
expectancy is lower now than it was 20 years ago.
Male life expectancy there is estimated to have fallen
from 66 years in 1965 to 62 years in 1982, while in
the United States it rose from 70 to 75 years. Soviet
males at birth can expect to live 12 years less than
Soviet females (figure 47).
Table 11
US and USSR: Percent of Populations
60 and Over
1960
13.2
9.4
1981
16.0
12.7
2000
16.9
17.3
Although the Soviet health care system is extensive
(37 physicians per 10,000 compared with 19 per
10,000 in the United States) and available to everyone
free of charge, the quality of service is uneven. The
general public is served by a system of hospitals and
outpatient polyclinics that provide a relatively low
standard of care. According to several observers and
emigres, drugs are difficult to find, hospitals are
overcrowded and dirty, and a patient's family must
often bring food from home to supplement the hospi-
tal diet. Facilities in rural areas are particularly
inadequate, largely because qualified personnel find
work in outlying regions unattractive. In contrast, a
closed system of hospitals, clinics, and dispensaries
with superior facilities is administered by the Minis-
try of Health's Fourth Main Administration for high-
ranking party, government, and policy officials. Some
ministries maintain their own health service systems,
which presumably offer better care and serve as an
Because of the disparity in health services, some
Soviets are opening their pocketbooks to buy better,
more personalized care than the state provides them
free of charge. The few legal fee-for-service clinics are
apparently heavily used, and under-the-table pay-
ments to medical personnel are pervasive. An illegal
payment of 1,300 rubles, for example, may be neces-
sary to ensure that a patient gets a surgeon with
above-average skill. Beyond health care availability,
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Table 12
US and USSR: Change in Mortality
by Age Between 1966 and 1976
80
US USSR a
0-1 -7.4 5.0
0-4 -1.7 1.8 60
5-9 -0.1 -0.1
10-14 -0.1 -0.1
15-19 0 0
20-24 0 0.1 40
25-29 -0.1 0.1
30-34 -0.3 0.4
35-39 -0.4 0.6 20
40-44 -0.5 1.4
45-49 -0.8 1.8
50-54 -1.4 1.4
0 1960 80 1960 80
2 3
55-59 - 2 2
60-64 -2.2 1.7
65-69 -6.1 2.5
70+ -11.8 9.2
a The last year for which the USSR published mortality data by age
was 1976. Soviet data are given as two-year averages-for example,
1965-66 for 1966; from Murray Feshbach, The Soviet Union:
Population Trends and Dilemmas, Population Reference Bureau,
Vol. 37, No. 3, August 1982.
Deaths per 1,000 Figure 47
Life Expectancy, 1960 and 1980
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the system faces other challenges: conflicting institu-
tional goals, lack of preventive care, poor training,
and technical bottlenecks. These are now being tack-
led, but whether successfully so remains to be seen. To
keep hospital death statistics low, for example, a
Western physician who has written a study on Soviet
medicine reported that Soviet authorities have en-
couraged "hopeless" patients to check out and return
home so that the hospital will not be investigated for
exceeding its "death quota." At the same time,
hospital stays are prolonged, providing employment
for many through medical make-work, but this con-
tributes to a higher incidence of hospital-induced
A major difficulty is that the Soviet system has
focused on curing illness rather than preventing it.
Soviet statistical data show that diseases that are
easily controlled in other countries run rampant in the
Soviet Union. Influenza, for example, kills tens of
thousands of Soviet babies annually, and rickets
remains one of childhood's scourges. The United
States no longer keeps statistics on rickets because it
is so rare. The Soviet typhoid fever rate per 100,000
population in 1979 was about 30 times that in the
United States, and the measles rate was over 20 times
as high. Whereas 70 percent of cervical cancer cases
in the United States are identified in their early,
potentially treatable stages, 60 percent of Soviet cases
are not recognized until they are terminal.
So far, the Soviet Union's economic plan has given
low priority to developing and producing equipment
that Western doctors associate with modern medicine.
According to a published study by a US doctor, the
USSR operates only a few dozen kidney machines,
and its few hundred available pacemakers are import-
ed. Disposable equipment-syringes, needles, tubing,
and bedding-are in short supply. The low priority
given to other consumer-oriented sectors results in
additional shortages. When output goals in other
sectors are not met, the supply to the medical sector of
such nonmedical goods as automobiles, building mate-
rials, and textiles becomes erratic. Because of fuel
shortages, for example, only 30 percent of the gas
requirements for emergency vehicles are being met.
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The shortage of housing in the Soviet Union is severe.
An estimated 20 percent of city dwellers still share
their living space with unrelated families or singles.
Determining the magnitude of the shortage is diffi-
cult, however, because the Soviets do not publish
statistics on the number of households. We have
estimated the housing deficit by comparing the num-
ber of housing units constructed with the number of
marriages. In 1982, marriages outnumbered housing
units built by 766,000 (deaths would of course have
reduced this total demand for new units).
Seeking to control this demand, the regime has
limited the creation of new households by refusing to
put singles on lists for available housing. But at the
same time it keeps rents down through large subsidies,
spurring demand by making rents easily affordable.
On the supply side, the primary reason the USSR has
not built more houses is the inadequate priority given
to their construction in investment decisions. In addi-
tion, the rising cost of new construction-reflecting an
increase in the average size of new dwellings, the
provision of more utilities, and the increased costs of
materials-has limited the number of units built. =
Soviet per capita housing expenditures, which had
been less than 20 percent of the US level in 1960,
were as little as 10 percent in the early 1980s, as US
growth rates in per capita expenditures for housing
(3 to 4 percent a year) outstripped Soviet rates (1 to 2
percent a year). Not surprisingly, Soviet consumers
have a much more limited choice. The government
owns three-quarters of all urban housing (almost
entirely apartments) and controls its construction and
distribution. The wait for an apartment can be as long
as 10 years, although the average is substantially less.
Priority is often determined by a worker's position or
the importance of his place of employment. In con-
trast to the United States, where the poorest housing
is often concentrated in the core of urban areas,
Soviet housing policy has scattered substandard hous-
ing throughout the cities, as well as in a band on the
peripheries.
Living quarters in the USSR are far less spacious
than in the West. In the 1920s the Soviets set a
national minimum standard for "health and decency"
of 9 square meters of "living space" per urban person;
this is equivalent to 13.5 square meters of "general
space"-about the size of a room 12 feet by 12 feet.
The Soviet Union as a whole has exceeded this by
providing an average of 14 square meters of general
space per capita in 1980. The 14 square meters
compares with the US figure of 49 square meters of
general space per capita. (figure 48).
Conditions are worse in rural areas. Most urban
housing comes equipped with electricity, indoor
plumbing, hot water, gas, and central heating; but in
rural areas the typical privately owned one-story
wooden home lacks indoor plumbing and central
heating, although it now has electricity. According to
published Soviet statistics for 1980, for example, only
38 percent of state-owned rural housing units in the
Russian Republic were connected to central water
supply systems and 22 percent to sewer lines; 26
percent had central heating. In both urban and rural
areas, the quality of new construction in general is
shoddy; for example, only roughly 40 percent of
housing turned over for occupation in the Russian
Republic each year is rated "satisfactory" or better.
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Figure 48
Housing Space, 1980
Note: Housing space consists of living space (bedrooms and
living rooms) plus hallways, kitchens, bathrooms, and closets.
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Transportation
The typical Soviet citizen depends much more heavily
on common carriers than his American counterpart-
in part because of the regime's greater emphasis on
public transportation, but also because of the undevel-
oped nature of the Soviet auto industry, road system,
and support services. In 1982, for example, the vol-
ume of intercity passenger traffic by common carriers
was more than twice as large in the USSR as in the
United States; 85 percent of all US intercity travel
was by private automobile, even though the United
States is trying to encourage greater use of common
carriers. Soviet travelers used railroad transportation
almost 20 times as much as US travelers did; air
travel was the most used US form of common carrier
intercity transportation (figure 49). The patterns are
similar in intracity transportation: Soviet streetcars,
trolleys, subways, and local buses carried more than
six times as many passengers as US local systems. E
The Soviet Union has entered the age of the automo-
bile, but it will be a long time before driving a
passenger car in the USSR approaches the ease and
convenience taken for granted in the West. The Soviet
inventory of cars in 1980 was roughly where the US
inventory stood in 1920-and even this represented
considerable progress (figure 50). Soviet auto produc-
tion more than tripled between 1970 and 1975 as the
Fiat-designed and Western-equipped Volga Motor
Vehicle Plant came on line (figure 51). Growth in
production slowed during the 10th Five-Year Plan
(1976-80), as the Soviets shifted from large increases
in production capacity to improvements in the manu-
facturing processes.
The expansion in the inventory of private automobiles
has brought with it many of the same problems that
the United States experienced at a similar stage of
development. The US market responded relatively
quickly to those problems, however, whereas the less
flexible, highly centralized Soviet system has been
slower. For example, there are not enough gas sta-
tions, spare parts, repair shops, or parking spaces in
the Soviet Union to meet the burgeoning demand. By
one estimate, there was one Soviet gas station for
every 1,250 cars in the late 1970s, when there was one
US station for every 430 cars. As might be expected
under such circumstances, people turn to the black
market. Selling gasoline from state-owned trucks is a
widespread practice, even though the penalty is heavy.
Many people turn to the black market to obtain spare
parts or repair services, often at very high prices.
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Figure 49
Passenger Travel Between Cities
by Common Carrier, 1982
J
Figure 51
Production of Passenger Cars,
Selected Years
Figure 50
Private Ownership of Automobiles,
1960 and 1980
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Appendix A
Derivation and Significance
of the Geometric Mean Measure
in International Comparisons
A consistent comparison of two economies can be
made when both national outputs are expressed in the
monetary unit of one country or the other. The
generally preferred procedure for making internation-
al economic comparisons is to convert each country's
GNP into the currency of the other country (for
example, to express the Soviet GNP in dollars and the
US GNP in rubles). The two GNPs can then be
compared in two different terms-rubles and dollars.
The two comparisons will yield different results. This
phenomenon is commonly known as the index number
problem, and it results from differences in the relative
amounts and prices of goods and services found in
each country. Goods produced in relatively large
quantities in a country tend to sell at relatively low
prices there, and scarce goods at higher prices. Invest-
ment and defense goods account for larger shares of
output in the Soviet Union than in the United
States-that is, they are more plentiful; therefore, the
Soviet GNP is a larger percentage of US GNP when
comparisons are made in dollars, since dollar prices
place greater weight on investment and defense goods
The lack of a single quantifiable comparison can be
presentationally awkward, so economists by conven-
tion often resort to the "geometric mean" as a basis
for a single comparison. In the case of two countries,
the geometric mean is the square root of the product
of the two comparisons. However, the theoretical
justification of the geometric mean as a valid average
indicator in economic comparisons is disputed. Abra-
ham Becker argues against its use in US and Soviet
comparisons because "the average reflects neither the
dollar nor the ruble price pattern and in principle,
therefore, is simply wrong."' Paul Samuelson, on the
other hand, believes that use of the geometric mean
"does seem more evenhanded." B This paper adopts
the geometric mean convention, but the reader should
remember that a geometric mean represents neither
the ruble nor the dollar comparison. Soviet GNP in
1984 was 63 percent of US GNP when both are
measured in 1976 dollars, and it was 43 percent of US
GNP when both are measured in 1970 rubles; calcu-
lated with the geometric mean, it was 52 percent. If
all of this sounds confusing, solace may be found in
the words of the late Rush Greenslade:
The GNP ratios have a broad, general, far from
precise meaning, one which tends to disappear if
you try to pin it down. Like a faintly fragrant
flower, it can be apprehended by gentle inhala-
tions, but an attempt to extract the scented oil and
subject it to chemical analysis will ruin it alto-
gether.
' "Comparisons of United States and USSR National Output:
Some Rules of the Game," World Politics, vol. XVIII, No.1,
"'Analytic Notes on International Real Income Measures," Eco-
nomic Journal, September 1974, p. 608.
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Appendix B
Problems in Measuring
Quality Differences
Measuring quality differences is a thorny problem in
any international comparison, but it is particularly
troublesome in a US-Soviet comparison because the
two economies are in such dissimilar states of develop-
ment. This appendix discusses how quality differences
are handled in two important areas: consumption and
Consumption
In quantitative expressions, the comparisons of US
and Soviet consumption may be close to the mark, but
as carriers of quantitative and qualitative notions
about relative levels of living in the two countries they
surely overstate the Soviet position. Several diverse
considerations bear on this point. First, there is the
question of accuracy of the product and price match-
ings of consumer goods and services in the sample.
The greatest accuracy attaches to the samples of food
and clothing products, and a lesser degree to services.
To the maximum extent possible, the matchings al-
lowed for differences in the qualitative aspects of the
product by making appropriate adjustments in the
price ratios. For goods, most of these adjustments
were made by qualified US manufacturers and retail-
ers. For services, they were largely analysts' judg-
ments, based on a variety of relevant evidence. In the
case of health and education services, where the
comparison is based on inputs, they are assumed to be
of equal quality in the two countries-on the principle
that "a doctor is a doctor." The inferior training of
Soviet medical personnel is thus ignored (emigre
doctors must be radically retrained to practice medi-
cine in the West). Also ignored is the presumably
better quality of US health care (and perhaps educa-
tion), which is associated with this country's having
On the less tangible aspects of quality, the bias of our
quantitative comparisons is unmistakably in the
USSR's favor. All observers, along with a strident
Soviet press, agree that Soviet-manufactured goods
are sadly deficient in style, design, and attractiveness,
when compared with Western models. The compari-
sons in this study could not take into account these
important aspects of consumer satisfaction. Similarly,
allowance could not be made for the notoriously poor
quality of retail services in the USSR; only the added
costs are reflected in product prices. The same point
holds for other kinds of services; differences in the
location where they are provided-an ingredient of
usefulness-could not be captured in relative prices.
The inferior quality of Soviet distribution and service
facilities and of services per se is the direct legacy of
the "second-class" status long accorded the service
sector in the government's scheme of resource alloca-
Another source of upward bias in the US-Soviet
comparisons is the fact that the sample of goods and
services necessarily reflects the Soviet mix much
better than it does the US mix. Simplicity, standard-
ization, and slowness to modernize design are hall-
marks of the Soviet production pattern. Hence,
matches often had to be made using a US item that-
while roughly equivalent to the typical product pur-
chased by Soviet consumers-is not representative of
purchases in the United States. This problem affects
consumer durables in particular. To illustrate: the
price ratio for refrigerators is based on a comparison
of the typical Soviet one-door, seven-cubic-foot unit
with a small (nine-cubic-foot) US apartment-size unit
that is not at all typical of the sales mix in the United
States. For sewing machines, the typical Soviet model
was judged to be a copy of a Singer model of the
1920s. The Soviet semiautomatic washing machine
was matched with a US apartment-size model that
could hardly find a market.
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Still another source of bias is to be found in the
monotony in color, style, and design that character-
izes the Soviet mix; the variety factor differs among
products, of course, but the difference must be at least
fivefold in most relevant cases. A Soviet consumer has
a limited choice, partly because the planners' choices
rather than his own preferences determine the diversi-
ty of product mix, and partly because producers, in
response to the incentives facing them, have consis-
tently preferred quantity production of a few stan-
dardized items. For these reasons, also, the US-Soviet
comparison is bedeviled by the problem of unique
products-a stumbling block in any international
comparison of an advanced country with one consider-
ably less advanced. Numerous products-for exam-
ple, dishwashers, toaster ovens, blue jeans, and air
conditioners-that are common in US households
could not be included in the sample, because the
USSR either does not produce them at all or produces
them in miniscule quantities.
Another nonquantifiable aspect of the comparison of
consumption relates to the balance of supply and
demand, both in the aggregate and for individual
goods and services. The Soviet Government fixes the
prices for consumer goods and boasts of the stability
of the retail price level. Yet, overall excess demand in
consumer markets is frequently in evidence, manifest-
ing itself in a rising marginal propensity to save, much
queueing, and black markets. More serious, however,
are the pervasive disequilibriums in the supply and
demand for individual goods and services. A mass of
anecdotal evidence demonstrates this situation. Ran-
dom shortages prevail-toothpaste today, soap pow-
der tomorrow, film the next day, and on and on in
infinite variety. Random surpluses accompany the
shortages. Sewing machines pile up at retail stores in
Moscow, but are not to be found in Frunze; unsalable
surpluses of clothing and footwear appear periodical-
ly, and the goods must be heavily discounted in price
or scrapped. Consumers spend inordinate amounts of
time standing in line or trudging from store to store in
search of desired items. These perennial features of
the consumer milieu in the USSR cannot be captured
in any international comparison of prices and quanti-
ties, but they are important aspects of utility.
Machinery
Similar problems affect the machinery comparisons.
For historical reasons, however, they are handled
differently. Unlike consumer items, Soviet and US
machinery items were matched on the basis of func-
tion and performance. In this type of matching, US
counterparts need not resemble the Soviet items in
physical design or characteristics. The crucial criteria
are that the US items perform the same function(s) as
the Soviet items and approximate as closely as possi-
ble the Soviet level of performance. For example, in
matching a US truck to a Soviet model, the US truck
not only must be of the same type (perform the same
function) but also must have about the same load
capacity and power (have the same level of perfor-
mance). If more than one US analog matched the
Soviet item to the same degree, the cheapest one was
selected.
In matching Soviet machinery items, US analogs
were not adjusted for differences in performance
specifications and quality. Both deficiencies in data
and complexities in methodology stand in the way of
normalizing the ratios for these differences. The
problem is a serious one, since these differences may
not be offsetting and could lead to a cumulative bias
in the results. In general, the Soviet items in the
machinery sample tend to be technically inferior (do
not match the capabilities of US counterparts) and of
lower quality (less durability)--all tending toward the
overstatement of the value of the ruble with respect to
the dollar. Almost certainly, adjustment of prices to
take account of all differences in performance and
quality would lower dollar values (or raise ruble
values), and thus raise the value of the ratios.
25X1
25X1
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 Sanitized Copy Approved for Release 2010/04/12 : CIA-RDP86T00591 R000300460003-9
Confidential
Confidential
Sanitized Copy Approved for Release 2010/04/12 : CIA-RDP86T00591 R000300460003-9